Skip to main content

Stakeholder capitalism: Not if but when

New research on board members’ views towards stakeholder capitalism suggests we are asking the wrong questions.

Stakeholder capitalism


In recent weeks, we have seen the debate about stakeholder capitalism resurface, fueled by the one-year anniversary of the Business Roundtable (BRT) commitments.

Arguments have ranged from what, if anything, has changed and the impact of COVID-19 diverting attention and resources; to the pros and cons of shifting to a new economic model; to concern the BRT commitments are a PR stunt or a toothless pledge.

New research conducted by A Bird’s Eye View on board members’ views towards stakeholder capitalism suggests we are asking the wrong questions. There is too much focus on the "if and what," and not enough on the "when and how to drive this forward." We should be thinking about the timescale for change, key factors that will influence the transition and how boards can help accelerate the shift.

Commit to a timeframe

Last year’s BRT commitment lacked a timeframe. Our research found that almost two-thirds of board members surveyed believe the integration of stakeholder capitalism principles into their governance model and practice will take up to 10 years. Twenty percent of board members don’t think it will occur at all.

New research on board members’ views towards stakeholder capitalism suggests we are asking the wrong questions.

This presents a disconnect with businesses’ goals aligned to targets such as SDGs and the Paris Agreement. Businesses will need to have strengthened their purpose and embedded the principles of stakeholder capitalism well in advance of these dates in order to achieve the commitments and change so urgently needed.

Such a long timeframe also risks being seen as tone-deaf to the massive societal change underway due to COVID and shifting stakeholders’ needs.

Revisit ‘purpose’

The BRT commitments were developed in a different era. They reflect a lack of appreciation for the limitations of today’s economic model revealed by the crisis, and the unsustainable dependencies on undervalued social, human and environmental capital business currently relies on.

COVID has shown us the weakness in our system and the need to reassess what’s important. Not only should there be more urgency to move but also a deeper obligation to address the social and environmental issues through a new economic model.

Get boards on board

Most of the BRT signatories did not seek board approval before making the stakeholder pledge, BRT CEO Josh Bolten recently revealed. Yet there is a growing argument that more effort is needed to embed stakeholder capitalism into boards’ decision-making, particularly from investors.

The research found two-thirds of board members think business has a growing responsibility to increase the wealth of society and not just shareholders. Over 80 percent are aware they need a better understanding of societies’ needs and the changing environment they operate in, and 76 percent will place a deeper priority on culture and human capital within their organizations.

Board members are aware of the rapidly changing environment and their growing legal and ethical responsibilities. Almost 50 percent of board members surveyed believe investors will place less emphasis on shareholder primacy and more on long-termism.

So if investors are not the barrier, why do they think the change will take up to 10 years?

Define metrics

The BRT commitment doesn’t address how to measure companies’ impact on stakeholders, according to Rebecca Henderson from Harvard Business School.

To create the shift, carrot-and-stick style arguments included executive remuneration, as reflected in the Davos manifesto 2020, through to the risk of legislative threat. However, the study revealed the threat of legislative enforcement influences only 15 percent of board members’ thinking on stakeholder capitalism.

To remunerate the creation of stakeholder value, board members say that clear new definitions, criteria and measures are essential. Some go even further, suggesting reward integrated into long-term plans should be allocated to all internal stakeholders, not just executives, and include 360-degree stakeholder feedback as a key measure.  

Values-driven transformation

The BRT’s commitments are transactional but lack empathy and a relational connection. While in recent years the focus has been on gender and race, the findings also support the need for more diversity of values on boards.

Board members that support the acceleration to stakeholder capitalism are more likely to place greater priority on alignment of purpose with strategy and business model, ESG and businesses’ impact on community and the environment. They have international experience on the boards of listed or family companies and take a long view on consequences of decision-making. And they think the change will happen sooner.

Those unconvinced about moving to a new economic model place more attention on audit and risk, the business model and the transparency of operations, and have medium-sized company and national experience. The question is, who do CEOs and chairs want on their boards to shape and secure the future? The crisis has raised the governance bar on strategy and oversight. There is an argument to say both of these profiles and more have an important role to play.

The transformation to stakeholder capitalism needs values-led board leadership to create the governance mechanisms for change, co-own businesses’ strategy and commitment to change, and to actively champion stakeholder engagement to steward their organization’s long-term success in the new and more inclusive economy.

More on this topic

More by This Author