Stakeholder Capitalism: A Renewed Impetus for Business Results and Purpose Interconnectedness
As we embark into a new era framed by extreme uncertainty and market volatility, corporations are being urged to find new impetus to harmoniously balance aggressive business targets set by the street, while gaining the hearts and minds of all other stakeholders through an intentional and transparent demonstration of their purpose. Stakeholder capitalism, whereby corporations are serving more than just shareholders in their business activities, is an evolving concept supported by some of the largest institutional investors in the world. Business leaders are feeling the mounting pressures and scrutiny coming from all angles ranging from consumers, patients, shoppers, communities, employees, suppliers, and governments.
Additional forces are pulling in similar direction; just a few months ago, the World Economic Forum stated in the latest Davos Manifesto that, “The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large. The best way to understand and harmonize the divergent interests of all stakeholders is through a shared commitment to policies and decisions that strengthen the long-term prosperity of a company”.
As if this was not enough, BlackRock, the world’s largest asset manager, with $7.81 trillion in assets1 under management, is calling for a new investment order, in which sustainability, inequality, geopolitics, and the joint macro policy revolution warrant a “fundamental rethink of investment portfolios”. BlackRock CEO, Larry Fink, in a letter to the leaders of all their invested companies underlines that, “a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders”, adding that, “ultimately, purpose is the engine of long-term profitability”. Fink predicts an imminent and significant reallocation of capital, anchored in transparent disclosure by companies, and warns they are “increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”
This sentiment is similar to thoughts from former PepsiCo CEO Indra Nooyi, known for ongoing battles against quarter-by-quarter short-term results-driven mindsets in the midst of significant long term transformation and fundamental long term sustainability of the organization. She stated, “We’ve purpose into how we run the company, and how we make the money; that is a sustainable model. that’s what performance with purpose is all about”.
From government policy standpoint, the appointment of Brian Deese, BlackRock’s Global Head of Sustainable Investing, as the new Director of National Economic Council under Joe Biden signals a stronger commitment to sustainable policy by the incoming administration, reassuring their commitment to a balanced climate change regulation with realistic economic measures.
As corporation leaders set to tackle the complex task of planning over the next few years, the mounting pressure grows to provide a clear path to the long-term viability of their business inclusive of environmental, social, and governance considerations. Consumers, employees, and communities will seek out companies with clear purpose, while regulators will be stringent with compliance abidance, and investors will choose to place their funds with companies that are better positioned for a successful sustainable growth.
In searching for holistic and comprehensive stakeholder returns, we offer leaders three key strategic pillars to set the foundation of their business transformation: Business Innovation, Strategic Enterprise Destination, and Purposed Diversity.
Business Innovation: The call to action towards stakeholder responsiveness must be anchored in innovative design thinking that encompasses product innovation at minimum, expanding into process, business, and culture innovation. Building an innovative engine within the organization requires rewiring traditional problem-solving paradigms within the organization to shift into reframing traditional product and process challenges; in our experience most innovations fail by poor framing of the challenge leaders aim to solve. Trying to contribute across a wide range of stakeholders requires unlimited innovative thinking, unconventional approaches to problem solving, aiming to support multiple constituents faster, better, safer, and with the right return of investment. Centering innovation at the core of this transformation will propel organizations towards achieving complex expectations and enabling the organization to be profitable over time.
Strategic Enterprise Destination: Quarter-end pressures push leaders to compromise long- term aspirations at the expense of short-term results. Defining a clear and compelling map for the enterprise destination will enable all constituents of the organization to understand its purpose, expectations, and targets to be achieved over a much longer period of time. The development and consistent adjustment of a strategic Enterprise Destination Map will also instill transparency in target setting and achievement disclosure inside and outside the organization. A well-aligned cascading connection across vision, guiding principles, goals, and tactics will pave the road ahead and set the organization up for success. Carrying out an ambitious yet achievable plan will lay out the foundation to organization leaders in their pursuit to long-term investments, countering short-term pressures from shareholders. Being able to articulate the enterprise destination not only allows for clearly stating the organizations purpose, but also to detail out how it intends to achieve it, while returning positive outcomes to the entire stakeholder range.
Purposed Diversity: Creating a diverse and inclusive workplace is no longer a nice-to-have, but an essential component of long-term business success. Companies with inclusive cultures are more likely to have better business outcomes and exceed financial targets while at the same time being responsive to the needs of all constituents. The time is now to focus on your talent and make data-backed decisions to incorporate diversity, equity, and inclusion into all areas of your business aligned with your purpose. An intentional focus on diversity, equity, and inclusion doesn’t only make business sense, it’s the right thing to do. Prioritizing impact by focusing on awareness, intentional action, and accountability will prove to be a key pillar in the transformation towards a long-term viable business through the lens of stakeholder capitalism.
As leaders look ahead into the future of their organizations, and the stakeholders connected to them, they are encouraged to be considerate in how they balance their immediate business activities and at the same time, keep moving towards the long-term vision. Executing on the long terms and regularly communicated with stakeholders on progress toward the stated purpose is critical to delivering against the evolving shareholder expectations.
In the era of stakeholder capitalism, differentiated leaders are urged to find a renewed impetus for business and purpose interconnectedness. By applying a stakeholder versus shareholder lens in business innovation, strategic enterprise destination mapping, and in diversity, equity, and inclusion initiatives, business leaders can begin to transform their culture into a business that creates sustainable value creation for all.
1 As of Q4 2020