The Move Towards Stakeholder Capitalism
Shareholder primacy has been a method adopted by companies around the world for nearly 50 years. Shareholder primacy is the practice that holds shareholder interests as the top priority relative to all other stakeholders. In other words, the main goal of companies is to maximize profits for shareholders. While shareholder primacy has increased corporate profitability and wealth for a select few, it’s also linked to the rising inequality gap. As a result, trust in business, and tech companies, in particular, has wavered.
Each year Edelman Global publishes its Trust Barometer report to gauge public trust in institutions. In 2018, Edelman surveyed Californians about their trust in tech companies. Respondents reported that they felt the tech-sector is under-regulated, that tech companies have a responsibility to speak out on policies that impact their employees and customers, and that the tech industry primarily benefits the wealthy. Growing pressure on companies to be good actors, in California and beyond, is driving a shift away from shareholder primacy towards stakeholder capitalism.
This shift towards stakeholder capitalism couldn’t come at a more urgent time. The pandemic is forcing a reevaluation of systems and infrastructure across the country. Looking forward, we have an opportunity to rebuild corporate governance to more equitably serve the needs of all stakeholders.
A Seat At The Table
Earlier this year, Kickstarter employees voted to unionize. It’s the first of its kind; a union of full-time, white-collar tech employees. Talk of unionizing started in 2018 when employees and Kickstarter management disagreed about a campaign for a comic book. The altercation between rank-and-file employees and management sparked a conversation around unionizing among staff. In March 2019, employees went public with their organizing drive and were ultimately successful.
In this episode of Marketplace Tech, the host discussed what Kickstarter employees are likely hoping to get out of unionizing and organizing efforts; a seat at the table. Employees may see unions as a structure to weigh in on business decisions such as procurement, core values, operating policies, etc. While Kickstarter employees opted for unionizing, tech workers across the sector are using various organizing strategies to challenge corporate policies and culture.
Over the last three years, workers from Google, Amazon, and Microsoft have rallied together in an effort to influence business decisions. Workers have organized themselves to speak out on internal policies, government contracts, contractor conditions, and more. Tech sector talent seeks values-aligned employers and is taking a bottom-up approach to holding companies more accountable.
Investors and CEOs Reprioritize
Larry Fink, the CEO of Blackrock, the world’s largest asset manager, called for more equitable practices from companies in his annual letter to CEOs. Fink’s 2020 letter focuses on climate change and the role of companies in building sustainability into their practices. Last year, his letter focused on the link between purpose and profit.
He implored CEOs to invest in building a clear and authentic purpose within their companies. A clear corporate purpose will impact employee retention and culture, social impact, and public policy engagement. When companies invest in purpose, they are investing in a wider range of stakeholders and increasing profitability and resilience in the long run.
Goldman Sachs recently announced it will no longer underwrite IPOs for companies with all white, male boards. Starting in July 2020, companies planning to IPO with Goldman Sachs must have at least one diverse board member. In 2021, the financial institution will raise the target to two diverse board members. This policy validates the argument that companies with more diversity perform better than ones with little to no diversity.
An IPO is a complicated process unique to each company, but in some respects, it’s rather simple: Diverse leadership leads to better performance. Getting that right – before the IPO – is the right thing for all companies going public.David Soloman, CEO of Goldman Sachs
Last August, the Business Roundtable, which is made up of a collection of CEOs, released a new statement on the purpose of a corporation. Business Roundtable endorsed a new standard for corporate governance, calling on companies to build value for all stakeholders. Stakeholder capitalism reorients companies to serve the interests of employees, communities, vendors, customers, and finally, shareholders.
The Role of Companies
Stakeholder capitalism isn’t a new concept. It was a popular management practice in the ’50s and ’60s with shareholder primacy gaining momentum in the ’70s and ’80s. Moving back towards stakeholder capitalism is crucial to the future of companies, our communities, the economy, and the planet. But like all large changes, it won’t happen overnight.
So what is the role of companies? What can they do to help build a more equitable economy? Last year, TechEquity published a blog series making the case for all companies to have an equity strategy. The series explored how to engage stakeholders such as employees, vendors, and local communities. The series also features an entire post about engaging in local policy issues.
In the Bay Area, housing affordability and growing inequality threaten a strong and innovative economy. As COVOD- 19 continues to drive unemployment to record highs, our communities face unprecedented uncertainty. It’s critical that tech companies (and all companies) engage in conversations around housing and workforce & labor. As the pandemic shines a spotlight on the cracks in our economy, we’re finding ourselves faced with an opportunity to repair broken systems. Tech companies can leverage their civic power to endorse progressive policy solutions that will address the structural change our communities need to thrive well beyond COVID-19.
It may have taken us 50 years to get back to stakeholder capitalism, but if companies can embrace this approach, we’ll see stronger values and purpose embedded in the corporate space—driving increased opportunity for everyone.
If you work for a tech company and you’re looking to deepen your company’s civic engagement in housing and/or workforce & labor, get in touch!