“Capitalism,” the dominant economic system in the global political economy, is defined by Merriam-Webster as “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.”
This is an excellent working definition of traditional capitalism — complex enough to cover essential system components, yet short enough to not cognitively overwhelm the reader. Yet, in the 21st century, the term “capitalism” has been preceded by a variety of adjectives.
In 2006, former vice president Al Gore and David Blood, senior partner at Generation Investment Management, first called for (in a Wall Street Journal op-ed titled “For People and Planet”) a “sustainable capitalism” that actively incorporated environmental, social and governance (ESG) factors into corporate governance. Microsoft founder Bill Gates popularized “creative capitalism” at the 2008 World Economic Forum in Davos, Switzerland, calling for a managerial philosophy that provides market incentives in profits and recognition for companies to serve the needs of the world’s poorest people.
In 2011, Harvard Business School professor Michael E. Porter and Mark Kramer, managing director at FSG, unveiled in the Harvard Business Review their rethinking of capitalism, “shared value capitalism” (SVC), which creates value for all stakeholders, including clients, customers, employees, owners, investors, governments and communities. Furthermore, SVC focuses on long-term opportunities for firm competitive advantage from acknowledging and integrating a “social value” proposition. i.e., enhancing social impact, into corporate strategy.
In 2013, in their eponymously titled book, John Mackey (co-founder and co-CEO of Whole Foods) and Rajendra Sisodia (Babson College professor), introduced the world to “conscious capitalism.” They define conscious capitalism as a “way of thinking about capitalism and business that better reflects where we are in the human journey, the state of the world today, and the innate potential of business to make a positive impact on the world.”
In August 2019, the Business Roundtable, an association of chief executive officers of America’s leading companies, announced a new “Statement on the Purpose of a Corporation” (and signed by 181 Business Roundtable CEOs) outlining a “modern standard for corporate responsibility,” one that embraces a philosophy of “stakeholder capitalism” that explicitly recognizes the benefits of all stakeholders, including customers, employees, suppliers, communities and shareholders, to firm success.
In an October 27, 2019 editorial, the Financial Times commented on what it termed “responsible capitalism,” noting “a growing acceptance among business leaders of the need to broaden the pursuit of shareholder value to one that is based on inclusivity, sustainability and purpose” (and the newspaper “welcomed the direction”).
Moreover, on December 2, 2019, the World Economic Forum released its update to its “Davos Manifesto,” a 1973 statement of principles asserting how corporations not only have a duty to their shareholders but also a responsibility to all their stakeholders and society, that provides a roadmap for companies to put “stakeholder (capitalism) principles” into practice.
Most recently, in a July 2020 special edition of Forbes, the magazine’s chief content officer Randall Lane writes on “greater capitalism,” and how, during the COVID-19 pandemic, it “measures return on investment in all facets” and “incorporates a large dose of the stakeholder economy that has slowly made headway over the past few years.”
So what do these various variants of capitalism share in common?
First, a move away from the shareholder as the overwhelming focus of managerial attention. The corporation is now viewed as a part of the larger social system, with stakeholders recognized as integral to the long-term financial success of the enterprise. From a pragmatic viewpoint, the emphasis on stakeholder importance in “private decisions” is an important (if not overdue) development in the definition of “capitalism.”
Second, the emphasis on making a “positive impact” on society goes to the heart of what Forbes’ Lane identified in the magazine’s new ranking of the 100 largest employers among U.S. public companies mobilized to meet the challenges of COVID-19 in terms of supporting and protecting workers, customers and communities — again, all stakeholders of the corporation.
Third, the foundation of capitalism as the engine of innovation and societal economic growth remains in all variants, with stakeholder considerations tempering the profit motive to ensure long-term organizational sustainability.
Yet concern with stakeholder demands can create adverse political challenges for corporations. With widespread access to a “weaponized” social media, many companies are finding themselves confronting threats of or actual boycotts by special interest groups demanding fealty to their causes — regardless of the cause’s merit, beliefs of other stakeholders, or relevance to the company’s products or services.
Moreover, while benchmarks for measuring non-financial stakeholder performance (environmental, social and governance) factors are available, such as the Global Reporting Initiative, I agree with the Financial Times editorial board’s statement: “While the aims of many ESG campaigners are certainly lofty, standards setters should focus on what is realistically possible (my emphasis): what is needed are standards that everyone agrees on (my emphasis) and that can serve as benchmarks for comparison — both internally and externally.”
As goes the saying: What gets measured, gets managed!