Doing well and doing good aren’t mutually exclusive.
Oil companies report record profits.
Just days before the November 2022 Midterm elections, ExxonMobil reported $19.7 billion earnings in the third quarter. Over the last two quarters, ExxonMobil, Chevron, Shell, BP, ConocoPhillips, and TotalEnergy earned over $100 billion in profits — more than they earned in 2021. President Biden lashed out at these companies “for using record profits to provide shareholders with hefty dividends and stock buybacks but failing to invest in production improvements that would benefit consumers at the pump.” But the oil companies say they are doing their job — maximizing shareholder value.
Shareholder orientation focuses on increasing profits.
In 1970, the Nobel Prize winning economist, Milton Friedman proclaimed “there is one and only one social responsibility of business; to use its resources and engage in activities designed to increase its profits.” This idea took hold during the economic challenges of the 1970s. American businesses were struggling to compete with their postwar business model in an increasingly competitive global environment. Scott Tong writes in Marketplace, “Friedman and his University of Chicago free-market colleagues argued that corporations were taking on too many social responsibilities — providing jobs, helping to fight pollution, and reducing discrimination in society. In their eyes, the model was inefficient — and unfair to shareholders.” This idea took off, and has been the dominant business thinking in the United States for an entire generation of business leaders.
Stakeholder orientation focuses on value creation for everyone involved in the enterprise, not just shareholders.
Fast forward to 2019 when the Business Roundtable released a “Statement on the Purpose of a Corporation” signed by 181 CEOs who committed to leading their companies for the benefit of all stakeholders – customers, employees, suppliers, communities, and shareholders.
“The American dream is alive, but fraying,” said Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co. and Chairman of Business Roundtable. “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”
The most future-focused organizations are adopting the mindset of doing well, while doing good.
The business climate has begun to shift. What was once a mindset of either “doing well” (i.e. driving profits) or “doing good” (i.e. being good to employees, or the Earth) now is “doing well and doing good.” More and more companies are catching on that doing good isn’t just a nice thing to do but is also a strategic business differentiator. A 2022 study by FCLT Global and Wharton Business School found that companies that prioritize a multi-stakeholder approach generate higher returns than those who do not.
Many new companies are going to market leading with a broader stakeholder orientation. Take Allbirds, who started from a commitment to using merino wool to make apparel from New Zealand sheep and have since built a B Corp with the animals, consumers, and environment as stakeholders. Or Vital Farms, who partners with over 275 small family farms to make sure their food is produced ethically and sustainability, raising industry standards along the way. Or FreshPet whose pledge to Pets, People and the Planet recognizes considering all these stakeholders in making business decisions.
It’s not just start-ups who are thinking this way. As far back as 1985, Patagonia deployed portions of its profits to the environment, via an “Earth tax.” REI’s Co-op ownership model focuses on Members, Employees, and the Outdoors as key stakeholders. Whole Foods founder, John Mackey, founded the company on the idea that “the purpose of business is to improve our lives and to create value for stakeholders.”
Joe Biden, as President of the United States, views issues through a stakeholder orientation. Which is why he will be heard criticizing American business for maximizing profits over everything else. Just like he did with ExxonMobil.
While strong profits for companies is one way to measure success, this can’t be at the expense of good jobs for workers, strong local communities, or a sustainable planet for us to inhabit for the long-term.
Any company can begin to adopt a stakeholder orientation.
You don’t need to be Yvon Chouinard to take this approach. Here are five ways to start creating a stakeholder orientation:
- Identify your most important stakeholders.
- Spend time with these stakeholders to understand their needs.
- Ideate ways to create value for all your stakeholders on a win-win basis.
- Develop metrics and reporting to measure and track stakeholder value.
- Broadcast your intent of prioritizing value for all stakeholders over just shareholder value.
It’s never too late to get started. Consumers are demanding it. The planet needs it. Even shareholders need it to continue to see future growth. Businesses can “do well and do good” with intentionality towards all the stakeholders that matter.
Recommended Reading: Conscious Capitalism: Liberating the Heroic Spirit of Business.
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