What is a Stakeholder Economy?

A stakeholder economy is a new economic system where business decisions benefit all people and the planet.

This is different from shareholder capitalism where businesses focus on profit at all costs. Stakeholder economy is a concept we have also referred to as “stakeholder capitalism” in our previous work, reports, articles, and more. The term “stakeholder economy” is often labeled as “stakeholder capitalism” by the press or other organizations, however stakeholder economy goes further and calls for policy change to actively dismantle unjust systems, policies, and practices.

A stakeholder economy requires businesses to create value for multiple stakeholders including workers, customers, communities, the environment, and shareholders. A stakeholder economy empowers business leaders to make responsible and sustainable decisions that take into consideration the impact they have on stakeholders equally with the financial value creation. This happens through tangible changes to corporate governance, laws, regulations, and incentives. Investors act as responsible owners by stewarding their portfolios toward a positive impact on society and the environment.

Governance change and increased transparency are fundamental to a stakeholder economy. To change the outcome of decisions so that businesses operate responsibly and sustainably, we must change the rules that govern those decisions. Stakeholder governance enables companies to commit to, and be held accountable for, integrating stakeholder impact into their decision-making process, balancing profit and purpose, and creating value for all stakeholders.

Why is a move towards a stakeholder economy critical?

Capitalism is the most powerful economic system created. Yet, in its current form, it is failing to meet the aspirations of billions and the needs of a warming planet. We stand at the crossroads of crisis and also an extraordinary opportunity. Capitalism is at a tipping point.

The disconnect between the needs of people and our planet and the behavior of businesses and the rules that govern them has led to growing inequality and exclusion, declining dignity for the working and middle classes, and an existential ecological crisis.

If more evidence were needed, the twin crises of the COVID-19 pandemic and the reckoning with racial injustice prove that current business models provide neither the resilience nor the fair opportunities we need for a prosperous, just society. With this change to corporate governance laws, regulations and incentives, businesses will be partners in the effort to solve these crises rather than barriers to progress.

We know that it’s not enough for a small group of individuals to voluntarily commit to serving all stakeholders. Individual action cannot overcome the pervasive structural and cultural focus on profit at all costs. We must transition from shareholder primacy to stakeholder capitalism.

The History of the Stakeholder Economy and Stakeholder Capitalism Movement

To help business change the way decisions are made and move us towards a stakeholder economy, B Lab created: benefit corporation. It has seen transformative momentum:

Stakeholder Governance in Practice

We won’t change the outcomes until we change the rules that govern business decision-making. All these companies have legally become benefit corporations and are accountable to more than just profit.

CREDIT: Happy Family Organics

CREDIT: Patagonia

Three Bold Stakeholder Economy Ambitions:

Change the Rules

Accelerate the adoption of B Lab’s policy ideas to transition from shareholder primacy to a stakeholder economy.

Drive Collective Action on A Stakeholder EcONOMY

Collaborate with business and nonprofit leaders to encourage the transition to a stakeholder economy.

Redefine Leadership

Encourage companies to adopt benefit corporation status to provide a demonstration effect about how business can create value for stakeholders and shareholders.

Why and How to Become a Benefit Corporation

By registering as a benefit corporation, businesses join highly respected companies. They are at the forefront of a growing movement of changing the rules of the game.

Benefit corporations retain all the virtues of the corporation for aggregating and allocating capital, but eliminate the excesses of 20th century practices that valued profits over our shared future. It provides a trust-enhancing operating system. This shows investors and entrepreneurs from every industry what the future Fortune 500 looks and acts like.

Benefit corporations:

• Reduce Director liability
• Maintain stockholder rights and could increase access to mission-aligned capital
• Receive bi-partisan support.
• Build trust by fortifying a reputation for leadership.
• Win the competition for talent and customers.
• Are resilient.

The Board Playbook: The Case and Process for Adopting Benefit Governance: This is the most practical guide to date for corporations incorporated in Delaware to adopt the highest form of stakeholder governance; becoming a DE Public Benefit Corporation (PBC).

The purpose of this guide is to help executives, investors, and directors navigate the journey to adopt PBC status. We hope this guide serves as a resource in preparing for the necessary conversations and presenting examples of how the market has reacted to the idea of expanded fiduciary duty that is an inherent component of a stakeholder economy.

FEATURED PARTNER: SHAREHOLDER COMMONS

Download the Board Playbook