Is anyone succeeding at stakeholder capitalism?! (Yes! And you can, too.)

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In a famous 1970s New York Times article, Milton Friedman wrote that the purpose of a corporation is to maximize profits and therefore shareholder value.?

This statement was a reaction to what we know today as stakeholder capitalism. Friedman believed companies were dabbling in community service and politics too much. Leaders, in his opinion, were forgetting what it took to run an effective, sustainable business.?

Unfortunately, companies focused on maximizing shareholder value in the form of profits –– to the detriment of everything else. And this led to some horrible unchecked behavior over the past 50 years.

You could say that the rise of stakeholder capitalism and the impetus for the Business Roundtable’s 2019 statement is a backlash to this kind of shareholder capitalism. Instead of only focusing on profits, companies are now thinking about all stakeholders. In fact, 181 CEOs signed that statement and it’s still publicly available.?

But…are they really? What does stakeholder capitalism look like today? Well, it looks good on paper, but:

It doesn’t have any teeth!

Here’s one good thing that came out of the Business Roundtable statement:?

Very (very) few CEOs would publicly say, “The whole purpose of our organization is to return value to our shareholders. Forget our customers, forget our employees, forget society, forget the environment, forget the supply chain. All we care about is profits.”

And that’s huge.

But the reality is it was just a statement. There’s a big difference between saying you support something and actually doing it.?

There’s no teeth! All those 181 CEOs did was sign a piece of paper –– they didn’t really commit to making meaningful change.?

Sure, we’re now calling out companies for engaging in bad behavior, like Wells Fargo who’d been interviewing women and minorities without any intention of hiring them –– just to meet diversity numbers.?

But, again, we continue to see egregious behavior.?

There are some bright spots, though.

The surprising example Bank of America is setting

In Just Capital’s rankings, released on January 10, Bank of America came out on top.

I know. I was surprised, too.

I’ve been following Bank of America for the last decade, especially since Brian Moynihan took over in 2010. (Wow, did he inherit a mess!)

But the company has turned things around.?

One of the commitments they made was to increase the minimum wage to $25 an hour by 2025. This increase addresses a number one concern among Americans: to be paid a living wage. And guess what? They’re on track to meet their goal, having just increased minimum wage to $22 an hour.

Bank of America also offers 16 weeks of paid parental leave, which is much more than most companies. They provide flexible scheduling, too.

Environmentally, they’re committed to being net zero by 2050. But they’re not just doing scope one carbon emissions (which affects a company’s direct emissions from products and services). They’re undertaking scope three, which encompasses everything, from the supply chain and their suppliers’ emissions to their customers’ emissions. That’s unheard of! Most companies are committing to scope one –– and only 19% of banks and 32% of Russell 1000 companies have even committed to that.

So how can you follow in Bank of America’s footsteps?

Put the customer at the center –– of everything?

In The Practice of Management, Peter Drucker wrote that the only valid purpose of a corporation is to create a customer. The way to make money is to deliver value to your customers. The goal isn't to increase your profits and return money to shareholders; the goal is to serve your customers. If you do that well, you’ll increase the company’s value and return that value to your shareholders.?

Roger Martin, former dean of the Rotman School of Business at the University of Toronto and a mentor of mine, talks about the idea of consumer capitalism, too, and the importance of designing your entire organization around customers.?

Most companies don’t do this very well. They organize around products or services, instead of focusing on the customer and working backwards from there. But you can put the customer at the center. Here’s how to get started:

• Pivot your focus. Invest in your relationship with your customers. Yes, this means you’ll need to be much more agile, find different ways of working, move faster, organize less hierarchically, and think more disruptively. But the organizations who thrive are the ones focused on their future customers –– not just who they serve today.?
• Engage your employees. Who are your employees? How are they adding value to your customers? How are they helping you achieve everything on your agenda? Instead of thinking of them as a cog in the wheel, ask yourself what they need and how you can treat them better so they can do a better job, too.?
• Define your metrics. How will you measure your customer-centricity? How will you determine if you’ve met their needs? How will you even understand their needs and wants? Some of the metrics in Just Capitol’s ratings are an excellent starting point, but each company is different, so think about how you’ll know, “Hey, we’re doing a better job with this.”

Truthfully, we have a long way to go. But I’m encouraged by what I see. There’s a movement afoot –– and you, a disruptive leader, are at the center of it. Your willingness to change the way you think about work and how you deliver work will have a massive impact on your organization. But remember: It’s one thing to talk about advocating for change. It’s another to actually do it.

That goes for metrics, too. You have to measure them! And that’s what I’ll be talking about next week. Join me on Tuesday, January 24 at 9 am PT / 12 pm ET for a great discussion about metrics and how to measure value. It will be the third installment of our stakeholder capitalism series, so I hope to see you then as we continue this conversation!

Your Turn

Can you think of any companies creating value for their stakeholders –– not just their shareholders? I’d love to hear examples of who’s doing a great job talking to and serving multiple stakeholders. Please share your thoughts in the comments below! I love hearing from you!