The State of Stakeholder Capitalism With Edward Freeman, the “Father” of the Movement

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Who better to catch up with on the state of Stakeholder Capitalism but R. Edward Freeman, Professor of Business Administration at the University of Virginia Darden School of Business. His 1984 book “Strategic Management: A Stakeholder Approach” helped give rise to the extensive research on the benefits and methods of managing and addressing all stakeholders in an organization, rather than focusing specifically on the interests of shareholders. This has earned him the designation as a “father” of Stakeholder Capitalism by organizations such as JUST Capital.

Click here for Freeman's Linked in profile: https://www.linkedin.com/in/r-edward-freeman-98b8897/

Stakeholder Capitalism is in the “fifth” inning but has a long way to go and still faces the risk of becoming another bright shiny object. That’s a key conclusion from this Enterprise Engagement Alliance Youtube show, part of a comprehensive and rapidly growing library of insight and practical how-to videos with experts in all areas of engagement.

Here is a summary of some of the many insights in this program.

• We’re in the fifth inning of a nine-inning game, but there is no going back. Pressure is coming from investors, customers, employees, communities, and regulators.

• Focusing on definitions can be a distraction and an excuse for not taking action…Stakeholder Capitalism is an overall movement of which Stakeholder Management is an operational method. It’s a big tent: There is plenty of room for distinct approaches, such as Conscious Capitalism, Inclusive Capitalism, Economics of Mutuality.

• Stakeholder Capitalism is a better way of doing business and should not be confused with Corporate Social Responsibility. Successful business can be about profits and people and doesn't have to be a trade-off.

• While there has been much progress, large systemic obstacles remain that might require generations to overcome—starting with having boards and CEOs who fundamentally believe in the economics and societal benefits and who are committed to the ongoing work of baking the principles into the organization’s systems and culture on a day-to-day basis.

• The concept of Stakeholder Management and Theory are taught in many business schools but are not commonly integrated into the education program for management in leadership, finance, human resources, marketing, sales, operations, etc., helping to reinforce the siloes standing in the way of greater harmony.

• Forcing public companies to disclose information about human capital certainly draws attention to the importance of the subject but has to proceed with much caution because each company is different and metrics can lead to check-off-the-box or even unethical behaviors.

• The use of the term “human capital” minimizes the true value of people by trying to monetize them when their true value is in their individuality, creativity, and ability to push back and/or innovate. One shouldn’t have to give into the need that everything has to have a bottom line without taking into account the value contribution of individuals.

• How do we address the education issue? We have to get to the young people.

• While government action is not necessary to promote Stakeholder Capitalism, he believes it can further the cause by promoting great companies and creating incentives for companies that invest in addressing social disparities, as long as it can be done with controls against graft.

• The biggest risk to the movement? It just becomes another buzzword or what Robert Reich recently slammed as white-washing. It’s a fundamental shift in the way companies operate and the change for some might seem like hard work, but the result is greater efficiency, better experiences for all stakeholders, more sustainable profits and a more prosperous and healthy society.

• The arguments of Lucien Bebchuk and some colleagues at the Harvard Law School are not worthy of much time because Stakeholder Capitalism requires no changes in corporate governance: it is simply better business.

• Stakeholder Capitalism is not a panacea. It’s a better way to do business but it does not protect companies from failures due to poor market timing, under-financing, poor management, inability to attract talent, etc.
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Management
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