Stakeholder Capitalism - Fink Again

Think Tank

4 min read

Mark Goyder is a senior advisor to the Board Intelligence Think Tank. He’s the founder of Tomorrow’s Company and co-author with Ong Boon Hwee of Entrusted: Stewardship for Responsible Wealth Creation.

Here is a question to ask your colleagues or, if you are a teacher of business, your students. Try dating these two statements:

  1. “Putting your company’s purpose at the foundation of your relationships with your stakeholders is critical to your success.”
  2. “Tomorrow’s company defines its purpose in a way that inspires wholehearted commitment to achieving goals which are shared by all those who are important to the company’s success.”

One of them was made in 1995. One of them was made in 2022.

The first statement was made this month by Larry Fink in his annual letter to CEOs. The second was made in the RSA Tomorrow’s Company report in 1995. How far have we moved on in over 25 years? Larry Fink’s new letter represents an interesting test. He goes on to say that what distinguishes “truly great companies” is:

“A clear sense of purpose; consistent values; and crucially [that] they recognise the importance of engaging with and delivering for their key stakeholders. This is the foundation of stakeholder capitalism.”

And he adds:

“In today’s globally interconnected world a company must create value for and be valued by its full range of stakeholders in order to deliver long term value for its shareholders.”

But where does this stop? Think of all the people in this globally connected world who are affected by the actions of a major company like Coca Cola or Unilever — or Pfizer?

Yes indeed — Pfizer. Fink talks about the difference made by the Covid-19 pandemic. Arguably, anyone who is waiting for a vaccine for the virus, but has so far been denied access to it, is a significant stakeholder of Pfizer.

Not in Fink’s world. Notice the use of the term “key stakeholders”. He is not referring to everyone who is affected by the decisions of a company but “the employees, customers, suppliers and communities your company relies on to prosper.”

“Stakeholder” is an ambiguous term. Some use it, as Fink does, to talk about people who are immediately involved in a company’s success. Others use it to describe all those who are affected by a company’s decisions. That would, for example, cover people who need vaccinations but are denied them by Pfizer’s current pricing policy.

Doesn’t that make “stakeholder capitalism” a term so flexible as to be meaningless?

When thinking about these issues in the RSA Tomorrow’s Company Inquiry in the 1990s, we decided not to use “stakeholder”. We talked about a company’s key relationships’ by which we, like Larry Fink, meant all those who were crucial to the company’s success. We avoided “stakeholder” because, as I explained at the time:

“Used without qualification, stakeholder is a misleading word. It makes very different business relationships sound the same. It does not differentiate between an employee with 30 years’ service and the casual buyer of a newspaper.”

Yet, false expectations raised by people who talk about “stakeholder capitalism” may be helpful. In the week that Larry Fink published his letter, Oxfam said in a new report entitled Inequality Kills:

“When the pandemic struck, there was a sense that we were all in this together . . . An incredible scientific race to find a COVID-19 vaccine began. Yet instead of becoming a global public good, as our leaders had promised, these miraculous vaccines, which gave such hope to everyone on Earth, were from day one locked up behind a wall of private profit and monopoly. Instead of vaccinating billions of people in low- and middle income countries, we created vaccine billionaires, as pharmaceutical corporations got to decide who lives and dies. 2021 is defined above all by this shameful vaccine apartheid, a stain on the history of our species. This man-made catastrophe has taken the lives of millions of people who could have been saved in countries with scant access to vaccines.”

The Oxfam report demonstrates that we must move on from the 1995 assumption that all a company had to worry about was its key relationships — those with the “stakeholders” who would influence its success. It also confronts the wealthiest with the uncomfortable suggestion that their fast-growing wealth could and should be mobilised to pay for essentials like the Pfizer vaccine.

Soon after Oxfam produced their report, more than 100 millionaires and billionaires, calling themselves the Patriotic Millionaires came out with an open letter entitled In Tax We Trust.

They argued for a global wealth tax that could raise $2.52tn and lift 2.3bn people out of poverty while paying for sufficient vaccines for the whole world. Oxfam also argued for a 99% windfall tax on the Covid-19 wealth gains of the world’s 10 richest men, claiming that this could pay to make enough vaccines for the entire world and fill financing gaps in climate measures, universal health and social protection, and efforts to address gender-based violence, while still leaving these men $8bn better off than they were before the pandemic.

So, here’s the challenge to Larry Fink. By all means, talk about “stakeholder capitalism”. But be careful. People will assume, in this interconnected world, that your definition of “stakeholders” extends beyond those who contribute directly to a company’s success to all those who are affected by a company’s choices.

And if you are serious about this sort of stakeholder capitalism, why not start by joining the Patriotic Millionaires and demand that you yourself have to pay a global wealth tax. That would really give you the moral authority to talk to others about stakeholder capitalism!

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