What is Stakeholder Capitalism?

Stakeholder capitalism proposes an approach to economic organisation where companies prioritise creating long-term value for all stakeholders—employees, customers, suppliers, local communities, and the environment—rather than focusing solely on short-term profits for shareholders. Emerging from stakeholder theory, this model challenges the traditional shareholder-centric view by recognising that businesses operate within interconnected social, economic, and environmental systems.

The idea dates back to the 1950s and 1960s. In post-war economies, businesses often collaborated with local institutions and considered employee welfare, community well-being, and supplier relationships integral to success. The vision of stakeholder capitalism emphasises that sustainable business growth depends on the health of its broader ecosystem, including society and the planet.

Today, stakeholder capitalism extends beyond local contexts to address global challenges, such as climate change and social inequities, promoting a vision where people, planet, and prosperity are interconnected.

What Values Are at Stake?

At its core, stakeholder capitalism is about fostering democracy, equality, and shared responsibility within market economies. It reframes the role of businesses as entities embedded in society, where decision-making accounts for diverse perspectives and promotes fairness.

• Democracy and Participation: While traditional corporate governance often sidelines workers, suppliers, and communities, stakeholder capitalism emphasises broader involvement. For example, Germany’s co-determination model includes employee representation on company boards, ensuring workers have a voice in decision-making. This principle aligns with democratic ideals: people who are affected by decisions should have a role in shaping them.
• Equality and Localised Impact: By addressing the needs of all stakeholders, businesses can reduce systemic inequalities and support local development. Companies that respect local communities and environmental sustainability are more likely to foster equitable growth. Stakeholder capitalism also highlights the importance of regional interdependence, as seen in welfare states where companies, employees, and governments collaborate to fund public services like education and healthcare.

In a globalised world, this approach extends beyond borders. Businesses are now seen as agents that can promote equality and safeguard the planet, recognising that collective well-being depends on cooperation.

Key Critiques of Stakeholder Capitalism

1. Conceptual Ambiguity:
   Critics argue that the term stakeholder remains too vague. Scholars like Mitchell, Agle, and Wood (1997) attempted to categorise stakeholders based on power, legitimacy, and urgency, but definitions still vary widely, creating uncertainty about its practical applications.
2. Practical Limitations:
   Stakeholder theory requires managers to balance the needs of multiple parties, but critics contend this is unrealistic. Companies already fulfill obligations—paying employees, delivering goods, and obeying laws—and adding more responsibilities may undermine core market principles (Marcaux, 2003).
3. Democratic Shortcomings:
   While stakeholder capitalism promotes inclusion, it stops short of granting full democratic rights to those involved. Critics note that corporations still maintain hierarchical structures that separate decision-makers (management) from workers and communities. This limits democratic participation and ignores the principle that people should have a say in decisions affecting their lives.
4. Negotiation vs. Conversation:
   Charles Blattberg (2000) critiques the reliance on negotiation to resolve conflicts between stakeholders, arguing it often leads to zero-sum compromises. Instead, he advocates for conversation—a process of integrating interests to achieve outcomes that benefit all parties synergistically.

While stakeholder capitalism addresses many of the flaws of shareholder primacy, these critiques highlight the need for clearer frameworks and stronger democratic mechanisms to fully realise its vision.

Readings and Resources

• Blattberg, C. (2000). From Pluralist to Patriotic Politics: Putting Practice First. Oxford: Oxford University Press.
• Blattberg, C. and Scudder, D., (2024). A critique of stakeholder theory. In: T. Clarke, W. Klif and C. Ingley, eds. Elgar Encyclopedia of Corporate Governance. Northampton, MA: Edward Elgar Publishing.
• Freeman, R. Edward, Jeffrey S. Harrison, Andrew C. Wicks, Bidhan L. Parmar, and Simone de Colle. (2010). Stakeholder Theory: The State of the Art. Cambridge, UK: Cambridge University Press.
• Marcoux, A. (2003). A Fiduciary Argument against Stakeholder Theory. Business Ethics Quarterly 13(1), 1–24. 
• Miles, S. (2012). Stakeholder: Essentially Contested or Just Confused? Journal of Business Ethics 108(3), 285–98. —– (2017). Stakeholder Theory Classification: A Theoretical and Empirical Evaluation of Definitions. Journal of Business Ethics 142(3), 437–59. 
• Mitchell, R.K. (2012). Review of R.A. Philipps (ed.) Stakeholder Theory: Impacts and Prospects. Organizational Studies 33 (10),1407–11. 
• Mitchell, R.K., Agle, B.R. and Wood, D.J., (1997). Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. The Academy of Management Review, 22(4), pp.853–886.
• Schwab, K. and Vanham, P. (2021) Stakeholder Capitalism A Global Economy That Works for Progress, People and Planet. Newark: John Wiley & Sons, Incorporated.