From Shareholder Capitalism To Stakeholder Capitalism

Currently at the heart of the global debate is the search for the best managerial strategy to enable the transition from a model of capitalism focused exclusively on profit to a capitalism of widespread interest, which considers all stakeholders as the bearers of legitimate interests in the company. The transition is significant because it goes beyond the stakeholder involvement model, already tried and tested in many companies and rich in best practices, to propose a kind of collective shareholding determined by the interests represented and not only by the shares of capital held. And if for the managers of a large company, the discourse is complex, for entrepreneurs and managers of SMEs, it can be incomprehensible (and crazy).

In 2019, the CEOs of the 180 largest US companies, members of the Business Roundtable (BRT), declared that implementing Stakeholder Capitalism would become their priority. Management would no longer have to serve only its shareholders but also provide value to customers, invest in employees, deal fairly with suppliers, and support the community in which it operates. This revolution overturned what the BRT CEOs had stated 22 years earlier when they said management's primary purpose was maximising shareholder returns. This is not the usual 'hot air', of which we know the recipe perfectly well, but an accurate statement of purpose, by which and for which to be measured and paid.

How has it gone since then? As always, accounts are made with the innkeeper; this time, the innkeeper was (and is) called Covid-19. For BRT CEO Josh Bolten, the CEOs are fulfilling their commitments, but many remain deeply sceptical that there has been (and may be any time soon) significant progress. A recent study by the Ford Foundation showed that CEOs still need to produce a substantial change in the face of the Covid-19 pandemic. But, what matters to me is that CEOs signed that declaration and consider it the perfect reflection of what they believe, namely that companies cannot prosper in the long run or adequately reward their shareholders without investing in the stakeholders that make success possible.

Before Covid-19 hit hard, many of the companies in the Business Roundtable had begun to increase their investments in employee training; salary increases, benefits recognition and support of the community in which (and for which) they were doing business. Not only that, in responding to the pandemic, companies awarded bonuses and raises to frontline workers, provided medical equipment for the community, and funded research labs to develop a vaccine. The CEOs of these companies also lobbied policymakers to assist the people and small businesses affected by the crisis. They also intensified initiatives to promote racial equality and diversity in their companies. All this occurred in the US, during an epochal pandemic and in a political context that certainly did not favour such approaches.

So why did they do it? Because it is the most intelligent and far-sighted choice. Of course, activating an implementation model that is anything but intuitive is necessary also because it involves applying managerial criteria that bring their benefits in the medium to long term, with a strategy aimed at continuity and not short-term maximisation.

Is there a rational and balanced model that allows entrepreneurs and managers to move from shareholder capitalism to stakeholder capitalism? I believe yes, and I think the path is below. First, Erich Joachimsthaler, an expert in strategy, innovation and branding, has given me great help. Last September, he published the book The Interaction Field: The Revolutionary New Way to Create Shared Value for Businesses, Customers and Society.

The first step is to develop so-called hyper-connectivity. I am referring to the means of connection (social, etc.) and the people with whom we connect. No one is superfluous; we are all part of contemporaneity's social, historical and economic fabric. It is naive to think we can carve out this fabric to our liking and convenience. I am reminded of that beautiful 1996 book by Fritjof Capra (The Web of Life), in which Capra looks at the shift from linear to systematic thinking in science, showing how advances in a wide range of fields, from evolutionary biology and chaos theory to quantum physics and computer science, signal an emerging paradigm that differs radically from the mechanistic model of classical science. He compares this shift to the Copernican revolution, suggesting that the new perception of reality has profound implications for science and philosophy and economics, politics, health, education and everyday life. He writes: 'The new paradigm may be called a holistic worldview, seeing the world as an integrated whole rather than a dissociated collection of parts. It may also be called an ecological view if the term 'ecological' is used in a much broader and deeper sense than usual. Deep ecological awareness recognises the fundamental interdependence of all phenomena and that, as individuals and societies, we are all embedded in (and ultimately dependent on) the cyclical processes of nature." (The new paradigm can be called a holistic worldview, which sees the world as an integrated whole rather than a dissociated set of parts. It can also be called an ecological view if the term 'ecological' is used in a much broader and deeper sense than usual. Deep ecological awareness recognises the fundamental interdependence of all phenomena and that, as individuals and societies, we are all integrated - and ultimately dependent - on the cyclical processes of nature). According to this view, the concept of hyper-connectivity should be conceived. It is to relate to all the 'ecological' components of the socio-economic system: customers, companies, suppliers, software developers, regulators, competitors and all the 'people and things' with which we directly and indirectly interact. Those who still believe that the value chain starts in the company and ends in the company's results are living in an abstract world which has already been dead for at least two decades. The value chain starts and is realised in the entire environmental context in which the company is immersed. Only by thinking about platforms, digital ecosystems and networks can one create the shared value that ultimately rejoins the profit of the individual company.

