A Call to Action for Stakeholder Capitalism
If you have tuned in to the World Economic Forum 2020 you will have heard a lot about stakeholder capitalism as opposed to shareholder capitalism, the former creating value for shareholders versus the latter benefitting society at large.
Recently you might have come across the following headlines:
• Nearly 200 CEOs Say Shareholder Value Isn’t Everything (Forbes, Aug. 19, 2019)
• BlackRock to Hold Companies and Itself to Higher Standards on Climate Risk (Wall Street Journal, Jan. 14, 2020)
• Goldman’s Playbook for More Diverse Boards (New York Times, Jan. 24, 2020)
Status Quo: Shareholder Capitalism
CEOs continue to be hired, fired and compensated based on revenues, profits and share price metrics. Fund managers are rewarded based on how their investments performed relative to the market. Private equity companies acquiring start-ups are first and foremost concerned about the return on investment for shareholders.
Entrepreneurs, second-stage investors, public investors — all expect to be rewarded with financial returns. The same applies to employees, contractors and laborers — all expect to be rewarded with financial compensation.
Future: Stakeholder Capitalism
And yet we know focusing on merely shareholder value and not stakeholder value has led to some negative consequences, some of which are irreversible. A few CEOs highlighted in the above-mentioned articles have realized the short-term nature and short sidelines of this limited focus.
We need to broaden our focus to include all stakeholders in our processes and planning. That’s what ‘s referred to as stakeholder capitalism. And in order to accomplish that, we need new performance measurement systems.
Bridge the Gap
To calculate the true return on investment, we have to calculate the value of all resources used. What is the possibility that we can assess their value? Well, let’s see.
Let’s start by identifying all resources:
A. Company Assets (warehouse, factories, land, inventory)
B. Intellectual Capital (intellectual property, systems, procedures, protocols)
C. Natural Capital (air, water, land, minerals, forests, biodiversity, eco-system health)
D. Social/Relationship Capital (shared norms, key relationships, brand, reputation)
E. Human Capital (competencies, experience, motivations)
F. Strategic Capital (purpose, business model, governance, culture)
Here is my call to action for you:
What are your ideas to create performance measurement systems for all of these resources? For example, how do you value reputation or motivation? And what is the possibility of measuring the well-being of our economies based on these performance systems instead of the gross domestic product, which forces us to grow at any cost?
I don’t know, but at least I’m asking the question. How about you?