The association needs to reboot its pledge to support stakeholder capitalism.
by Gael O’Brien
The momentum for stakeholder capitalism has been growing for years. Decades of maximizing shareholder value created a different psychological infrastructure in companies that will need shifting. The focus on all stakeholders is a different mentality even if companies think they’ve always looked out for everyone. An August 2020 study illustrates the shift in mindset boards have made since COVID-19 in considering the impact of decisions on all stakeholders.
Business Roundtable companies haven’t said what’s changing to fuel their August 2019 pledge to a new purpose of a corporation. They committed to a big P Purpose: stakeholder capitalism and promoting “an economy that serves all Americans.” A recent survey found that 92 percent of Americans agree it’s important for large companies to promote an economy that serves all Americans. Only 50 percent believe that’s happening. The Roundtable association and companies need to not just promote that economy, but model it by showing how stakeholder capitalism and big Purpose take hold.
While the pledge’s one-year anniversary in August provided over 1,000 examples of companies’ investments, leaders didn’t advance how stakeholder capitalism will operate. Believing “we’re already doing it” sells short the complexities ahead. However, a promising step: a new World Economic Forum report on “Measuring Stakeholder Capitalism” addresses accountability. The 95-page document, with 21 metrics, was led by a Roundtable CEO and may be approved in January. Things are happening, but the pledge needs a reboot. Both the Roundtable and its companies need to consider the mindsets that can accelerate building trust to make the pledge and stakeholder capitalism real.
What the 2019 Pledge Promised
Leaders who signed the pledge committed to:
- “Delivering value to our customers…. meeting or exceeding expectations;”
- “Investing in our employees…. compensating them fairly and providing important benefits…supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.”
- “Dealing fairly and ethically with our suppliers…. committed to serving as good partners with the other companies…that help us meet our missions…”
- “Supporting the communities in which we work. We respect the people … and protect the environment by embracing sustainable practices across our businesses.”
- “Generating long-term value for shareholders who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with stakeholders.”
Meeting challenges
Several Roundtable CEOs participated in a Fortune article this month on how purpose shows up in their companies. Ironically, the energy of purpose isn’t showing up in the pledge’s skeletal, vague, generic bullet points 15 months later. We don’t know if in each Roundtable company, the bullets have been translated into the language of their individual stakeholders’ needs/expectations. Delivery depends on knowing what customers say “value” means, or what “important” benefits mean to employees, or what respecting people involves in communities. And how long-term value for shareholders aligns.
If more robust explanations of the pledge aren’t accessible to employees and others, how can purpose within and around the company begin to take root? If each company isn’t elaborating and confirming relevance within their organizations, leaders aren’t in a position to foster stakeholder capitalism at a foundational level. That makes them less informed and effective lobbying for whatever bigger picture policies or legislation may be needed.
Fueling stakeholder capitalism requires a continuous growth mindset rather than the mindset of already practicing stakeholder capitalism. The Roundtable association and member companies would benefit from consistently exploring what’s missing. What’s missing that could fuel 15 million Roundtable company employees and other stakeholders being part of an economy to serve them and all Americans?
Among skeptical appraisals of whether the Roundtable’s new commitment is credible, U.S. Senator Elizabeth Warren’s recent 11-page letter is a relevant mirror. She reflected back to Roundtable leadership the past practices, policies, behaviors and lobbying activity antithetical to their now new purpose of a corporation. With no information provided on how companies would operationalize the pledge, she wrote it appeared their new purpose statement “was simply a public relations stunt.” She asked the Roundtable again to fully commit to the principles stated, operationalize them and report on their progress.
The Roundtable response to Senator Warren didn’t address an implementation plan, but offered numerous examples of how their investments/actions align with the pledge. The tone reflected a “we’ve-got-this” mindset. Given the wealth of each company, they collectively can invest billions of dollars to drive changes. However, the transition to stakeholder capitalism also needs a culture shift. Leaders talking with teams about what’s changed, what needs to change and what the purpose means each day. It has to be a two-way conversation with feedback that turns into actions. Individual stakeholder groups know far more about being a stakeholder than leaders do.
Stakeholder Capitalism is a work in progress
Stakeholder capitalism can mean different things to different people. There’s a difference between focusing on all stakeholders when it works and creating a practice and culture requiring it, continually balancing interests. The mindset trained in maximizing shareholder value may have gravitated to all-stakeholders’ value but there are likely blind spots. Each Roundtable company operates out of its own culture and mission. However, in signing the pledge, each collectively took on shifting the paradigm to stakeholder capitalism. This means the 200 companies are in it together to create processes needed to balance focus on all stakeholders. It’s a mindset of continuous curiosity and learning.
Having stakeholder capitalism take hold will require many shifts, some pragmatic – like rethinking regulation or measurements to show value across stakeholders. A Forbes article, “Why Stakeholder Capitalism will Fail” argues that stakeholder capitalism is likely to repeat the pitfalls of the past. The article concludes the failure of 20th century leaders to balance multiple-stakeholder needs will happen again. Balancing stakeholder needs wasn’t a big issue in shareholder primacy. Now, it can torpedo companies’ successful pivoting to the new purpose of a corporation.
Roundtable association staff are known for their focus on policy perspective statements, marketing and lobbying for business interests, not stakeholder capitalism or social purpose. However, advancing stakeholder capitalism is now an association commitment. With companies of differing vulnerabilities, helping all members make a successful transition is essential.
In that vein, staff addressing multi-stakeholder needs might connect experts in appropriate fields with company experts to create a think tank environment of substantive options. In addition, two studies evaluating Roundtable first-year progress related to the pledge, indicate more work is needed:
- The Wall Street Journal, using Drucker Institute metrics, determined the Roundtable’s “Model of Capitalism Does Pay Off.” However, there was disparity in how companies were meeting the challenge. Studying 752 large companies, some Roundtable companies were top performers in each category of serving all stakeholders. Other Roundtable companies were bottom performers.
- The September 2020 “Covid-19 and Inequality” report, by the Test of Corporate Purpose Initiative found Roundtable companies didn’t excel. “Since the pandemic started, Roundtable signatories didn’t outperform their S&P 500 or European company counterparts on this test of corporate purpose,” the study reported.
“Can business really – and I mean really – rescue a world on fire?” asks Harvard University professor Rebecca Henderson in her new book Reimagining Capitalism in a World on Fire. She replies to her question “…I’ve come to believe that business not only has the power and the duty to play a huge role in transforming the world but also strong economic incentives to do so.”
It’s time for the Business Roundtable to do a reboot of the pledge, putting a foundation under it. How big purpose takes hold melds a beginner’s mindset of seeing realities clearly with the growth mindset of making what’s possible, possible. It’s time.
Gael O’Brien is a catalyst in leaders leading with purpose and impact through clarity, presence and connection. She is an executive coach, culture coach, speech coach and presenter. She publishes The Week in Ethics and is also a Business Ethics Magazine columnist, a Kallman Executive Fellow, Hoffman Center for Business Ethics at Bentley University, and a Senior Fellow Social Innovation, the Lewis Institute at Babson College.
