An Introduction to Stakeholder Capitalism

Yale SOM Professor Ravi Dhar and co-faculty leader of the newly launched Yale Program on Stakeholder Innovation and Management shares insights into the growth and importance of Stakeholder Capitalism. 

Q: What are the main drivers behind Stakeholder Capitalism’s recent ascension to the forefront of the business world?

Stakeholder Capitalism was born from the debate on the fundamental purpose of the corporation.  In the shareholder primacy model, we measure whether a firm is meeting performance criteria, such as long-term profit maximization for shareholders.  With stakeholder capitalism, creating value is not just for the shareholder, but other stakeholders: the employee and customers, the environment, and the community.

We believe that this is happening now because the relationship between these stakeholders and value creation is becoming clear. Society at large provides firms with the social license to operate; and employees and consumers want to engage with companies who care about the societal and environmental impact of its products and services in a way that mirrors their personal values. While some groups consider the need to serve these other stakeholders as a moral imperative, we think that companies must consider all stakeholders to maximize long-term value creation across the board. Whether you call it stakeholder capitalism, smart capitalism, conscious capitalism or ESG, businesses must thing of new ways of creating value by framing the problem broadly.

Q: What is the Program on Stakeholder Innovation and Management at Yale and how does it serve the purpose of advancing the understanding of stakeholder capitalism?

The Yale School of Business’ mission is to educate leaders for business and society and I think historically this has been interpreted as an “or,” leaders can either be for business or for society. To me, the “and” is a critical element. Leaders need to solve big challenges that create value for customers and shareholders in sustainable ways. CEOs are increasingly looking for guidance on how to do this, and how to create and systematize processes for decision-making that they have often been using intuition to address.

          The program on Stakeholder Innovation and Management is an interdisciplinary program that is bringing together faculty from all areas of the school to develop new frameworks and tools that help CEOs to understand a multitude of questions around this way of thinking such as, how to determine when and how companies should take a stand on societal issues, how purpose and values can be operationalized and how can diverse stakeholder needs be connected to drive innovation and create long-term competitive advantage. Our initial goal for the center is to produce cases and prototype tools and frameworks, but ultimately look to produce new knowledge on, and promote the adoption of, these tools for use by the executive.

Q: How are you honing in on cases for this initiative? Can you share an example?

The cases have been selected to show that many big strategic questions require companies to look at competing stakeholder interests. Rather than see stakeholder interests as zero sum, how can a company reframe and rethink how value is created? For example, the most recent case we are writing focuses on Nike’s Space Hippie, a low carbon shoe. But rather than making this a niche sustainability product for the eco-conscious consumer, the team at Nike framed the challenge to create value for consumers (still had to be a great shoe that the consumer wants) and supply chain partners, (it had to be manufacturable at scale), and investors (it had to be profitable).