While waiting for a macroeconomic implementation of the stakeholder capitalism model, it is possible to begin a corporate or microeconomic journey. There are three steps:

1. Frame the company correctly
2. Create an ecosystem
3. Share the value created
4. Frame the company correctly

A company is typically framed in an industrial, commercial or service context according to the sector or category schemes. But, in stakeholder capitalism, correctly preparing the company requires leaders to redefine framing, extending the concept of 'sector' to all players that, in various ways, define the set of interdependencies within the same socio-economic system. The word 'sector' will replace the 'field of interaction'. The corporate framework, in this way, becomes much broader, with the advantage of increasing the potential sources of benefit. The process must culminate in implementing a digital interaction field that defines how all stakeholders create value. Let's try a concrete example; imagine that an industry supplying agricultural machinery is interconnected with farmers through a digital network that allows shared data such as soil conditions and farming operations. A series of in-house controlled business technologies - weather monitoring sensors, telemetry, AI and learning machines - will collect, aggregate and analyse field data and share it with farmers. This will enable farmers to monitor crops in real time, improve yields, reduce agricultural costs, identify water problems and reduce water and other resource use. The more frequent, precise and widespread these interactions are, and the richer the data exchanges between the farm and the farmers and between the farmers themselves, the more significant the potential impact on farm productivity.

Creating an ecosystem

The second step requires the creation of an ecosystem, which has an open architecture in which data is shared so that all partners in the ecosystem can pool their skills, knowledge and experience. Who would be the stakeholders? Customers, associations, universities, institutions, suppliers and direct and indirect competitors. This requires a careful design of knowledge and data-sharing rules and policies. Returning to our example of the agricultural machinery company, it would create value in the ecosystem by fostering interactions with farmers, seed producers, fertiliser companies, software developers, technology providers and other stakeholders who can directly influence farm productivity. Creating an ecosystem also means interacting with those entities that exert an indirect influence on value creation. These could be state or local institutions, academic research centres or even competing companies with which to share standards that reduce the costs of implementing and managing technologies. Collaborations with administrative institutions can direct policy decisions to improve the legislative framework of the field of interaction.

Sharing the value created

Once the field of interaction has been identified with all its players and the digital ecosystem has been created, the next step is to define a system that involves all stakeholders, creating a gravitational pull towards creating shared value. This creates a new competitive advantage. The greater the number of interactions between all participants, the greater the value creation of the entire system through new sources of competitive advantage known as network, learning and viral effects. It is not easy to build such a system of shared value creation. Returning to the example above, if data show that a field can be managed with less fertiliser, this might save farmers money and protect the environment, but it would hurt the fertiliser companies. The good news is that systems can be designed to address these negative impacts through market growth. While there may be less fertiliser use on an individual farm, the overall fertiliser market may grow through new environmentally friendly solutions.

Stakeholder capitalism is timidly emerging in some sectors such as metallurgy, e-commerce, automotive, insurance and other interaction fields (we have said that 'sector' is an outdated term...). Therefore, every C-level should prepare themselves on the concepts of stakeholder capitalism and interaction field to learn how to serve all stakeholders, not least the owner of their company.