Executives Embrace Stakeholder Capitalism at Davos
At Davos this year, there is a greater sense of urgency behind stakeholder capitalism, leading corporate executives to explore how their companies can benefit all stakeholders, including customers, employees, suppliers, communities and shareholders.
After the U.S. Business Roundtable announced its move away from shareholder capitalism toward a commitment to all stakeholders, stakeholder capitalism, or the idea that “positions private corporations as trustees of society,” has gained significant momentum.
But it isn’t a new idea.
During a panel discussion on “Leading a 21st-Century Corporation” at the World Economic Forum in Davos, Switzerland, McKinsey & Co. Global Managing Partner Kevin Sneader noted that the idea of stakeholder capitalism first arose in 1759 from Adam Smith, the author of “The Wealth of Nations.”
“[Smith] was very clear in saying that the responsibility of the business person was to give to the community and enrich everyone,” Sneader said. “And I think we lost our way a bit in forgetting that.”
Sneader noted several factors are driving the change back to stakeholder capitalism, including widening income inequality despite strong economic growth, globalization, emerging technologies, as well as the fact that some businesses have made mistakes that have shaken the trust of the public.
“You put that all together, you get a cocktail that I think says, ‘Time’s up, we do have to start doing things differently,’” Sneader said.
Cisco Chairman and CEO Chuck Robbins has personally seen how these factors have affected the Silicon Valley community, where the homeless population has surged – which is why Cisco recently committed $50 million over five years to help end homelessness in Santa Clara County.
“If you get close to the problem, you find people who have full-time jobs, with children going to school, that are living in tents,” said Robbins, who also noted that many teachers and firefighters can’t afford to live in their own community.
“Every CEO needs to sit down and come to grips with the fact that if I don’t have teachers to teach the children of my employees, then the best employees aren’t going to come work for our company,” Robbins continued. “We have to ensure as businesses that we have strategies to apply our capabilities, our skill sets, our employee base, and our financial resources to actually solve these issues.”
Nasdaq President and CEO Adena Friedman also spoke about a public corporation’s role in wealth distribution amid a widening wealth gap in the U.S..
“What we’re talking about here is creating employability, creating opportunity, and how do you turn that opportunity into wealth,” Friedman said. “Companies do have a responsibility to think about that in terms of how they distribute their equity – whether it’s a private company or public company – to their employees.”
But, more broadly, the paradigm of both public and private markets needs to shift, according to Friedman, who sees a dearth of U.S. investors with access to private equity. She suggested a few measures that could improve access to wealth creation in both markets.
“One is to make public markets more inviting– to make it so that it’s more streamlined and more inviting for companies to go public … so that they want to distribute their wealth creation and want to make it so more people in the population have a chance at it. But also, to make it so that more people get to access private equity,” said Friedman, specifically mentioning investments in professional funds that can provide a great return, in an organized way, governed by the SEC.
“That is one of the crying shames of the way the system works today, is that a lot of people are kept out of that investment vehicle, and yet we have fewer companies going public. To me, it’s an issue the government has to address.”
To learn more about Nasdaq’s efforts to reform the U.S. market structure, please click here.
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