About “Stakeholder Capitalism”: The Public Debate

Here is the Transition From the Long-Dominant Worldview of “Stockholder Capitalism” in a Changed World

As readers of Highlights know, the shift from “stockholder” to “stakeholder” capitalism has been underway in earnest for a good while now and the public dialogue about this “21st Century Sign of Progress” has been quite lively.  What helped to really frame the issue in 2019 were two developments:

• First, CEO Larry Fink, who heads the world’s largest asset management firm (BlackRock) sent a letter in January 2019 to the CEOs of companies in portfolio to focus on societal purpose (of course, in addition to or alongside of corporate mission, and the reasons for being in business).
• Then in August, the CEOs of almost 200 of the largest companies in the U.S.A. responded; these were members of influential Business Roundtable (BRT), issuing an update to the organization’s mission statement to embrace the concepts of “purpose” and further cement the foundations of stakeholder capitalism.

These moves helped to accelerate a robust conversation already well underway, then further advanced by the subset discussion of Corporate America’s “walking-the-talk” of purpose et al during the Coronavirus pandemic. Now we are seeing powerful interests weighing in to further accelerate the move away from stockholder primacy (Professor Milton Friedman’s dominant view for decades) to a more inclusive stakeholder capitalism.  We bring you a selection of perspectives on the transition.

The annual gathering of elites in Davos, Switzerland this year -- labeled the “Sustainable Development Impact Summit” -- featured a gaggle of 120 of the world’s largest companies collaborating to develop a core set of common metrics / disclosures on “non-financials” for both investors and stakeholders. (Of course, investors and other providers of capital ARE stakeholders -- sometimes still the inhabiting the primacy space on the stakeholder wheel!)

What are the challenges business organizations face in “making business more sustainable”?  That is being further explored months later by the World Economic Forum (WEF-the Davos organizers) -- including the demonstration (or not) of excellence in corporate citizenship during the Covid-19 era. The folks at Davos released a “Davos Manifesto” at the January 2020 meetings (well before the worst impacts of the virus pandemic became highly visible around the world). 

Now in early autumn as the effects of the virus, the resulting economic downturn, the rise of civil protests, and other challenges become very clear to C-suite, there is a “Great Reset” underway (says the WEC), and “the pandemic represents a rare but narrow window opportunity to reflect, reimagine, and reset our world to create a healthier, more equitable, and more prosperous future.”

New ESG reporting metrics released in September by the World Economic Forum are designed to help companies report non-financial disclosures as part of the important shift to Stakeholder Capitalism. There are four pillars to this approach:  People (Human Assets); Planet (the impact on natural environment); Prosperity (employment, wealth generation, community); and Principles of Governance (strategy, measuring risk, accounting and of course, purpose).

The WEF will work with the five global ESG framework and standard-setting organizations as we reported to you recently -- CDSB, IIRC, CDP, GRI, SASB plus the IFAC looking at a new standards board (under IFRS).

Keep in mind The Climate Disclosure Standards Board was birthed at Davos back in 2007 to create a new generally-accepted framework for climate risk reporting by companies. The latest CDSB report has 21 core and 34 expanded metrics for sustainability reporting. With the other four collaborating organizations, these “are natural building blocks of a single, coherent, global ESG reporting system.”

The International Integrated Reporting Council (IIRC, another of the collaborators) weighed in to welcome the WEF initiative (that is in collaboration with Deloitte, EY, KPMG and PWC) to move toward common ESG metrics. And all of this is moving toward "COP 26* (the global climate talks) which has the stated goal of putting in place reporting frameworks so that every finance decision considers climate change. 

“This starts”, says Mark Carney, Governor, Bank of England, and Chair of the Financial Stability Board, “with reporting…this should be integrated reporting”.  Remember, the FSB is the sponsor of the TCFD for climate-related financial disclosure.  FSB is a collaboration of the central banks and treasury ministries of the G-20 nations.

*COP 26 was scheduled for November in Glasgow, Scotland, and was postponed due to the pandemic. We are now looking at plans for a combined 26 and 27 meeting in November 2021." Click here for more information.

There is a lot of public dialogue centered on these important moves by influential players shaping and advancing ESG reporting -- and we bring you a selection of those shared perspectives in our Top Stories this week.