Is COVID-19 accelerating a shift from Shareholder to Stakeholder capitalism?

Before the last financial crisis, corporate governance was focused almost entirely on shareholder value. Companies were often run solely for the benefit of investors and shareholders, with an organisation’s strategy, goals and performance measures stated in purely financial terms, with heavy emphasis on quarterly results and earnings per share. Since 2008 though, there has been an increasing awareness of environmental issues and climate change, a steady shift to sustainable investing, and a changing emphasis on the purpose of the firm. Is it just to make money? Is it Peter Drucker’s contention that “There is only one valid purpose of a corporation: to create a customer.”? Should it be about more than that? For the smarter companies, it definitely is.

At the end of January this year, only a month before the COVID-19 crisis started to bite, the annual meeting of the World Economic Forum convened at Davos under the theme “Stakeholders for a Cohesive and Sustainable World,” with a key focus on how to establish a model of stakeholder capitalism that can address global challenges like societal divisions created by income inequality and the climate crisis. Over the last ten years there has been a shift in emphasis for some organisations. We believe that, in a similar way to the shift to working from home, collaborating using new technologies, or digital transformation initiatives, this current crisis is accelerating the shift in thinking towards the “stakeholder”. In any case it is our contention that having a different mindset is a key component of a “Mutable Business™” positioning itself as being in a permanent state of reinvention.

Why Stakeholders? Why think differently? If you’ve worked for a “business as usual” organisation, along with the “all about shareholder value” mantra, you may well have heard statements like “the customer is king” or “our people are our greatest asset”. For a Mutable Business™ none of those statements are fit for purpose, although they each contain an important degree of truth. How do you reconcile them, and what else should you be considering? Mutable Business™ thinkers agree with Jack Welch, the CEO of GE when, in 2009, he famously declared that concentrating on shareholder value is “the dumbest idea in the world.” We also agree with Marc Benioff, Chairman and CEO of Salesforce when he suggested in a Huffington Post article that this still-pervasive business theory is “wrong. The business of business isn’t just about creating profits for shareholders – it’s also about improving the state of the world and driving stakeholder value.”

A business strategy with too much emphasis on quarterly financial performance and earnings per share will fail in today’s business landscape and with today’s more Millennial and Generation Z based workforce. We can pull out other quotes from Jack Ma of Alibaba, Xavier Huillard Vinci Group, Paul Polman of Unilever, John Mackey of Whole Foods. We should have been thinking this way for a long time. 40 years ago Alvin Toffler, in his book The Third Wave, told us that the corporation “requires attention to multiple bottom lines – social, environmental, informational, political and ethical – all of them interconnected.”

How do we change corporate thinking in this direction? Our definition of a Stakeholder includes any entity, role or person who can have an impact on your organisation’s performance. So as well as shareholders and investors, that obviously includes your employees, customers, suppliers and business partners as well as the advisors they work with, but also the markets you operate in, the regulators of those markets, the media organisations and influencers that you interact with, and all of associated communities that your organisation and its people touch. Add in the governments of the countries and territories that your organisation operates in, and that is a big and diverse set of audiences and individuals to engage with. Each can have an impact on your business. Your actions and your attitude towards each of them will make them react positively or negatively. How you communicate with each of them will make the difference.

To do that we need a new kind of engagement that isn’t based on press releases, investor briefings, annual meetings and good words in the annual report. We need a new kind of approach to engagement and communications – a Mutable approach that embraces continuous reinvention, allowing you to communicate clearly and activate the right people at the right time. The approach needs to cover push, pull and interactive modes of communication. Each stakeholder is different. Each needs to be assessed, understood and communicated with appropriately and continuously. We believe a Mutable Business™ sees Stakeholder Engagement as a vital component across the business end to end.

Commitment to stakeholder engagement is more important now than ever amid the COVID-19 crisis. Employees need accurate reliable information, and more than anything they need trust. CEOs need to be managing the crisis well and staying highly engaged during these turbulent times. The way the organisation communicates and engages with all of its stakeholders, and tells them what it is doing to make things right, really matters. Inconsistent, imprecise or untimely communications and engagement creates uncertainty and kills trust quickly. What extra should you be doing?

Back on 1 April WEF joined with members of the business on community to endorse six Stakeholder Principles for the COVID era which are:

To keep employees safe.
To secure shared business continuity with suppliers and customers.
To ensure fair prices for essential supplies for end consumers.
To offer full support to governments and society.
To maintain the long-term viability of companies for shareholders.
To continue sustainability efforts, including to fight climate change.

It is clear this crisis has accelerated the shift in emphasis beyond shareholders. We’d urge you to take a look at our Mutable Business™ framework as a whole, but in particular look at our practical guide to how you achieve this more complete style of engagement. Better engagement with your stakeholders will be a key component in how your organisation handles what happens next, as well as the next crisis.