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Stakeholder capitalism matters

Updated: Oct 4


Covid puts spotlight on health, ethics and community.

Companies building a positive reputation during the Covid-19 pandemic are ‘doing the right thing’ for stakeholders, not just shareholders.


They are contributing to the greater good in a time of need and communicating effectively with customers, employees, partners, communities and other stakeholders.


Companies behaving this way are adhering to what is known as ‘stakeholder capitalism’. The concept is that a company's purpose is to create long-term value for all stakeholders rather than focus solely on shareholder interests. This includes creating value for customers, dealing fairly and ethically with suppliers, and supporting communities in which companies work.


Support for stakeholder capitalism has gathered momentum in recent years with the emergence of environmental, social and governance (ESG) priorities for a more sustainable future. There is growing evidence that these priorities are having a big impact on the decisions customers and others make. Companies taking a long-term view — and stakeholder capitalism requires that — perform better, according to McKinsey & Company. In fact, they outperform competitors in earnings, revenue, investment and job growth.


The concept of creating value for all stakeholders is in line with the views of economist Michael Porter who argued that a narrow view of capitalism has prevented business from harnessing its full potential to meet society's challenges. “Every firm should look at decisions and opportunities through the lens of shared value. This will lead to new approaches that generate greater innovation and growth for companies — and also greater benefits for society.”


The message for company leaders is that they should take their head out of the numbers and focus on the bigger picture that includes an organisation’s mission, vision and values.


Stakeholder-first approach


When the coronavirus struck, stakeholder capitalism gained fresh impetus because it pushed society to prioritise health first and foremost, restored the importance of local communities and prompted discussion about inequalities in the workplace and in society. In this environment, the values of solidarity, fairness, responsibility and compassion enjoy the same status as financial success.


Organisations are therefore under pressure to address stakeholder needs in ways that benefit ‘the greater good’ while implementing strategies to survive the economic downturn and adjust to new customer habits such as buying online.


The benefits of a stakeholder-first approach are manifold, for example, creating a safe and healthy work environment results in stronger employee loyalty and an enhanced ability to attract the ‘best and brightest’ employees. Such outcomes will reinforce a company’s brand and be an integral part of a reputation-building communication programme.


Reputation management


When developing a public relations plan to a build a reputation as a champion of stakeholder capitalism, start by setting goals because they will provide direction for communication strategies and tactics. The details of the plan will determine what is said, how it is said, when it is said and to whom. Core values and messages emphasising what is important to the company will be key elements in the communications mix.


Despite the strong links between a good reputation, ESG priorities and stakeholder capitalism, the traditional focus on bottom-line financial results will continue in companies that define success by meeting investor targets.


However, in the era of mass communication, a small detail about a company’s activities can take on a life of its own which is something that wasn’t possible in 1970 when economist Milton Friedman argued the social responsibility of business was to play fair and increase profit. Today, when stakeholder expectations aren’t met, new communication technologies enable the media and influencers to make mountains out of molehills. For example, companies ignoring customers who prefer carbon-positive options, do so at their peril.


Intangible asset values rise


Another driving force for stakeholder capitalism is the rising value of intangible assets such as corporate reputation. On the S&P 500 – a share market index tracking the performance of 500 large companies listed on stock exchanges in the United States – there has been a migration of value from tangible to intangible assets over nearly two decades. Intangible value now accounts for around 80 percent of the value of the S&P 500 although only around one-third of the value of utilities and energy companies is intangible, according to author Jonathan Knowles.


With the pendulum swinging towards the multi-stakeholder model, a comment by Winston Churchill comes to mind: “You can always count on Americans to do the right thing − after they've tried everything else”. The inference is that sometimes the right thing isn’t done until easier options have failed.


If this is the reality for your organisation, developing a stakeholder-capitalist mindset and an effective communication plan are steps in the right direction.


Contact us today on julian.nixon@axispr.co.nz or call 021 02393303.


#stakeholdercapitalism #reputationmanagementnz #esgcommunication #nzprfirms #strategicprnz


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