Better Work, Better World: Your Roadmap to a More Profitable and Purpose-Driven Business

When future generations look back at how you built your organization, will they see just another company that made money or one that helped reshape business into a force for good?

As business leaders, we find ourselves at a precarious moment in time. We know so much more about what it takes to build and sustain a successful business than we did only a few decades ago. Yet at the same time, we seem to trust our newfound and hard-won knowledge less than we ever have.

In today's fast-changing world, businesses that want to succeed need to think differently. It's no longer enough to focus purely on profits. Companies that truly want to thrive need to elevate their thinking, value proposition and reason for being. In short, they need to make a positive impact on the world. That's where stakeholder capitalism comes in.

By widening your focus to include the needs of your employees, customers, and the community in which you operate, you can drive real and lasting change—and yes, even better financial results.?

Get ready to learn how you can lead your company on this worthwhile journey.

The Evolution of Stakeholder Capitalism

Stakeholder capitalism is a management strategy that codifies a company's commitment to consider the interests of all stakeholders, including employees, customers, and the community. In contrast to shareholder primacy which emphasizes maximizing profits for shareholders, stakeholder capitalism takes a broader view of organizational success.?

The term "stakeholder capitalism" has seen a recent surge in popularity, but the concept isn't entirely new as businesses have always been part of a larger social system. Shareholder primacy really took hold in the 1970s and 80s after economist Milton Friedman argued that “The Social Responsibility of Business is to Increase Its Profits”. Since then, however, we've seen a growing awareness of how companies affect their stakeholders, leading us to where we are now.

These days, customers care more about a company's values than ever before. They want to know that the brands they support are doing good in the world, not just making money. Don’t expect commuters to proudly tote shopping bags emblazoned with the logos of perceived bad actors.?

Employees feel the same way. They want to work for companies that have a positive impact on the world around them. The past few years have really changed what workers want from their jobs. People began to question the role of work in their lives and wanted to feel like they were part of something bigger. Especially after the pandemic, employees started caring more about working for companies that aligned with their personal values.

At the same time, younger generations have espoused a strong focus on social responsibility and sustainability.This isn’t just a preference but an active choice—and remember that top talent always has a choice. 71% of workers aged 18 to 29 say they would leave their current employer for an organization that has a more positive impact.

The result of these shifts is a rise in stakeholder capitalism, as companies increasingly recognize the need to do more than just make a profit.

Putting Stakeholder Capitalism Work

Stakeholder capitalism requires us to acknowledge that the company isn't the only one with a stake in the outcome. Of course there are the shareholders, but also the employees, the customers, and the community where the business operates. The planet is a stakeholder too, and increasingly, society is also being factored into the equation. Basically, stakeholder capitalism gets everyone involved.

Stakeholder capitalism isn't just about profit; it's about having a positive impact. Companies that really embrace it see “business as a force for good” which is an expansion of the idea of what success means. It's about investing in things like happy employees, strong communities, and a sustainable future for everyone involved. I drew on these themes of interconnectedness and benevolence in my book Expand the Circle: Enlightened Leadership for Our New World of Work.

With stakeholder capitalism, the focus shifts from short-term gains to building long-term value. It's about operating in a way that benefits your employees, your customers, and your community, knowing it will pay off down the road. This approach means investing in things that might not boost this quarter's profits but that will strengthen your relationship with all those stakeholders in the long run.

There are a few ways companies formally organize to put stakeholder capitalism into practice. One popular way is the Environmental, Social and Governance (ESG) framework, where companies focus on their impact on the environment, their employees and society, and on good governance. There's also B Corp certification for businesses that want to put extra oomph behind their commitments. Publishing impact reports allows leading companies to be transparent with stakeholders about their progress. They also engage in dialogue with stakeholders to get feedback on what's working and what's not.

Four Forces Reshaping Business

A potent cocktail of powerful forces are gently—and not so gently—encouraging businesses to evolve toward stakeholder capitalism:?

• The Law. Legislation is forcing companies to play by a new set of rules. There are stricter environmental protections than 20 years ago, for example. We've seen new regulations regarding financial practices that protect consumers. Basically, the days of companies being able to focus purely on their own profits at the expense of other stakeholders are drawing to a close. There's much more focus now on how businesses interact with the world around them.

