The B Corp movement is a major success in the rise of stakeholder capitalism

As we grapple with multiple crises (inequality, climate breakdown, recovery from the global pandemic and energy security), more people are looking to businesses for meaningful action to help reduce the impact these issues are having on society.

Since Milton Friedman’s now infamous short essay published in the New York Times in 1970 titled The Social Responsibility of Business is to Increase its Profits, the prioritization of shareholder value (characterized as hitting short-term profit targets) has led decision-making in large and small organizations alike.

But capitalism wasn’t always like this. Around the time of the industrial revolution, while working conditions were incredibly tough for many, companies would often provide a home for workers. They would create communities, offer education and provide healthcare in buildings resourced by the company for the benefit of its employees.

Capital and community

Somewhere along the way in the last century, capitalism changed course; Friedman’s essay brought the zeitgeist-tipping moment. What had previously been a part of workers’ rights became additional ‘benefits’ and ‘perks’; community-making morphed into initiatives like Corporate Social Responsibility (CSR) and voluntary charitable giving.

Around the same time that Milton Friedman was promoting shareholder value generation, other thought leaders started developing ‘stakeholder theory’ as a model for high-performing organizations. Klaus Schwab, founder of the World Economic Forum, was one of the first people to use the term ‘stakeholder capitalism’ when he wrote the Davos Manifesto in 1973.

Fast-forward 50 years, and considering the interests of all stakeholders of a company as a principle of decision-making is very much proven as a successful business strategy for long-term sustainability. Not just prioritizing employee engagement and wellbeing: incorporating the environment, social impact, suppliers and the entire value chain of a business is now the definition of stakeholder interests.

Beyond short-termism

Recently, oil giants BP and Shell have made record annual profits of £23bn ($27bn) and £32bn ($38bn) respectively against a backdrop of a surge in energy poverty due to the sharp increase in energy prices for consumers. It’s a reminder of why so many people are demanding better from businesses that can do more for their stakeholders beyond investors.

Many studies have shown that companies that plan over the long term outperform businesses that solely focus on short-term profit cycles. In his book Net Positive, ex-Unilever chief exec and sustainability advocate Paul Polman quotes a McKinsey Institute study that showed businesses with a long-term (five-to-seven years) horizon generated 57% more revenue and 36% more profit over that time than organizations that prioritized short-term targets.

This is especially true in the service sector, including agencies, where economic volatility and client churn create a challenging environment for consistently hitting short-term growth targets. At Propellernet, we subscribe to sustainable growth over the longer term and as we celebrate our 20th birthday next month, our strategy has proved successful.

Certifying stakeholder capitalism: the B Corp movement

Common characteristics of companies that embrace stakeholder capitalism are accountability and transparency. Building trust in your brand is easier if the story you can tell, with evidence, is one of inclusivity and delivery of beneficial value for all stakeholders.

This is well-represented in the B Corp movement, which certified its 1,000^th UK company at the end of 2022. B Corps (B for ‘benefit’) must change the declaration of the purpose of their business in their form of Articles of Association. By formalizing the consideration of all stakeholders in decision-making in this way, it promotes accountability of the decision-makers and shareholders to deliver value for all.

One of the challenges of implementing stakeholder capitalism is navigating conflicting interests. Many argue that you can’t please everyone at the same time while also prioritizing the environment and community. B Corps are proving how it can be done; as the accreditation enters the public consciousness, many of these businesses are experiencing rapid and sustained growth due to the trust in their ethical approach to doing business.

Furthermore, in a tight labor market where talent is at a premium (especially for marketing and ad agencies), new entrants into the workplace have never been more switched on to the notion of company purpose and culture. Many want to work somewhere that they feel proud of, and whose values match their own.

Slightly detached initiatives like ‘corporate social responsibility’ now feel like tokenism when compared with putting stakeholder interests, in the broadest sense, at the heart of your business. The bar is being raised further each year and having a B Corp certification could soon feel like a pre-requisite for being a credible employer. The timing of this boom in business accountability is important to attempts to tackle the biggest challenges we face.

There will always be naysayers that underestimate the potential of collective action from businesses that contribute to solving challenges bigger than quarterly profit targets, but putting this approach in the hands of the marketing and communications industry has the power to influence more than just a few people. Our sector can generate a systemic revaluing of stakeholders and deliver positive change for all.