There are many suggestions for a ‘New Story of Business’. Some suggest Sustainability, or Corporate Social Responsibility, or Socially Responsible Investing. Newer and more modern ideas include Conscious Capitalism, Inclusive Capitalism, Impact Investing, and ESG Investing, to name a few. And there are many organizations around the world dedicated to these new ideas. Our approach is different in that we try and find the key ideas that are behind the critiques of the Old Story and suggest that the new narrative be based on these key ideas. We call this “Stakeholder Capitalism” and it seems to be gaining ground all over the world.
There are five major ideas that are the building blocks of a new story of business. These five ideas work together, and they are the underpinning of most of the calls for reform. All five of these ideas require that we give up a number of the usual dichotomies of business and use the word “AND” to replace them. The first idea says that it is a false choice to assume that a business can either be based on purpose or based on profits. It must be based on Purpose AND Profits. Every business must earn profits, and we know that there are situations where that can be difficult. We need to make red blood cells in order to live, but the purpose of life is not to make red blood cells, even if we must concentrate on that because of illness.
Purpose is our “why”. It motivates and inspires us. Entrepreneurs, all over the world, start a business and persist through the difficulties by hard work, innovation, and their ability to inspire themselves and others. Most of them have an inspiring vision for their business that is about improving some aspect of people’s lives. Our conversations with Indian business people over the years have led us to believe that building a strong and vital India often informs why entrepreneurs start their businesses.
Closely related is the idea that great businesses need stakeholders AND shareholders. Businesses are successful when they create value for customers, suppliers, employees, communities and the people with the money. Stakeholders’ interests may be different but they are connected. Creating value for customers needs creation of value for suppliers and employees at the same time. Seeing how these stakeholders’ interests can go together is one of the key executive skills of the 21st Century.
The third idea says that business is both a societal institution AND a market institution. Executives must pay attention to both market forces, and societal trends and issues. Of particular note here is the physical environment. No longer can we ignore our impact. Twenty-first Century businesses must be greener as well as profitable. In developing nations, governments are sometimes limited in what they have the resources to accomplish. Business must be a part of the solution. In the United States many businesses have taken on the issue of racial injustice. In India, there are many societal issues where businesses can contribute to solutions.
The fourth idea is that we must be more fully human in business as well as acknowledge our economic interests. Business is about our Humanity AND our Economics. For far too long we have seen business as concerned with economics only. People are capable of far more than looking after their narrow economic self-interests. Think about how many businesses respond to natural disasters. Think about the level of commitment from employees in companies like the Taj Group, during the crisis in Mumbai. Some literally gave their lives to keep others safe.
The fifth idea may be the most important. We must put Ethics AND Business together. No longer can Business Ethics be considered a contradiction or joke. We cannot afford more and bigger scandals after the global financial crisis. The current issues of the day from global warming to the Covid pandemic require all stakeholders doing their part. It could even be considered a business’s duty to its community to act in a responsible manner. It requires a spirit of cooperation in business that is the real glue of building a great business.
Professor Shashank Shah’s book, Win-Win Corporations documents a number of Indian companies that take the principles of stakeholder capitalism seriously. In addition if we look at Indian companies like Mahindra, Ambuja Cement, and the Tata Group, they have worked for years trying to create value for multiple stakeholders. And smaller companies such as Daily Dump, making it easier for people to compost; I Say Organic, committed to organic farming and food; and, Krya, committed to environmentally sustainable cosmetics and detergent brands, are all making a contribution that embraces the AND. None of these companies are perfect, and we must stop judging them as either Saints or Sinners. We need to see all of our businesses as more fully human, capable of doing good, but also fallible and sometimes mistaken.
There is no going back to the old story. There are thousands of companies around the world that are committed to some form of stakeholder capitalism. What the final name is for the new story is not important. What matters is that we see business as having purpose, stakeholders, societal impact, humanity and ethics. If we can be the generation that makes capitalism better, then we will leave our children a worthwhile legacy.
R Edward Freeman is University Professor, The Darden School of Business, University of Virginia. His latest book is The Power of And: Responsible Business Without Tradeoffs, published by Columbia University Press
Ben Freeman, professional musician and writer, is a principal of Stakeholder Media LLC and producer of The Stakeholder Podcast