What Does “Stakeholder Capitalism” Mean to You?


by Lynn S. Paine at hbr.org

The past few years have seen an outpouring of articles and statements heralding the arrival of a new and more inclusive form of capitalism, often called “stakeholder capitalism.” It promises to bolster companies, improve outcomes for their constituencies, produce better returns for long-term shareholders, and ultimately strengthen the economy and society as a whole. In line with the new ideology, corporate boards and business leaders have been urged to adopt a multistakeholder approach to governance in place of the shareholder-centered one that has guided their work for several decades.

In speaking with hundreds of corporate directors, executives, investors, governance professionals, and academics over the years, I’ve found wide differences in how stakeholder capitalism is understood. The failure to recognize those differences has been a source of much confusion and disagreement inside companies and in the public debate. The recent controversy over environmental, social, and governance investing is a case in point. In this article I describe four kinds of stakeholder capitalism—instrumental, classic, beneficial, and structural—which reflect significantly different levels of commitment to the interests of stakeholders and are based on very different rationales.

As more companies embrace stakeholder capitalism, it is important that corporate leaders have a shared understanding of what, exactly, they are embracing. Espousing a commitment to all stakeholders without clarity about what that actually entails puts directors and executives on a collision course with one another when decisions requiring difficult trade-offs among stakeholders’ interests arise—as they inevitably do. It also creates expectations among stakeholders that if unfulfilled will fuel cynicism, alienation, and distrust—the opposite of what most proponents of stakeholder capitalism intend. Meanwhile, shareholders are left wondering what this new ideology means for them. This article is intended as a guide to help corporate leaders define what they mean by stakeholder capitalism and thus reduce the risk of such negative consequences.