Stakeholder Capitalism: It's Time for Action
Published February 2021
Jay Jakub, Economics of Mutuality Chief Advocacy Officer, was recently interview by Bruce Bolger, President of the Enterprise Engagement Alliance, a curriculum development, auditing, consulting, and outreach business focused on engagement that promotes stakeholder capitalism.
Selected quotes from Jay’s contribution have been included below. Click the button to read the full article.
The incentives for management are misaligned with the principles of Stakeholder Capitalism, because right now they are all about generating short-term shareholder returns rather than holistic returns.
Watch what happens when we change those incentives to human, social and natural capital to drive more value creation. Performance takes off because greater non-financial capital creation releases more economic and financial value, so you no longer need to trade profit to do good: doing good can generate superior profitability and resiliency.
I think leaders are finally getting it, partly because of the millennial generation. Companies must adapt to the fact that today’s employees want something more than just money. They seek fulfillment of a sense of purpose.
The focus on short-term results over the last 50 years has inverted the natural order of things. It puts people and planet at the bottom and finance at the top when it should be the other way around. It’s not sustainable. There is a dysfunctional surplus of money in the economy. It used to be that people and natural resources were plentiful and money was scarce which led to financial capitalism. Now we have too much money and a shortage of talent and natural resources.
If we can create a culture that addresses the true drivers of individual wellbeing, that creates trust and social cohesiveness at the community level, you can attract, develop, retain, and optimize the performance of talent, equipping communities to work together for the common good.
There are forms of non-financial capital that companies create or destroy and could leverage to benefit stakeholders and shareholders, but they don’t have the metrics to enable them to mobilize this value. They are operating sub-optimally by squandering non-financial value. In business, you only manage what you measure.
When your business pollutes a river, you become a net user of natural capital, and you damage community social capital by violating trust as well as individual wellbeing – human capital. This all has an impact on your bottom line, but companies can’t see this. We are learning through rigorous practice that growing social, human, and/or natural capital releases more economic performance. When you damage social, human, and natural capital, conversely, you hurt your profits.
Economics of Mutuality is not rocket science, it’s adapting business practice to the new context of the economy.
