Suved Wali ‘24, Commentary Staff Writer

Clothing company Patagonia broke national headlines when its billionaire founder, Yvon Chouinard, declared that he had transferred ownership of the company, valued at $3 billion, to a specially designed trust and a non-profitable organization. Instead of selling the company or taking it public, Chouinard took an unconventional approach to retain the company’s independence and carry forward its long-standing agenda of combating climate change and protecting undeveloped land across the world. Some critics are calling it a PR stunt to improve their corporate image in the wake of the climate crisis. However, the stakeholder capitalism movement seems to be gaining traction among many notable corporations. Stakeholder capitalism is a system that encourages businesses to tailor their approach to benefit all stakeholders such as customers and society as a whole, as opposed to benefiting only shareholders with stock in the company. Its return was further credentialized by the World Economic Forum (WEF) updating its manifesto at its 50th annual meeting at Davos for the first time in over 40 years. The Davos manifesto now states that companies should pay their fair share of taxes, show zero tolerance for corruption, uphold human rights through their global supply chains and advocate for a competitive level playing field. Bringing it back to Patagonia, Chouinard’s actions align with the values of stakeholder capitalism because he chose to prioritize the health of the environment over financial profits for the company.   

In some sense, stakeholder capitalism is a revivalist movement, as it was the de-facto model in the early 1950s. At the time, most corporations operated locally or regionally, and therefore worked in close concert with their surroundings and made decisions that were representative of all their stakeholders. As businesses became global, they loosened their ties with local communities and governments and shifted focus to maximizing short-term profitability in competitive global markets. The era of shareholder capitalism took off and became the gospel of the business world for several decades. 

The question is: why should we now go back to stakeholder capitalism? To begin with, we are experiencing the “Greta Thunberg Effect.” The inspirational 16-year-old student activist burst onto the world stage in 2018 when her school strike outside the Swedish parliament snowballed into a worldwide youth movement demanding attention to the climate crisis. The rise of social media, coupled with the recent pandemic, has further exposed the fragility of the supply chains and shown why companies need to think hard about global issues, engage in the ethical sourcing of products and deploy fair trade practices in the regions they operate in. So, stakeholder capitalism is now a question of survival, not just a checkbox option anymore.

With several major media publications reporting stakeholder capitalism as a mere fad, it’s important to understand some of the structural barriers that may prevent it from unlocking its intrinsic value. Among several obstacles, the most critical one will be to identify solutions that will satisfy the interests and motivations of several stakeholders in the end-to-end life cycle of a product/service, some of which, by design, have competing priorities. Another important issue that affects not just enterprises but also governments will be the new definition of growth and economic prosperity. For the longest time, we have associated growth with financial metrics or GDP as the key indicators. In this new model, these indicators alone will not be the gold standard anymore, and establishing the new ones will be no trivial task. Lastly, there is a growing realization that if businesses end up shouldering broader societal responsibilities, they will have to layer the associated costs into the pricing of their products and services, which will not be well received by the end consumer.

The path to stakeholder capitalism will require nuanced approaches, deep thinking, ongoing dialogue and collaboration between corporate leaders, policymakers and civic representatives. For this system to build firm roots, it will require the constant calibration and tuning of the operating model to achieve the delicate balance between employers, customers, investors and activists. Stakeholder capitalism holds the key to a brighter, more tenable, more and equitable future on this planet, and organizations that are leading the course will stand to gain from a financial and long-term value creation standpoint.