The balance between the rich and the poor is getting skewed. The society demands a change, for a fairer, livable world. Among other solutions debated, one topic that lately has been gaining attention is stakeholder capitalism.
Stakeholder capitalism: word by word explained
Let’s start by breaking down the phrase: stakeholder and capitalism. A stakeholder is different from a shareholder. A shareholder is someone who owns certain public companies’ shares of stock. Hence, a shareholder will prioritize on the company’s performance and its consequence on the stock price.
Stakeholders are parties that directly and indirectly involved in the company. Thus, stakeholder comprises customers, clients, suppliers, employees, shareholders, and many other people involved in the business.
Capitalism is an economic and political system in which private parties take more control than the state in business and trade activities management. In capitalism, private parties often aim for profits.
Now that we’ve understood each word that constructs the term, it’s time to learn the definition of stakeholder capitalism.
Going deeper into the system
Derived from Investopedia, stakeholder capitalism is a system that incorporates stakeholders’ interests in the business’ practice. Hence, the main goal of the system drifts from gaining profit to earning satisfaction from the stakeholders involved.
How does the stakeholder capitalism’s view skew from profit? Gaining profit is mainly the agenda for shareholders. They gain more benefits with more profits. However, instead of shareholders, the lead character in this system is stakeholders. Sadly, stakeholders often become the sacrificial lamb for funds.
Exploitations are common practices done to maximize profits. The decisions, however, oftentimes harm other people listed as stakeholders, such as customers, employees, clients, or others. Capitalism is arguably one of the roots for a lot of problems. Several of them are labour and natural resources exploitations. The piling problems finally erupts into the creation of stakeholder capitalism.
By taking into accounts other stakeholders into the business practice, stakeholder capitalism is expected to comply more on sustainability practices. Furthermore, more investors have been gaining interest in socially responsible investing (SRI), ESG investing, and impact investing. The rising demand further pressures companies into changing how they do businesses to gain profit.
The World Economic Forum’s (WEF) has also been mentioning about stakeholder capitalism multiple times. If done correctly, stakeholder capitalism can become the key to bring significance in sustainability.