Stakeholder Capitalism

600 words

The expression “stakeholder capitalism” was hi-jacked at the latest in 2020 by, among others, the plutocrats of the World Economic Forum. Originally, though, it was well-intended if mistaken, or rather, half-baked.

To understand this, contrast it with the expressions “shareholder capitalism” and “state capitalism.” I shall leave the latter aside here, and focus on shareholder capitalism.

The idea was that corporate decisions should not be governed exclusively by the presumed interests of shareholders but that the interests of others who were affected directly should bear some consideration. These others would include employees, legacy suppliers, customers, and the local community.

Note that this gives some priority to long-standing relationships at the expense of the wider world. Generally, indeed, long-standing conditions, for example prices and wages, are defended as morally legitimated even in the face of forces which demand their (sometimes radical) revision. This is a commonplace of prominent debates as when arguments and protests are made in terms of adverse changes over the years.

This form of stakeholder capitalism has some merit but ignores how shareholder prerogatives unfold in reality.

One of the most pernicious ideas which took hold decades ago is that shareholder value should be maximised. This fails to specify when it should be maximised and whether, indeed, it is possible to know how to maximise it or to know when it has been maximised.

It is not even obvious that so-called value should be increased, or preserved.

In the case of a small enterprise, depending on the personal situation and priorities of the owners, any number of strategies might be preferred to a fictional maximisation. Maybe they do not need or want any increase in dividends or theoretical value. Or at least prefer stability and security.

The law of capitalist economics demands only that the enterprise should balance its books, at least over the long term.

In any case, consideration must often be given to the interests of employees, suppliers and the others for the sake of the proper functioning of the enterprise. If employees or suppliers have grievances they will perform less well, with inevitable adverse repercussions on the wealth or profitability of the enterprise.

To this extent the contrast between stakeholder and shareholder capitalism, as originally conceived, is a bogus one.

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However, with the recent kidnapping of the expression, the definition of stakeholders was transformed. Of a sudden it is not only legacy employees and suppliers who are counted as stakeholders, but all & sundry. In particular, a say is given to non-governmental organisations (NGOs). These are not defined, nor is there transparency about their funding or the scope and limits of their objectives. Political ambitions are placed centre-stage. Debate over the rationale of those ambitions has been curtailed. An example is the unscientific attack on carbon dioxide.

Setting aside the scheming, greed and megalomania which certainly underpin the usurpation of stakeholder capitalism, there is a fundamental moral objection to the logic at play here.

We begin here: “Everyone is responsible for something, no-one is responsible for everything.” When we apply this to the standing of owners (i.e. shareholders), we see that there is a limit to their duties, which thereby have focus. For those who are conscientious it is possible to rest assured that their duties have been reasonably fulfilled, or to recognise when there has been a falling short.

Meanwhile, the scope of those now defined as “stakeholders” has grown indefinitely, from those affected directly and immediately, to cover the whole world, and not only the human world. This is overreach and an impossible imposition. It is based on the abuse of language. But also on hubris and a flawed concept of ethics.