Stakeholder Capitalism is a management approach where a company considers not only the pursuit of profit but also the interests of society, the environment, and all stakeholders. In this article, we will explore what Stakeholder Capitalism is and the efforts corporations are making in this direction.
Q. What is Stakeholder Capitalism?
A. Stakeholder Capitalism is a management approach in which companies consider not only the pursuit of profit but also the welfare of society, the environment, and all stakeholders involved.
Here, stakeholders include not just employees but also customers, suppliers, the local community, shareholders, and the natural world. It's a concept where a company's purpose is not just to make money, but to fulfill its social responsibility to all stakeholders.
To put this concept into more concrete perspective, think of a company as a large ship. This ship sails through the sea (the local community) and receives necessary resources from ports (suppliers). On this ship, there are various passengers: the owners of the ship (shareholders), those who row (employees), and the passengers (customers). Also the vessel travels through the ocean and has to cope with wind and waves which may be pleasant or else threatening.
In Stakeholder Capitalism, the company's management must consider the safety and well-being of all these passengers and ports. As a cruise ship promises a happy and safe journey for everyone, a company must pursue profits while simultaneously considering the interests of employees, customers, suppliers, the local community, shareholders, and our fragile planet.
Q. How is Stakeholder Capitalism Different from Shareholder Capitalism?
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| (Photo Credit : International Volunteers) |
A. Shareholder Capitalism primarily focuses on maximizing shareholder interests and stock value. In contrast, Stakeholder Capitalism goes beyond profit to emphasize social value with responsibility toward all people involved or affected, and the natural environment as well.
This concept emerged as the perception of corporate roles and responsibilities evolved during the 1980s. A particularly significant moment was in 1984 when Professor R. Edward Freeman of the University of Virginia introduced the fundamental concepts of Stakeholder Capitalism in his book "Strategic Management: A Stakeholder Approach."
The 1980s and 1990s were times when Shareholder Capitalism was emphasized. During this period, corporate objectives were aligned with maximizing shareholder value, often leading to the neglect of other stakeholders' interests, including employees, consumers, and the environment.
Against this backdrop, Stakeholder Capitalism, emphasizing corporate social responsibility and ethical management, became increasingly important. This shift gained even more momentum after the global financial crisis of 2008, as there was a growing recognition that businesses should strive to exert a positive impact on society as a whole. Environmental responsibility also became a major concern, as Mother Earth is an important player in the game.
The Four Pillars of Stakeholder Capitalism
The concept of Stakeholder Capitalism is built on four pillars, guiding companies to play a positive role socially and ethically beyond solely profit-making, based on the thoughts of Professor R. Edward Freeman. Let's take a look:
1. Sustainable Value Creation: Companies should grow by positively impacting society and the environment in the long term. This could mean manufacturing environmentally friendly products or engaging in activities that contribute to community development.
2. Stakeholder Inclusiveness: In all decision-making processes, companies should listen to and consider the interests of all stakeholders, not just shareholders. This includes employees, customers, local community, nature itself, and future generations.
3. Social Responsibility: Companies must bear social and ethical responsibilities. For example, supporting fair trade or helping the socially disadvantaged.
4. Collaboration with the Community: Businesses should collaborate and grow with the local community in solving its problems.
Q. Why is Stakeholder Capitalism Becoming More Prominent?
A. Changes and Challenges in the Global Economy
Recently, the world is facing complex issues such as rapid technological changes, increasing economic inequality, climate change, and resource depletion. These challenges are perceived as difficult to resolve through the traditional shareholder capitalism model, leading to the need for a new management model.
The COVID-19 Pandemic and Its Aftermath
In 2020, the COVID-19 pandemic spread globally. This crisis brought climate change, economic, health, and social issues to the forefront, serving as a catalyst for urging greater social responsibility and roles on the part of businesses.
The Five Principles of Stakeholder Capitalism
At the 2020 World Economic Forum Annual Meeting, five principles of Stakeholder Capitalism were presented against the backdrop of current global challenges.
These principles emphasize that businesses should go beyond mere profit-making to bear broader social and ethical responsibilities, playing a crucial role in addressing today's complex global issues. The key principles are as follows:
1. Stakeholder-Centered Management
This principle emphasizes that in all decisions, businesses should consider not only shareholders but also employees, customers, suppliers, and the local community. Apple, for instance, is renowned for actively incorporating customer feedback into user-friendly products and also considers various stakeholders by maintaining ethical relationships with suppliers and adopting sustainable production methods for environmental protection.
2. Respecting Employees' Rights
Companies should provide a safe and respectful working environment. Employees can fully exercise their abilities under such conditions. This covers a wide range, including labor conditions, compensation, respect for human rights, and workplace diversity and inclusion.
3. Ethical Management
Conducting business in a transparent and ethical way is essential to build trust and ensure long-term success. This includes anti-corruption measures, fair trade practices, and sincere communication.
4. Efforts for a Sustainable Future
In today's serious climate crisis, it is crucial for companies to protect the environment and operate sustainably. This includes energy efficiency, sustainable resource use, eliminating air, water and solid waste pollution, and reducing carbon footprint.
5. Reinvesting Profits
For companies, reinvesting a portion of their profits back into society can include corporate social responsibility activities, community development projects, and support for educational and health programs.
Stakeholder Capitalism Example: Patagonia
The globally beloved brand among MZ generation, 'Patagonia,' an environmentally focused clothing brand, setting the standard of ‘Best Practice’ exemplifying benevolent Stakeholder Capitalism.
● Stakeholder-Centered Management
"Footprint Chronicles" Initiative: This initiative provides transparent consumer information about how Patagonia's products are made and their environmental impact. It openly shares with customers the production process and its environmental implications, encouraging sustainable consumption.
● Respecting Employees' Rights
"Child Care": Patagonia operates a "Child Care" program for its employees, supporting them in harmoniously managing work and family life.
● Ethical Management
"Fair Trade Certified": Patagonia runs the 'Fair Trade Certified' program for ethical management up and down its supply chain. This program enhances ethical manufacturing processes by ensuring fair wages, safe working environments, and respect for workers' rights at all stages of the supply chain from raw material source to market.
● Efforts for a Sustainable Future
"Worn Wear": This program accepts back used Patagonia products in good condition from customers for reuse or recycling. It aims to encourage sustainable consumption, extend product life, and thereby reduce environmental impact.
● Reinvesting Profits
"1% for the Planet": Patagonia operates the "1% for the Planet" campaign, donating 1% of its sales to environmental protection organizations.
These efforts of Patagonia reflect the company's goal to minimize environmental impact through the use of sustainable materials and ethical manufacturing processes.
Toward a Better Future
As exemplified by Patagonia, Stakeholder Capitalism opens new horizons in corporate management, encouraging companies to become significant and exemplary agents taking leadership in fulfilling valuable social roles.
Now is the time for us to take thoughtful action. When we, as consumers, express warm approval of companies practicing Stakeholder Capitalism, these businesses are further motivated to create deeper social and environmental values.
This supports companies' efforts toward leaving a healthier planet for future generations. Never forget, our interest and support in Stakeholder Capitalism is the driving force behind creating a better world!
“To embrace the future,
we must expand the scope of vocations that can herald the coming of peace.
Even though we may never meet our descendants, we must make sure that all their activities will harmonize in peaceful societies and nations.”
-Dr. Hak Ja Han Moon
Founder of Sunhak Peace Prize-
Written by: Yeon Je Choi