What is stakeholder capitalism?

Capitalism is defined by the International Monetary Fund as, “an economic system in which private actors own and control property in accord with their interests, and demand and supply freely set prices in markets in a way that can serve the best interests of society.”[1]

The types of capitalism differ in whom is most important entity (stakeholder) that can affect or be affected by a business.

In State Capitalism the government is the key stakeholder acting as a steering force in the marketplace and can intervene when it deems necessary. As such, business interests are subservient to the interests of the state.

In Shareholder Capitalism the owners of the business are the primary stakeholders whose principal goal is to increase business profits. Short-term profit maximization is the key driving force and all other considerations are of lesser importance.

Stakeholder Capitalism envisions that all stakeholders, the owners, customers, employees, suppliers, essentially anyone who is impacted by business decisions, matter equally. The key characteristic is the emphasis on improving society and increasing the well-being of everyone rather than to generate a financial return. This form of capitalism focuses on long-term value creation and ESG parameters. In this system, individuals,  private businesses and public corporations can still innovate and compete freely while also being protected and guided to ensure that the general direction of economic development is for the greater good.

“Stakeholder capitalism is a vow to do business in service of all stakeholders, rather than just profits and returns. Shareholders are of course important, but it’s vital that companies also consider workers, communities, the environment, and more when defining success – especially because doing so has demonstrated benefits not just to society, but also the bottom line. This approach is neither status quo nor abandoning capitalism altogether. It’s simply recalibrating the system to take a deeper view of business, and ensure an economy that works for all.” – Paul Tudor Jones, founder of Tudor Investment Corporation and The Robin Hood Foundation, Co-Founder and Chairman of JUST Capital

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[1] https://www.imf.org/external/pubs/ft/fandd/2015/06/basics.htm