Stakeholder capitalism has its day. Stakeholder loyalty is the next step
Big companies are changing their approach to profitability and putting the “best asset” over the best stock price. This philosophy, called stakeholder capitalism, is credited with contributing to more sustainable corporate health, but without the essential element of stakeholder loyalty, how sustainable can it be?
By: Phil Rubin, Gray Space Matters
Almost 60% of consumers will pay more for products made by purpose-driven companies, it took a war for business leaders to prove their purpose with absolute purity, taking it in the profit margin.
This is the working theory of stakeholder capitalism, when companies put compassion and value for all stakeholders before profit, even though these principles are not mutually exclusive. In the history books, Russia may be seen as the tipping point of this movement, but let’s not forget the history that preceded it:
- In the summer of 2020, while in the throes of Covid, the world saw a Minneapolis police officer murder George Floyd, as captured on video. Some brands have taken a stand.
- Six months later, in response to January 6and the insurrection at the United States Capitol, some businesses condemned the attack and withdrew their support for politicians who voted against voter certification.
- Today, in response to Russia’s unprovoked war on Ukraine, companies are doing more than taking a stand; they are leaving the Russian market entirely. It goes beyond public relations, “brand purpose” and politics. These entrepreneurs are ultimately taking charges on their income; literally pay for their decisions.
And with a large majority of Americans supporting sanctions on Russia, even if it means higher prices for items like fuel, that’s good. Because these short-term fees are potential investments that will increase business value and loyalty. The extent to which this materializes, however, depends on the involvement and loyalty of the all stakeholders of these companies, from customers to suppliers. Somehow, not all companies seem to encourage this.
Why? For, contrary to the purpose of the brand, these moves towards stakeholder capitalism were unplanned.
Stakeholder capitalism gives stakeholder loyalty its moment
The thinking behind stakeholder capitalism has percolated for some time. In 2019, the Business Roundtable asserted that the purpose of a company is more than to generate profits for shareholders, but also to create value for its wider set of stakeholders. These include customers, employees, suppliers, partners and the communities the company serves.
Stakeholder capitalism is in fact a matter of principle that I shared in 2015 that brands must be loyal to customers before customers will be loyal in return. This reflects the essential nature of loyalty and relationships: demonstrating loyalty to all stakeholders, acting in accordance with their values, pays dividends.
In this sense, shareholder capitalism is essential to shareholder capitalism.
The corollary of stakeholder capitalism is stakeholder loyalty
Enter stakeholder loyalty, which, while a new term, is also not a new idea. In 1996, Fred Reichheld, in his first book, “The Loyalty Effect”, explained the connection between loyal employees and loyal customers. Reichheld developed the concept in 2021 in the co-authored book, “Win on purpose», clearly making the link with the capitalism of the stakeholders. When corporate values and stakeholder values are aligned, loyalty will follow.
Yet, as the list of companies leaving Russia grows, it’s worth noting that relatively few communicate directly with customers, let alone with other “community” stakeholders. Given that 80% of Americans approve of the actions against Russia, this is a missed opportunity.
These companies should communicate not only with customers and the community, but also with suppliers (where brands have real leverage) and partners – especially since just half of business leaders think stakeholders understand what they are doing to meet their needs.
The “why” is ROI: 5 steps to get there
Which leads to a crucial question: Why are not most of these companies asking their stakeholders to support them in their efforts to support Ukraine? If brands are going to engage in stakeholder capitalism, it makes financial sense to pursue stakeholder loyalty.
The answer may lie, in part, in the novelty of stakeholder loyalty, not to mention the misunderstanding of what drives loyalty. But the potential is rooted in history: there are myriad things companies should be doing – not just in times of crisis like the war on Ukraine – but on an ongoing basis when it comes to the environment, human rights, voting rights, LGBTQ rights and beyond.
With these events as context, here are five steps companies can take to turn stakeholder capitalism into stakeholder loyalty:
- Be nimble, and while you’re at it, be more aggressive. The world is constantly changing and so are the markets and stakeholders. Being relevant enough to engage them means having the courage to react in real time and proactively deal with these changes.
- Break down business silos. It’s the only way to be agile, but it takes leadership and a commitment to not letting bureaucracy get in the way of getting things done in a timely manner. Eliminate fear by openly supporting a strong exchange of ideas and holding leaders accountable with clear expectations.
- Plan ahead, beyond crisis communications. Recognize that it’s not so much if corn when events related to the company’s role vis-à-vis stakeholders will materialize. With fewer hurdles in an organization and shared stakeholder engagement, a little planning allows people to act faster and with more confidence and certainty.
- Communicate, communicate, communicate. Test messages and activations for each stakeholder and see what happens. Adjust and repeat.
- Measure results. Testing with control groups produces clear measures of improvements in stakeholder engagement. As the famous lawyer Louis Lowenstein said, “you manage what you measure.”
Stakeholder capitalism and stakeholder loyalty, by design, is about using capitalism to make our world a better place. There’s still a lot of work to do, but it’s encouraging to see hundreds of companies taking action and there’s no reason to expect this trend won’t pick up speed, given of the state of our world. Especially when results are measured, prioritized and rewarded – to change history.
Phil Rubin is the founder of Gray Space Matters, a company that helps companies accelerate growth through innovation, strategy, development and execution.