Embedding Project
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Why Stakeholder Capitalism Is Not Enough

The shift to stakeholder value

An increased focus on employees, suppliers, communities, customers, and other stakeholder groups represents an overdue rejection of shareholder capitalism; a perspective on business that became prominent in the 1970s and has influenced corporate operations and decision-making ever since. At its core, a stakeholder (vs shareholder) view discards the notion that the corporation exists exclusively to create value for its shareholders (including its leadership) while meeting the demands of the market. This view also rejects the idea that the impacts caused in that process are not the company’s concern, unless legally required.

Shareholder View to Stakeholder View. CC BY-SA 4.0. Embedding Project.

The limitations of stakeholder capitalism

At the Embedding Project, we have interviewed hundreds of senior leaders and worked with dozens of leading global companies for over a decade to help them factor the needs of their environmental, social, and economic context into their core strategy and goal-setting processes. From these engagements, our research, and the events of the last few years, it has become clear that a stakeholder view represents a positive shift but does not adequately enable companies to address the disruptive risk that is posed by the declining resilience of socio-ecological systems across the world.

1. Positive contributions here don’t offset adverse impacts there

Once your company realizes that stakeholder groups are negatively affected by its actions, your response may be to make contributions or support initiatives aimed at benefiting those groups. The basic version is a free pizza lunch for a team that has consistently worked overtime. Or, after realising that your highly paid employees contribute to income inequality and housing affordability in regions where you operate, you may decide support affordable housing or shelters for those without homes. Or to encourage the acceptance of, say, a new energy-intense data center, you may promise local jobs or local supplier opportunities.

2. Companies need to do more than balance interests

Your company, like all companies, has limited resources and you need to make strategic decisions about how you use those resources. Realistically, your company can only act on a limited set of expectations. So, responding to the expectations and needs of all your stakeholders quickly becomes an exercise in balancing various interests. Priority often goes to meeting expectations most aligned with achieving company objectives and to responding to those stakeholders with the most influence, which can entrench social inequities.

3. Meeting stakeholder expectations may not yield long-term sustainability

A stakeholder lens can certainly help your company to see that it has interests in common with its stakeholders.

Shareholder View. CC BY-SA 4.0. Embedding Project.

4. A stakeholder focus risks ignoring the bigger systems at play

You’ve no doubt read between the lines by now. A focus on stakeholders alone obscures the fact that companies rely on more than positive, beneficial stakeholder relations and shared value initiatives for their long-term business success.

What does this mean?

So, stakeholder capitalism has some concerning limitations. What does that mean for your company?

Shareholder View to Systems View. CC BY-SA 4.0. Embedding Project.

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Embedding Project

We are a global public-benefit research project that helps companies embed sustainability across their operations & decision making.