Principal, BCG Henderson Institute Ambassador
The succession of global crises over the past few years has accelerated a sea change in the way companies consider their role in society. More companies are paying greater attention than ever to stakeholders beyond their investors on a range of topics, including climate, racial justice, and human rights. We’re seeing bolder corporate activism on societal issues and more ambitious environmental, social, and governance (ESG) commitments. What’s more, we see little evidence that CEOs are backing down in the face of a mounting political backlash against “woke capitalism.”
At least on the surface, this all amounts to a nearly complete rejection of shareholder primacy, the long-held and popular theory espousing that “the social responsibility of business is to increase its profits,” as Milton Friedman titled his famous 1970 New York Times article.
Among the many factors driving this change are, paradoxically, the acknowledgment that some businesses have been complicit in problems like climate change, inequality, and public-health hazards, along with unwavering public trust in businesses at a time when public confidence in institutions like government, NGOs, and the media is waning. Despite their flaws, there’s a recognition that companies have a unique, well-demonstrated ability to innovate and mobilize to solve big, complex challenges.
This shift isn’t without critics, of course. On one side, companies are being accused of “greenwashing” and not living up to the values they announce to the world. On the other side, pressure continues to intensify from politicians, investors, and customers to fight back against the “wokeness” they claim is infiltrating corporate leadership. While stakeholder capitalism clearly is here to stay, this backlash certainly complicates the path forward.
In today’s environment of economic uncertainty, political polarization, and viral media, how can leaders maintain momentum and deliver value to all stakeholders? How can companies be more proactive and holistic in their approach, rather than make decisions based on trial and error or by greasing the squeakiest wheel?
The first step is to gain a far more nuanced and sophisticated understanding of all of your stakeholders. Who are they? What is the nature of their relationship with you? What have you explicitly and implicitly promised them? What do they truly expect of you? What is your total net impact on them when considering all aspects of their lives?
One might be tempted to simply identify discrete groups of stakeholders, such as investors, customers, and employees. But that won’t cut it. For one, stakeholders aren’t homogeneous groups. And they often overlap. It’s not uncommon for a single individual to simultaneously be an investor, a customer, and an employee of a single company, as well as a member of the local community that the company serves and of society at large. As individuals, stakeholders also have motivations that likely extend beyond a purely economic, self-interested view of the world. In a vacuum, customers prefer low prices. But maybe not if that requires fellow citizens (who also may be family members or friends) to work on the front lines at below-poverty wages. Investors seek above-market returns, but maybe not at the expense of their grandchildren being able to live on an inhabitable planet.
The second step is to anchor your efforts in your company’s purpose—its reason for existence beyond the bottom line. Connect the organization’s authentic and distinctive strengths with the unique needs it fulfills in society. If you don’t yet have a purpose, it’s time to articulate one. If your purpose is dated or generic, refine it. And if you do have a strong purpose, let that focus and embolden your efforts. No company can solve every societal problem, weigh in on every issue, or be all things to all people. But prioritizing social impact objectives that tie to your purpose will make it easier to be authentic rather than performative.
Becoming a purpose-driven, socially transformative business is not easy, and it may ultimately require a full-on transformation of your organization. Whether it’s your recruiting and HR processes, procurement policies, product line, distribution network, investor-relations approach, strategic planning, or even your business model itself, nothing should be off the table.
Finally, champion your purpose and ESG agenda in a way that clearly conveys the benefits to all of your major stakeholders. This will require some education. Your stakeholders likely need help understanding all the direct and indirect impacts your business has on their lives. At the end of the day, there will always be detractors. However, by communicating with conviction and nuance, most stakeholders can come to understand how your actions ultimately represent the best way to make both the business and its promises more sustainable and compelling in the long run.
The set of societal challenges facing humanity is only growing. Companies alone can’t solve them all. Still, business leaders have the power—and responsibility— to move society forward. Indeed, stakeholders are increasingly expecting them to do just that. The days of shareholder-centricity and merely “giving back to the community” are over. The big upside is that making a positive social impact will lead to more loyal customers, more engaged employees, more capable suppliers and partners, a more supportive local community, a safer and more sustainable planet, and, yes, more satisfied long-term investors.
It won’t be easy, and the stakes couldn’t possibly be higher. But there’s no time to waste. Your stakeholders are counting on you.