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The shift to stakeholder capitalism is happening. How CEOs Can Track.


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Ivan Hafizov / Dreamtime


About the authors: Paul Washington is the Executive Director of the Conference Board ESG Center. Charles Mitchell is the executive director of content quality for the organization. They are co-authors of the Toward Stakeholder Capitalism report.

Two tectonic changes are underway in American capitalism. Expect them to accelerate in 2022 and beyond, with significant implications for CEOs and executives.

The first concerns “who”. In response to external and internal pressures, and in line with their own sense of broader corporate responsibility over the upheavals of the past two years, CEOs and boards are focusing more on the impact of their companies on the long-term well-being of many stakeholders, including employees, customers and communities, not just their shareholders. According to a recent Conference Board survey that assessed over 200 senior executives, 90% say a shift from shareholder capitalism to stakeholder capitalism is underway, and 80% say it is affecting their business. The second change concerns “what” companies focus on: not just financial performance, but, increasingly, a broader set of environmental, social and governance issues.

These related changes are important and lasting, in part because investors, those who potentially have the most to lose, help spur them on. Their support for shareholder environmental and social proposals reached record levels in 2021. This was largely motivated by large institutional investors who focus on broader systemic risks and face pressure from clients to invest and vote in such a way. socially responsible.

Don’t expect this to change: The Top 10 Institutional Investors now own 30% of the S&P 500. And by the end of the decade, ESG fund assets under management are expected to grow to $ 8 trillion today. hui to $ 30 trillion. Expect stakeholder pressure to take a stand on hot ESG issues to only increase over the coming year.

What should a CEO do?

To help answer this question, the Conference Board hosted a series of panel discussions with senior executives. We also surveyed them. Our aim was to examine the real-world implications of the shift to stakeholder capitalism for business leaders.

The dominant message? Leaders who recognize and capitalize on these changes are positioning themselves and their business for success; those who do not will be left behind. CEOs need to focus on three key areas.

Start with yourself. To lead effectively, CEOs need to increase their mastery of ESG topics. They should become familiar with the views of stakeholders. And they should be focusing more to make sure the business is focused on the areas aligned with their business where they have the most impact. CEOs may need to step out of their comfort zone, expanding both their knowledge and their networks. Our roundtables underscored the importance of authenticity here: As one CEO said, leadership right now requires “radical humanity,” a new level of authenticity when engaging with employees and people. other stakeholders.

This authenticity, in turn, helps build a culture of trust. Indeed, even more than ability to execute, our survey and roundtable participants ranked confidence as the primary leadership skill for future success. As companies tackle new issues, make difficult compromises between stakeholders and grapple with greater uncertainty, trust between the CEO and the company with other stakeholders, and within the C suite it itself, is essential.

Engage the board. CEOs should also engage their board of directors on what the shift in stakeholder capitalism and the focus on ESG issues mean for their business. Within the framework of legal and market constraints, companies have significant flexibility in deciding where they fit in the spectrum of shareholder-to-stakeholder capitalism. They can also choose which environmental and social issues to focus on.

CEOs need to have frank and ongoing discussions with the board about what the change means for their company’s strategy. Many business directors would have been surprised when in 2019 their CEOs signed the Business Roundtable Statement on the Purpose of a Business. There shouldn’t be any surprises now.

Attention to the continuation C. CEOs will want to ensure that their direct reports bring the perspectives of multiple stakeholders to the discussions. These executives, however, do not see themselves as representatives of their traditional constituencies, as one would expect a communications director to bring a media perspective. Many see themselves taking on a broader strategic or external relations role. Indeed, nearly four in five respondents in our survey expect the change to have an impact on the skills and knowledge they will need to master for their jobs. Additionally, many see themselves as “first among their peers” when working with the CEO to guide their organization’s transition to a stakeholder-driven approach.

CEOs will want to make sure their leaders think more broadly, put their challenges and successes on the table, and collaborate. But they must also be alert to new tensions and rivalries. Thus, CEOs should strive to align the organization by empowering the C suite, putting in place clear structures and shared goals, and communicating expectations.

The good news for business leaders is that this is a time of great opportunity. Almost 80% of those surveyed said stakeholder change is important for both their business and society. They’re on to something: Executives who authentically express their commitment to a larger corporate purpose can retain, attract and motivate talent in this era of “big re-appraisal” by workers. CEOs who expand their internal and external networks can identify new business opportunities and build relationships that can serve them during the inevitable stressful times ahead. Those who embrace stakeholder capitalism can also foster a culture of greater collaboration which, in turn, can foster business success.

And, of course, leaders who focus on the long-term well-being of the business, its multiple stakeholders, and society as a whole can do their part to help support capitalism itself.

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