There has been growing support in recent years for the concept of stakeholder capitalism and a recognition of the importance of creating long-term value. It is a commitment that, surprisingly to some, has remained strong despite the economic pressures that have risen from the COVID-19 pandemic.
Stakeholder capitalism is a philosophy based on the belief that companies have an obligation that goes beyond simply providing returns for shareholders. It suggests that companies should be mindful of, and responsive to, their impact on society and the environment. This can involve: creating secure jobs for employees, embracing sustainable practices, serving customers loyally, cultivating long-term supplier relationships, paying fair taxes or working to minimize the environmental footprint of operations.
This form of inclusive capitalism is not new – it was popular in the 1950s and 1960s – but it is now making a comeback, and this time it is closely linked with ESG issues such as climate change, diversity and human rights. Pre-COVID-19 examples of the move away from pure shareholder capitalism include: the Davos Manifesto from the World Economic Forum (WEF), the Business Roundtable’s Statement on the Purpose of a Corporation, and the Embankment Project for Inclusive Capitalism created by the EY organization and the Coalition for Inclusive Capitalism.
ESG and long-term recovery
There had been fears that with the emergency response to the COVID-19 pandemic, and with many companies facing an existential crisis, the focus would move away from ESG issues. But, in many respects, the opposite has occurred. It seems the COVID-19 pandemic has accelerated the transition to a more purposeful and inclusive capitalism. Although many organizations are in survival mode, ESG issues are likely to remain critical and essential to resilience and long-term recovery.
When businesses discuss economic risk and significant trends, and when they consider specific threats, such as climate change and pandemics, they tend to take decisive action only when they believe that those risks are likely to impact them in the short term. Now that one of those risks has become a reality, that may change.
Encouragement is not lacking for this change of approach. Pressure is mounting, mainly from the public, with people issues (the “S” in ESG) coming to the fore. Companies that have treated their staff and suppliers well during the COVID-19 pandemic have likely improved their corporate reputations, and potentially gained more business.
Some companies, however, abandoned their declared purpose as economies started to dip. Such actions may have eroded trust and damaged reputations. Their actions may be remembered by potential customers and may echo in the minds of employees for a long time. It is likely that those companies that did not stand behind their values may lose business and, when economies rebound, their best talent may be looking elsewhere.