Review: What is stakeholder capitalism?

This article is written in 2021 by Klaus Schwab who is the founder and chairman of the World Economic Forum (an annual event bringing together the world’s top business executives and politicians). Schwab advocates moving away from shareholder capitalism which “optimize short-term profits for shareholders” to stakeholder capitalism that “seek long term value creation, by taking into account the needs of all their stakeholders, and society at large”.

According to Schwab, who is of German origin, the concept of stakeholder capitalism is not new and has been quite popular in the post-second world war period. Company CEOs would not only focus on the immediate interests of the shareholders but also consider the impact on other stakeholders. At the time “it became clear that one person or entity could only do well if the whole community and economy functioned. There was a strong linkage between companies and their community.” Due to this tradition, German employees were represented in company boards and there were strong connections between suppliers and clients.

Schwab continues to describe how shareholder capitalism became the dominant form, as globalisation weakened the ties between companies, local communities, and national governments. As a result, “labor unions, governments, and other civil society stakeholders lost a lot of their power and influence, further weakening the fabric in which a stakeholder model could prosper.”

Schwab advocates a return to stakeholder capitalism to address humanity’s increasingly global challenges. As the recent pandemic powerfully demonstrated, the world economy and the well-being of people are connected. Consequently, he proposes a global stakeholder approach, to replace shareholder capitalism.

According to Schwab, the key stakeholders in this model are “governments (of countries, states, and local communities); civil society (from unions to NGOs, from schools and universities to action groups); companies (constituting the private sector, whether freelancers or large multinational companies); and the international community (consisting of international organizations such as the UN as well as regional organizations such as the European Union or ASEAN).”

The big elephant in the room is how to make such a model work. A global stakeholder approach is much more difficult to operate than a local one. It can be extremely difficult to reconcile globally divergent interests.

Verdict: Schwab correctly identifies the need for more global cooperation. However, this point is rather obvious, and more interesting would be to present a realistic concept to make it work.

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