• The Consumer. Today, this is arguably the group driving the biggest change. People want to buy from companies that share their values. They care about sustainability, about the planet, and want to support businesses that give back to their communities. It's about feeling good about what you buy and believing that the companies you support are doing good in the world.

• The Worker. Employees, especially younger generations, want to work for companies that have a positive impact on the world. They want to make a difference and feel like their work has meaning. This has created a whole new dynamic where top talent gets to be picky about who they work for. If two companies offer similar salaries and benefits, chances are they'll choose the one with a strong commitment to making the world a better place.

• The Renaissance Leader. Today, we're seeing a whole new kind of entrepreneur and business owner. These leaders are just as driven to make a difference in the world as they are to build a financially successful firm. They see their companies as vehicles to do both—not just to make a profit. They're focused on sustainability, on giving back, and on making a positive impact on their communities.

Making the Transition: Steps and Support

If you want to make a similar shift, there are a few things you can expect.

There are different ways to structure your company around the idea of stakeholder capitalism. Some companies choose to become B Corporations, while others opt for a benefit corporation or a Low-Profit Limited Liability Company structure. Whether you choose a formal operating structure like these or simply add more stakeholder emphasis, the important thing is to prioritize social and environmental goals right alongside making a profit.

When you develop and execute a stakeholder capitalism strategy, the benefits can be significant. First, you'll stand out from the crowd. Customers really value companies that care, so you can expect more loyalty from them. And with a focus on looking after your employees, you'll attract better talent and enjoy higher employee satisfaction. This means higher employee engagement and employee retention which contribute to higher profitability. Being an enlightened business owner pays worldly dividends!

Shifting to stakeholder capitalism isn't always easy, however. It takes real commitment to being transparent and making positive changes in how your company operates. You'll have to show that this isn't just about talk, but that you're actually walking the walk. The good news is there are lots of resources and support systems out there to help your company along the way.

There are organizations and associations that focus on conscious capitalism. A local chapter can help you make the shift towards focusing on things like higher purpose and giving back. There are also specialized accounting and business advisory firms that do sustainability reporting and help design and communicate impact reports. My conversations with Sensiba LLP ’s Karen J. Burns, CPA and Jennifer Harrity, SEP have been particularly inspiring!

For more on Conscious Capitalism, check out my recent Lead the People podcast interview with Dr. Alise Cortez .

Follow the Leaders

Fortunately, we can look to those who have gone before us to light our path.

Companies like Patagonia are totally committed to making a difference. They're all about environmental sustainability, using recycled materials whenever they can, and even repairing your old gear instead of just getting you to buy new items. Their founder's decision to give the company's entire fortune to fighting climate change shows that Patagonia is walking the talk when it comes to putting the planet first.

Ben & Jerry's is a great example of a company that's found a way to do well by doing good. They've grown to become a huge company, but they continue to be known for their commitment to social progress. They source their ingredients responsibly, champion causes like climate justice, and even give back a portion of their profits to support community projects.

Bombas has really taken off, and it's not just just because of their socks (which are awesome). They offer a buy one, give one model where they donate a pair of socks to someone in need for every pair you buy. And they go the extra mile with special designs for people experiencing homelessness.

Warby Parker 's mission is to make prescription glasses affordable. They also do this with a buy one, give one model. Their 2023 Impact Report indicates they’ve given away 15 million+ pairs! Plus, they donate a portion of their profits to support eye care in developing countries.?

This type of positive impact isn’t restricted to the firm level. Acumen Group is an investment fund focused on supporting businesses in developing countries as a way to offset an embarrassing blight on our societal record. They dispense microloans and other kinds of funding to help businesses fight global poverty. CEO Jacqueline Novogratz , who leads the group, has really pioneered this model of using business to do good. Her TED video is a must watch.

You may be thinking, “That’s all great, but our business isn’t like that. We can’t donate one or solve global problems.” Reframe your thinking. No matter what business you’re in, you’re in a position to make a difference however small it may seem. Ripples create waves, after all.

