Moving from shareholder capitalism to stakeholder capitalism requires more than just talk…
During the early days of the COVID-19 pandemic, business across a range of industries were making headlines for prioritising their profits ahead of their employees and their suppliers.
Bloomberg reported that European and US fashion buyers cancelled around $1.5 billion in orders from Bangladesh alone, where the garment industry employs more than 4 million people and accounts for 13% of their gross domestic product.
Amazon fired two employees for calling out the unsafe working conditions in the warehouses. Auto parts companies delayed payments to small vendors, forcing them into financial hardship. And big companies reneged on rents to their landlords despite having the funds to pay for them.
Whilst all of these are examples of an immediate reaction to an unexpected, global pandemic, the willingness of brands to put short-term gain ahead of every other consideration has its roots in the shareholder capitalism.
This ideology comes from Milton Friedman in 1970 when he declared that business have – as their sole responsibility – the mandate to increase profitability for their directors and shareholders.
Chris Marquis, author of Better Business: How the B Corp Movement is Remaking Capitalism, writes in a recent B Corp report that in shareholder primacy everything other than profit is considered an externality – ie. not the business’ problem. This often includes the employees, the local community, the people in the supply chain or the natural world.
The good news is that the tide is turning – some of it from within business itself, but also from the general public whose consciences are rising. In all the examples of bad business behaviour mentioned above, there was a public outcry from peers to consumers and even to investors with Amazon’s stock value dropping after its scandal.
‘These public criticisms are demanding that businesses do better by considering and taking care of the lives they touch and the natural world they extract resources from – they are calling for wider adoption of a stakeholder governance model to build a more equitable, just economy.’
A movement to stakeholder capitalism has to be more than simply greenwashing a business’ public face.
It requires structural re-alignment to ensure people and planet have just as much priority as profit. And one way to demonstrate that deep commitment is by becoming a certificated B Corp.
‘The B Corp movement,’ Chris says, ‘provides a new model of businesses that can be accountable and transparent to their stakeholders and uphold high standards for measuring and managing their stakeholder impacts. Such standards are what separates true stakeholder governance from the corporate social responsibility (CSR) initiatives found in many companies, most of which are not an integrated component to the business core.’
A holistic measurement framework
Helping businesses move from talk to action is the purpose of the B Impact Assessment, the free online assessment tool created by B Lab to measure a company’s social and environmental impact.
Even if you’re not sure that you’re ready to go for a B Corp certification, it’s an incredibly useful exercise to run through with a small working group within your organisation.
When a company goes through the assessment the first time, it gives them a baseline reading on five key areas in the business: governance, workers, community, environment and consumers. Without knowing how you currently measure up, it’s hard to know how to map your next few steps.
And by having a holistic framework in place, you can measure the same things year on year and see your progress as you put new operating practices in place.
Here are a few more benefits to becoming a B Corp
- Greater customer loyalty as you lead with your values and communicate authentically
- Happier employees who are motivated and engaged with their work
- Retaining talent for longer without the expense of high employee turnover
- Positive impacts on local communities, society as a whole and the environment
- Increased revenue and business resiliency
- Access to a supportive global network of like-minded brands leading their industries
‘Businesses have a big role to play in a capitalist society,’ Chris said. ‘They can tip the scales toward the benefit of the few, with toxic side effects for all; or they can guide us toward better, more equitable long-term solutions.’
Which side do you want to be on?