Ed Freeman, ‘The Father of Stakeholder Capitalism’ states, “If we’re going to address societal issues … we’ve got to use business. Business is about profits, sure, but it’s also about purpose.”
The focus on profits benefits shareholders and executives of big companies. The hunt for power and greed fuels shareholder capitalism. However, this power-hungry greed causes the poor to get poorer and the rich to get richer, deepening the financial divide. The pursuit of profits often leaves harmful consequences, such as environmental destruction, exploitation of employees, and disadvantage to customers.
With the discussion of climate change heating up, the talks of shareholder capitalism being the culprit also intensify. Owners of large enterprises require goods and resources at low costs to function. This means the environment will inevitably pay the price for the convenience of companies with little purpose. One striking example is Nestle, one of the world’s biggest food and beverage companies. Nestlé drew criticism for bottling water from the Southern California National Forest. Nestle’s decision to draw water from a state that is vulnerable to drought is an example of major companies taking advantage and disregarding the consequences of their operations. How can a company that only prioritizes shareholders be allowed to decimate nature?
Numerous companies exploit both their lower-level employees and customers who keep them in business. Going back to Ed Freeman’s insight, without the right purpose, a business can only keep one thing in mind, money. To achieve their targets they must use any means necessary, like, the Happy Meal, often criticized for promoting unhealthy eating habits among children. The major effect of this is, that obesity in children has doubled in the last three decades, with Happy Meals being a contributor. The Happy Meal causes obesity and heart disease in children; this should warn of what can happen when a corporation like McDonald’s has to address shareholders rather than health guidelines and customer safety.
Now, customers aren’t the only ones negatively impacted by the greed of owners and executives. Lower-level employees who work for the same company are treated even worse at times. Walmart’s low wages, insufficient benefits, and scheduling practices make employees resent their jobs. With both customers and employees being unhappy as a result of this shareholder style of business, it’s time for a change.
Stakeholder Capitalism is the opposite of Shareholder Capitalism; customers and employees are given the same attention as shareholders. This way a company can foster stronger relationships with customers so they are inclined to keep that company in business. An example of a company adopting Stakeholder Capitalism would be Hyundai Motors, and since the switch, their stock has gone up close to 120%.
We are in a new day and age, meaning it’s time for society to prioritize innovation rather than filling shareholders’ pockets. Stakeholder capitalism not only drives sustainable growth but also builds a fairer, more inclusive economy that benefits everyone, not just the wealthy few.
About The Author: Samith Gowda: A dedicated high school student with a passion for business research and entrepreneurship, he has embraced the forward-thinking concept of promoting stakeholder capitalism. His interests include deep dives into the stock market and advocating for sustainability on a global scale. With a vision to revolutionize the world, he aspires to create a lasting, positive impact on society, driving change that will be remembered for generations to come.