Capitalism as it has been practiced in recent decades has been focused and almost obsessed with maximizing profits for shareholders. It’s hard to argue that capitalism is not the most beneficial way to run a country. Great economists have proven that it maximizes the output of society, creates great wealth, and in most cases improves the quality of life for the majority of people. But the extreme focus of corporations on profit at any cost has also led to horrifying inequalities in wealth, poor treatment of people, abuse of power and damage to our planet and its resources that may soon be irreversible.
Let’s look back at how we got here. Shareholder value maximization is a business term which preaches that the ultimate measure of a company’s success is the extent to which it enriches shareholders. It became popular during the 1980s, and is particularly associated with former CEO of General Electric, Jack Welch. The concept is based on establishing a primary goal for a company to increase the wealth of its shareholders by paying dividends and/or causing the stock price to increase. The term in this sense was introduced by Alfred Rappaport in 1986.
The good news is that a new capitalism is emerging, spearheaded by leaders like CEO Marc Benioff of Salesforce.com, which shifts corporations focus from shareholders to stakeholders. In a recent NY time article We Need a New Capitalism, Marc Benioff encourages business leaders to embrace a broader vision of their responsibilities by looking beyond shareholder return and also measuring their stakeholder return.
Employees Come First
The shift from shareholders to stakeholders is not completely new. The 2000’s brought us a business focus on the customer experience. The recent decade saw corporate interest begin to emphasize employee interests and value including fair treatment, wage equality, diversity, and inclusion. Bigotry, racism, gender bias and sweat shops are no longer tolerated. In a way, this emphasis on the worker is a return to the past. The earliest American corporations were generally chartered for public purposes, such as building canals or transit systems, and well into the 1960s were widely viewed as owing something in return to a society that provided them with legal protections and an economic ecosystem in which to grow and thrive. In 1953, carmaker Charlie Wilson famously spoke for a generation of chief executives about the link between business and the larger society when he told a Senate committee that “what is good for the country is good for General Motors, and vice versa.” This commitment to employee welfare faded for a few decades and the responsibility for things like retirement and healthcare shifted from the company to workers. Pensions were eliminated in favor of 401Ks and co-funding of medical benefits decreased. The good news is that we’re coming full circle and the well-being of employees has returned to a top priority for companies.
New Corporate Stakeholder: the Earth
There has been a recent shift of corporate focus from shareholder to stakeholder and in many cases this new focus also encompasses sustainability and climate change. Protecting the planet is an objective that is now at the forefront for more progressive corporations. Scientists around the world are providing data that shows how our planet is at risk and that climate change is a real phenomenon and an existential risk to human kind. In fact, the majority of people understand this risk. Customers and employees are concerned about the environment and prefer to purchase goods and services from eco-friendly companies and in some cases demand it. But these concerned individuals realize they need the help of businesses. In fact, the majority of activities having a negative impact on the environment come from the business world. It is company actions and products that are hurting the planet and changing climate patterns that put the human race at risk. It is the medium and large corporations that have the biggest impact and that need to change.
Corporations Leading By Example
A recent opinion article in NY Times discusses how few nations are meeting their targets to fight climate change. The article discusses how the current United States administration wants to withdraw from the Paris Agreement and how global emissions continue to rise. This lack of concern about climate change is alarming to us here at the Green Business Bureau, where we believe climate change puts the planet at risk and that every corporation and every business can become more sustainable to start addressing this risk. We love how Salesforce is striving for net-zero emissions, becoming more sustainable and leading the charge for this new capitalism focused on sustainability and other stakeholders beyond shareholders. We love that participants at the UN Climate Action Summit are sounding the alarms and pleading for corporations to get more involved in driving sustainable business.
In fact, having a sustainable purpose beyond profit does not hurt the bottom line. Research shows that companies with a broader purpose for good outperform their peers, grow faster, and deliver higher profits. Mark Benioff recently said “Salesforce is living proof that new capitalism can thrive and everyone can benefit.”