Greed is Good?
Stakeholder Capitalism and the Power of Purpose-Driven Marketing
This article examines how purpose-driven companies are transitioning from a shareholder-only strategy, to an approach that considers all stakeholders. Purpose-driven marketing is helping those companies make a positive impact for people and the planet, while building brands and driving profitable growth. Shareholder Capitalism – the History of How We Got HereIn 1970, the Nobel prize winning economist, Milton Friedman, published his views on the paramount goal for companies to generate profits. Summarized in an essay in the New York Times, he was forthright in his belief that “an entity’s greatest responsibility lies in the satisfaction of the shareholders.” The Friedman Doctrine, as it was known, clearly stated that maximizing profits and satisfying shareholders was a company’s reason for existence. It was a purist view which came to define shareholder capitalism. Did Anyone Care About People Other Than Shareholders?What about customers, employees, or other stakeholders in the communities around a company? A business can’t be successful if staff don’t show up to work, suppliers don’t get paid, and customers’ drinking water is polluted. What importance did a company place on addressing the needs of people other than shareholders or social responsibilities? According to Friedman, they didn’t matter: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.” As long as the collateral damage didn’t impact profits, it was fair game. It was just the cost of doing business – a cost someone else would pay. “Greed is Good” – The Extremes of Shareholder CapitalismFor many years the approach was accepted as standard operating procedure. The corporate raiding capitalism of the 80s and 90s was a direct expression of this shareholder-first dogma. “The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.” Gordon Gekko, the fictional character in the 1987 movie, Wall Street. The Benefits of Shareholder Capitalism… and Managing the TensionsShareholder capitalism has been a force for good. It has lifted people out of poverty, stimulated innovation, created prosperity and fostered collaboration and cooperation among people. Capitalism is arguably the single most effective system devised in history to enable the advancement of humanity. As with any complex system, shareholder capitalism isn’t perfect, and society has done its best to manage the tensions between its benefits and negative impacts. The majority of companies are well intentioned, good corporate citizens and seek to create good outcomes while delivering profits to shareholders. But things can go awry, and companies may take actions that are beneficial to shareholders, which may not be in the best interests of other stakeholders. When they do, checks and balances play a role to exert pressure for change. A company’s values, board governance, shareholder and employee activism, the media, customer and consumer choice, regulation, competition and the law, have all played a role in steering companies in what society believes is the right direction. But it’s not just about when things go wrong; how can companies benefit society in general? In recent years, there have been voices calling for change, suggesting that the shareholder-only model is not optimal to deliver value for society in general. From Shareholders to StakeholdersConsumer attitudes and behavior change over time. What consumers want from brands evolves, and as a society, what we expect from companies also changes. Successful brands and their marketing campaigns anticipate and adapt to these changes. That is what we see in the shift from shareholder capitalism to stakeholder capitalism. According to the World Economic Forum, an international organization of political and business leaders, stakeholder capitalism is an approach in which companies seek long-term value creation by taking into account the needs of all their stakeholders, and society at large. Stakeholders broadly fall into the categories of people and planet, and may include: employees; customers; community members; suppliers; and, shareholders; and, (importantly) the natural environment. This contrasts with shareholder capitalism – the focus of the Friedman Doctrine – in which only shareholders and profits matter. In 2019, The Business Roundtable, an organization which represents the CEOs of America’s leading companies, replaced their “shareholder is dominant” purpose statement of 1997 with a new purpose statement, saying that firms needed to deliver value to all the stakeholders, which included a commitment to protect the environment. Over 180 CEOs of firms representing 30% of the capitalization within the US stock market personally signed onto the new purpose. Alex Gorsky, then CEO of Johnson & Johnson and chair of the group, said that the new statement “affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.” Momentum Grows for Stakeholder CapitalismAs of January 2023, the World Economic Forum counted 137 of its member companies as having signed up to and reporting on stakeholder capitalism metrics, a set of non-financial measures developed by member companies in collaboration with global accounting firms, Deloitte, EY, KPMG and PwC. Companies reporting on stakeholder capitalism metrics include market-leading global businesses, such as Bank of America, Fidelity, Heineken, IBM, Nestlé, Salesforce, and Unilever. “It’s time for a new capitalism – a more fair, equal, and sustainable capitalism that actually works for everyone,” said Marc Benioff, Chair and CEO of Salesforce. Larry Fink, Chairman and Chief Executive Officer of BlackRock, an investment firm with $10 trillion under management, outlined his views in his 2022 annual letter to shareholders. “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not “woke.” It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism.” Stakeholder Capitalism and Purpose-Driven Marketing Generate Growth According to research published by Statista, the US-based companies
Greed is Good?
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