Toward Stakeholder Capitalism: What the Shift Means for CEOs and the C-suite

Executive Summary

We surveyed more than 200 CEO and C-suite executives, 90 percent of whom acknowledged that a shift from a focus on primarily serving stockholders to serving a broader group of stakeholders is underway at corporations around the world. While participants recognize the momentum behind the shift, not all companies, boards, or investors are in the same place.

Insights for What’s Ahead

The business leaders participating in the roundtables, podcasts, and interviews shared lessons, perspectives, and expectations for what lies ahead as the shift from stockholder to stakeholder capitalism spreads. Here is what they told us:

• Shareholder value and stakeholder value are not mutually exclusive—it is a false dichotomy. Shareholder value is inextricably linked to the welfare of all other stakeholders. The formula is basic. Shareholder value is maximized when: employees want to work for you, customers are satisfied, and communities are served. Balancing competing agendas and expectations of multiple stakeholders creates trade-offs between business as usual and new commitments.
• The shift to a stakeholder focus is real and durable because it is being driven by investors, employees, customers, and policymakers. Executives who recognize and embrace the shift now are better positioning themselves and their companies for success in the future. Even though companies have always needed to consider the interests of employees, customers, and others as inputs to their business performance, much greater weight is now being placed on the impact of business on the welfare of all stakeholders. The interests of other stakeholders are becoming more prominent in the deliberation over strategy and the setting of expectations. And the voices of stakeholders such as customers and employees are being amplified instantaneously around the world through social media. Institutional investors are becoming more vocal about what they want companies in their portfolio to look like and act like, while regulators are seeking more transparency around issues such as carbon neutrality, poverty reduction, social responsibility, and water scarcity.
• The shift is occurring at all types of companies: public, mutual, and private. However, while the shift to a stakeholder focus is gaining momentum, it is not universal. As one CFO commented during the discussions:
• This shift is tangible and is affecting discussions, decisions, and actions at the board and C-suite level. There is an increased focus on environmental and social issues, equity, inclusion, employee well-being, workforce management, and community impact. Boards and C-suite leaders are seeking a broader array of information about the potential impact of decisions on stakeholders. C-suite executives say it is also significantly affecting the way they spend their time; they are paying far more attention to social and environmental issues, both as risks and opportunities.
• The shift is surfacing frictions among competing stakeholder interests, which requires business leaders to clearly identify and prioritize stakeholders based on alignment with corporate purpose, mission, and business strategies and goals.This challenge—for example, higher salaries for employees may result in higher prices for customers—has intensified as companies work to raise the visibility of some stakeholders who have historically been less vocal about company priorities. The decision should rest on where a company can deliver the greatest value in the aggregate to all stakeholders.
• The shift is adding layers of complexity about how companies allocate their capital and other resources. It is influencing how companies reinvest in their operations (e.g., location and efficiency of their facilities), in their workforce, and in new products and services that may be more environmentally sustainable or socially responsible. ESG factors are also a growing consideration in mergers and acquisitions. The shift is also introducing additional layers of nonfinancial or extrafinancial risks, including political risk, public perception risk, and employee/customer risk, as well as competing pressures based on customer attitudes. CEOs and their organizations are now being asked to take positions on divisive political and social issues that only a few years ago were considered out of bounds or irrelevant to their business operations, reputation, or performance. This new reality means CEOs and the C-suite will need to be more aware of external context and better able to communicate a broad spectrum of ideas than they once were.
• This shift is increasing the focus on talent and talent strategies at all levels of the organization. Human capital, once narrowly defined as the labor input in a business model and categorized as an expense, is now recognized by management, the board, and investors as a valuable intangible asset that makes a significant contribution to overall company value. The commitment to a stakeholder focus, coupled with the COVID-19 pandemic and its labor market distortions, are making boards realize that keeping a firm’s top talent requires new initiatives and investments.
• This shift is eliminating silos and bringing about a fundamental change in mindset in the C-suite. It used to be that social and environmental issues were compartmentalized— somebody else’s problem. Now they’re everybody’s problem. Moreover, there is a shift from viewing serving all as something “extra, that was nice to do” to something that is a business imperative to distinguish yourself in the marketplace and attract quality talent to grow the business. Achieving alignment across the organization and with the board requires clarity on the “who,” “what,” and “why” for a commitment to stakeholder capitalism. This commitment means having a clear vision of what it means for your business, the implications for business models and strategy, and how to invest and operationalize your vision for maximum impact. Not all stakeholders will have the same relevance for all companies. Priority should be based on your business strategy and company values. Finally, CEOs must decide how the firm will measure progress and hold itself accountable for achieving ESG-related goals.
• The shift is also changing both leaders and the organizations they lead. CEOs and C-suite executives need to be more broad gauged and more attuned to external forces. This need has led companies to partner with nontraditional stakeholders to better understand and address environmental and social issues in their communities, creating new—and sometimes unexpected—alliances. These partnerships can create a business ecosystem that drives outcomes that far exceed the scope of what any single organization can achieve. But to create a company that gets meaningful value out of such collaborations, you have to create a culture that values it. Employee resource groups can play a central role in driving change by linking their organizations to nonprofits and special interest groups with shared purpose.
• Given the complexity of many business issues involving multiple stakeholders, greater communication and collaboration across the C-suite is essential.There will need to be more give and take within the C-suite to balance the needs of the overall enterprise as opposed to just those of one function. Addressing these broader sets of issues and stakeholders is often uncharted territory with inherently higher risk. Internal alignment is critical. But some C-suite colleagues can find it challenging to collaborate when they can’t manage or be assured of the outcome. Several participants say the top-down CEO commitment to drive a greater stakeholder focus has resulted in a significant increase in cross-function collaboration at the C-suite level, which has created a sense of connectedness between C-suite leaders that wasn’t there before and is contributing to overall performance-enhancing collaboration.
• Trust is the key to success. Execution, agility, and trust are all important, but trust may be the most important. Trust among C-suite colleagues. Trust between the C-suite leaders and their functions. Trust between the company and its stakeholders. Trust is what makes it possible to address the shift to a stakeholder focus with credibility. But building trust is a two-way street. Stakeholders, policymakers, and the media also need to approach companies in good faith to restore trust in institutions.