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Spurred by the urgent need to tackle today’s environmental and social challenges corporate leaders are waking up to stakeholder demands for responsible corporate action.

The World Economic Forum (WEF) Annual Meeting in Davos brought together leaders from across the world to discuss the global, regional and industry agendas at the beginning of the year.  The overarching theme of the year was ‘Stakeholders for a Cohesive and Sustainable World’, with ‘Better Business’ being one of the key themes among the diverse topics addressed at the forum.

Spurred by the urgent need to tackle today’s environmental and social challenges corporate leaders are waking up to stakeholder demands for responsible corporate action. The forum witnessed the rise of ‘Stakeholder Capitalism’ with discussions around how corporate leaders can contribute towards the creation of a cohesive, resilient world.

The era of Stakeholder Capitalism

What is Stakeholder Capitalism? The concept has been around since the 1970’s, first articulated by the WEF’s Founder and Executive Chairman, Klaus Schwab, who says:

“Companies should pay their fair share of taxes, show zero tolerance for corruption, uphold human rights throughout their global supply chain, and advocate for a competitive level playing field”

For 50 years, ‘Shareholder Capitalism’ has been dominant with companies focused on delivering shareholder value above all. The WEF published its updated manifesto: The Universal Purpose of a Company in the Fourth Industrial Revolution, the first update since 1973, with a focus on a ‘better kind of capitalism’.

The movement towards responsible leadership is building. Last August, the Business Roundtable also revised its Statement on the Purpose of a Corporation to explicitly move beyond shareholder primacy to express “a fundamental commitment to all of our stakeholders.”

Better capitalism needs responsible leadership

A ‘Better Business’ carries a responsibility to think about the communities in which it operates. As we usher in a new era of shared prosperity companies now need to embrace a different leadership approach. Companies need to look beyond short-term profits and transform themselves into sustainable and inclusive organizations.

“The whole way that we do business, that we live and that we have grown accustomed to in the industrial age, will have to be changed. We will have to leave that behind us in the next 30 years and we have to come to completely new value chains.”

Angela Merkel, Chancellor of the Federal Republic of Germany

How can corporate leaders respond?

  • Firstly, companies need to identify – their purpose and mission, the impact of their organization on the world, and where their obligation lies. They need to redefine their stakeholders and identify the interconnections between them. Moreover, it is important to be responsive to stakeholder needs and communicate a clear mission with honesty.
  • Businesses have the advantage of being able to take risks and quickly deploy resources and make a difference both locally and globally. But they have to get close to these problems, work with local governments and organizations to really understand how to solve them.
  • Companies need to look at how robust and fit for purpose their stakeholder governance is and revisit corporate governance systems and legal frameworks. Boards need to consider what role their corporation will play in society and how well they integrate sustainability factors into their strategy.
  • Lastly, in a stakeholder model, measurement must be a team effort in order to capture the environmental, social, and governance goals as a complement to standard financial metrics.

“CEOs in today’s world have more to do to communicate that stakeholder capitalism is for the shareholders’ long-term benefit.”

Satya Nadella, Chief Executive Officer at Microsoft

Creating long-term value for all

Giving back to our communities has become an imperative that must be core to every business strategy. A healthy business is interdependent on a healthy community and can help create a better, more inclusive future for everyone.

As stated by Klaus Schwab – “Business leaders now have an incredible opportunity. By giving stakeholder capitalism concrete meaning, they can move beyond their legal obligations and uphold their duty to society. They can bring the world closer to achieving shared goals, such as those outlined in the Paris climate agreement and the United Nations Sustainable Development Agenda. If they really want to leave their mark on the world, there is no alternative.”

The question that remains is – will corporate leaders build on this momentum of Davos 2020?

How is your organization adapting to this shift towards purposeful business? Do share in the comments below!

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Image source: World Economic Forum

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