Stakeholder Capitalism: Latest Call or Last Call for Ethical Business?

February 17, 2021
Kathleen Brennan

The calls for business to adopt a more stakeholder-centric form of capitalism during the World Economic Forum’s “virtual Davos” gathering sounded a bit like déjà vu to many of us in the responsible and ethical business movement.

Progressive chief executives and business leaders, such as Blackrock’s Larry Fink and Salesforce’s Marc Benioff, at last month's gathering pressed other leaders to adopt net-zero and standardized metrics for ESG is very good news for our world.

But it is old news for those of us who have been promoting business to act in the interests of all stakeholders, and not just shareholders long before the emissions, accounting, and fraud scandals of the last few years.

The question for business: Will leaders finally respond to the call for ethics to be at the very center of business decision-making?    

"Leadership is about trendlines and not headlines," is something we hear often from LRN Chairman and Founder Dov Seidman. He says it often because, of course, it is true. Seidman attended the Davos Agenda meeting along with LRN’s Chief Advisory Officer Ty Francis. LRN has been a part of the World Economic Forum community for the past decade.

The trendlines over the past 30 years have been pointing business toward a more human, moral vision and articulation of capitalism. What seems clear is if leaders don’t respond to the call this time around, their organizations won’t find themselves in business for very long.

Why?

LRN has long held scandal happens when there is an overabundance of leadership and cultural focus on achieving financial returns at any cost.

It’s only through a strong societal mission; a purpose that inspires people to do the right thing for people, the planet, and common prosperity; and systems, structures and the right leadership that reward performance through principles that a company will survive and thrive over the long-term, particularly in today’s climate.

It’s not hyperbole to say the challenges businesses face today, unlike in decades past, are truly existential. Business is trying to operate during a period of unprecedented and simultaneous crises. Social, political, geopolitical, environmental, human, and ethical issues are not tangential but central to the business agenda.     

Technological advances have exposed the public to once-hidden realities of corporate culture and workplace behavior. As a result, stakeholder expectations are that companies behave ethically, responsibly, and make positive contributions to society. Those same technological advancements are holding business leaders feet to the fire and their organizations accountable to living up to their commitments.

While the trendlines have been clear for decades, there are some headlines coming out of last month’s Davos meeting that indicate business leadership is not just talking about reform, but taking concrete steps to correct the systems that previously have made reform so difficult.

One of those positive headlines came when more than 60 business leaders, including members of the World Economic Forum and its International Business Council, committed to a set of stakeholder capitalism metrics. At LRN, we believe this matters because only through common metrics that measure and demonstrate performance against ESG goals can we ensure positive contribution to the stakeholders business serves, and any chance of achieving the United Nation’s Sustainable Development Goals.

Underpinning many of the sessions throughout the week were the findings of the Global Risks Report 2021, stating increasing disparities and social fragmentation will continue to threaten the economy in the years to come.

2020 proved, if evidence was needed, that risk can arise quickly, from anywhere, and without notice. Understanding risk will only help strengthen response and resilience, a critical goal of any effective ethics and compliance effort.

Another hopeful sign from Davos was a global coalition of 54 organizations representing 13 industries and 6.5 million employees committed to building more equitable and just workplaces.

The initiative ensures each company commits to one tangible policy change, one board discussion and a new long-term strategy to create a new set of global standards for racial equity, actions critical to building cultures of inclusion, fairness, justice, and respect.

If you’ve been in ethics and compliance long enough to witness the pinball habitually travel from issue, to apology, to calls for reform, only to come back to issue once again, you may not be ready to say it’s game over for the old form of capitalism. But the headlines and the trendlines gives one hope that it does feel different this time.

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