In January, the World Economic Forum (WEF) hosted its annual meeting in Davos, Switzerland. This year, however, there was a new agenda: build a sustainability strategy for the future of business that implements the long-standing “stakeholder capitalism” missions of the World Business Academy and JUST Capital.
Following Business Roundtable’s 2019 announcement outlining a new statement of purpose for corporations to serve all stakeholders, this meeting aimed to define stakeholder capitalism.
What makes this idea so radical? It’s the biggest shift in business thinking since 1970 and poses revolutionary corollaries yet to be fully understood.
In the early 70s, Milton Friedman of the Chicago School of Economics famously stated that the sole purpose of business was to earn profits for shareholders on an accelerating quarterly basis, ignoring other stakeholders. This deeply flawed concept became the “conventional wisdom” that the majority of businesses followed.
By re-asserting the primacy of stakeholder capitalism, Business Roundtable finally turned this dictum on its head by observing the proper role of a corporation in modern society: to serve all stakeholders, including employees, customers, vendors, and communities. We will see business begin to act as a servant of society rather than a predator on the hunt for profits.
As Klaus Schwab, Founder and Executive Chairman of the WEF, observed, “With the world at such critical crossroads… we must develop a ‘Davos Manifesto 2020’ to reimagine the purpose and scorecards for companies and governments. It is why the WEF was founded 50 years ago, and it is what we want to contribute to for the next 50 years.”
Responding to an invitation from Schwab, JUST Capital participated at Davos this year to assist in fleshing out the positive aspects that flow from adoption of a stakeholder capitalism model.
JUST Capital, an independent nonprofit originally incubated by the World Business Academy, ranks companies based on their level of stakeholder capitalism by analyzing the behavior of the 1,000 largest US public companies and reporting how well they are listening to what the public desires of “JUST” companies.
“Now is the moment to move from aspiration to action in implementing stakeholder capitalism,” JUST Capital writes online. “We believe that the American people must have a voice at the table.”
As Brutoco explains, “It is a ridiculous notion that somehow an economy can flourish when the society from which it arises is suffering major dislocations. Business must be a reflection of the needs and desires of the larger society of which it is part in order to succeed.”
The Academy celebrates the WEF for finally adopting the standards which they admit are truer to their founding principles than the Friedman aberration they adopted decades ago. This is a huge win for stakeholders and everyone who participates in the global economy.