Here are a few examples of what we do over at The Predictive Index :

• Financial. We operate a successful, growing business.
• Customer. Our clients are able to make better hiring, development and leadership decisions and improve the quality of work and life for their workers.
• Employee. Under the leadership of our stellar Chief People Officer, Jackie Dube , we regularly win employer recognition awards.
• Community. We arrange volunteer opportunities for our employees to participate in woodland clean up projects like that at Blue Hills Reservation nearby.
• Mission. Our mission of “Better Work, Better World” (and the inspiration for this newsletter edition’s title) reflects our commitment to something bigger than any of these stakeholder groups alone.

You may have to get a little creative, but a little goes a long way. If you want an in-depth look at how to create a “virtuous flywheel” regardless of what business you’re in, listen to my Lead the People podcast episode featuring Tammy Day.

Your Action Plan: From Assessment to Implementation

If you’re ready to take steps toward stakeholder capitalism—however big or small—here’s your roadmap:

1. Take stock. The first step is really about getting to know where you stand right now. You'll want to figure out who your stakeholders are—list out your employees, your customers, and the community you're in. Then, take a hard look at how your company impacts each of these. Be honest and look at the good, the bad, and the ugly. This will show you where you need to focus your efforts.
2. Gather round. Getting everyone on board is absolutely critical here. It's really important to make sure your whole leadership team is on the same page about stakeholder capitalism, and that you figure out how to get feedback from your employees. That means giving them some decision-making power to show you're serious about making a change. Allow them to get involved as many want to roll up their sleeves and help.
3. Map it out. This is a journey, so you need a map that shows where you want to be in the long-term future but also at shorter-term milestones along the way that will demonstrate you're on the right track. It's important to choose success metrics that fit your goals, and remember to be transparent about where you stand at every step of the journey.
4. Hit the books. Moving towards stakeholder capitalism is going to take investment, and no firm has unlimited resources. It's about making well-informed choices with what you have. Your team will need to make some tough calls, so be prepared for some friction. Stay focused on the big picture.
5. Set the score. When you’re ready, you may want to look into B Corp certification. This is a special designation that shows you're serious about making a positive impact. Think about whether the costs of getting certified will be worth it for your company, and figure out a timeline for making it happen.

PROOF Positive

You may be wondering where stakeholder capitalism fits into my management consulting model. (That’s what you were wondering, right?) In truth, I see stakeholder capitalism as the integration of the first eight levels of my Progressive Range of Organizational Functioning (PROOF) framework.

Those companies who adeptly execute a stakeholder capitalism strategy are able to tap into higher-order energy (Path of Purpose) which they can then put to work on mid-order (Path of People) and lower-order (Path of Production) needs across the business. Alignment removes friction and breaks down barriers to value creation. When we get it right, it’s a beautiful thing.

(We’ll leave the pinnacle ninth level for a future newsletter.)

Stakeholder capitalism has been a key element in my research into the future of work. If you're in an HR role and you want to make a difference, consider downloading this new ebook all about how to prepare for what comes next.

Bringing it Home

The world of business is changing, and the companies who will thrive are the ones that embody that change. Stakeholder capitalism isn't just about being a good corporate citizen, it's about building a more sustainable and equitable future for everyone.

Elevating our businesses in this way not an easy path, to be sure, but doing so represents the best of what we're capable of as an economic system and as a society. As Paul Polman and Andrew Winston write in their brutally honest Harvard Business Review article, "We need bold, decisive leadership and action to ensure a sustainable and equitable future for all."

Stakeholder capitalism is about realizing that when businesses prioritize people and planet alongside profits, we all benefit.

Are you ready to move beyond just making money to also making a lasting difference?

Looking for more next-level leadership inspiration?

Choose your own adventure:

• Subscribe to this Optimal Leadership Tips newsletter.
• Follow me on LinkedIn for daily leadership tips.
• Listen to my Lead the People podcast (powered by The Predictive Index)
• Join me on an upcoming Perspectives webinar (also powered by PI).
• Read my enlightened leadership book Expand the Circle.
• Enroll in one of my graduate courses at Boston College.