Major corporations are changing their approach to profitability and placing the “better good” over the better stock price. This philosophy, called stakeholder capitalism, is credited with contributing to more enduring corporate health, but without the essential element of stakeholder loyalty, how enduring can it be?
By: Phil Rubin, Grey Space Matters
Nearly 60% of consumers will pay more for products made by purpose-driven companies, yet it took a war for corporate leaders to prove their purpose with absolute purity, by taking it in the profit margin.
That’s the working theory of stakeholder capitalism, when corporations place compassion and value for all stakeholders before profit, even if those principles are not mutually exclusive. In history books, Russia may get credit as the tipping point for this movement, but let’s not overlook the history leading up to it:
- During the summer of 2020, while in the teeth of Covid, the world watched a Minneapolis police officer murder George Floyd, as it was captured on video. Some brands took a stand.
- Six months later, in reaction to the January 6th insurrection at the U.S. Capitol, some companies condemned the attack and revoked support for politicians who voted against certifying the electors.
- Now, in response to Russia’s unprovoked war on Ukraine, companies are doing more than taking a stand; they are exiting the Russian market entirely. This is beyond public relations, “brand purpose” and politics. These corporate leaders are ultimately taking charges against their earnings; literally paying for their decisions.
And with a large majority of Americans supporting sanctions against Russia, even if it means higher prices for items like fuel, that’s good. Because these near-term charges are potential investments that will drive enterprise value, and loyalty. The extent to which this plays out, however, hinges on the involvement and loyalty of all stakeholders of these companies, from customers to suppliers. Somehow, not all companies appear to be encouraging that.
Why? Because, unlike brand purpose, these moves toward stakeholder capitalism were not planned.
Stakeholder Capitalism Gives Stakeholder Loyalty Its Moment
The thinking behind stakeholder capitalism has been percolating for some time. Back in 2019, the Business Roundtable asserted that the purpose of a corporation was more than delivering profit for shareholders, but also delivering value for its broader set of stakeholders. These include customers, employees, suppliers, partners, and the communities the corporation serves.
Stakeholder capitalism in fact relates to a principle I shared in 2015 that brands need to be loyal to customers before customers are loyal back. It’s reflective of the essential nature of loyalty and relationships: showing loyalty to all stakeholders, by acting in accordance with their values, pays dividends.
In this way, stakeholder capitalism is essential to shareholder capitalism.
The Corollary to Stakeholder Capitalism is Stakeholder Loyalty
Enter stakeholder loyalty, which while a new term, isn’t a new idea, either. Way back in 1996 Fred Reichheld, in his first book, “The Loyalty Effect,” explained the link between loyal employees and loyal customers. Reichheld expanded on the concept in 2021 in the co-authored book, “Winning on Purpose,” making a clear connection with stakeholder capitalism. When the values of the company and the values of the stakeholders are aligned, loyalty will follow.
Yet as the list of companies exiting Russia grows, it’s noteworthy that relatively few are communicating directly to customers, much less other “community” stakeholders. Given that 80% of Americans approve of the actions against Russia, it’s a missed opportunity.
These companies should be communicating not just with customers and the community, but with suppliers (where the brands have real leverage) and partners — especially considering that just half of corporate leaders believe stakeholders understand what they do to meet their needs.
The “Why” is ROI: 5 Steps to Getting There
Which leads to a capital question: Why aren’t most of these companies asking their stakeholders to stand with them in their efforts to support Ukraine? If brands are going to commit to stakeholder capitalism, it makes financial sense to pursue stakeholder loyalty.
The answer may exist, in part, in the newness of stakeholder loyalty, not to speak of the misunderstanding of what engenders loyalty. But the potential is rooted in history: There are a myriad of things that companies should do — not only in crisis moments like the war on Ukraine — but on an ongoing basis with respect to the environment, human rights, voting rights, LGBTQ rights and beyond.
With these events as context, here are five steps that companies can take to parlay stakeholder capitalism into stakeholder loyalty:
- Be nimble, and while at it, be more aggressive. The world is in constant change and therefore so are markets and stakeholders. Being relevant enough to engage them means having the courage to respond in real time and proactively address these changes.
- Break down company silos. This is the only way to be nimble, but it requires leadership and a commitment to not let bureaucracy inhibit getting things done in a timely way. Eliminate fear by openly supporting a robust exchange of ideas and empower leadership with clear expectations.
- Plan ahead, beyond crisis communications. Recognize it’s not so much if but when events that relate to the company’s role to stakeholders will materialize. With fewer barriers in an organization and a shared stakeholder commitment, a bit of planning enables people to act quicker and with more confidence and certainty.
- Communicate, communicate, communicate. Test messaging and activations for each stakeholder and see what happens. Tweak, and repeat.
- Measure the results. Testing with control groups produces clear measures of the improvements stakeholder engagement yields. As the famed attorney Louis Lowenstein put it, “you manage what you measure.”
Stakeholder capitalism, and stakeholder loyalty, by design are about using capitalism to make our world a better place. There is still much work to do, but it’s encouraging to see hundreds of companies taking action and there is no reason to expect that this trend won’t accelerate, given the state of our world. Especially when the results are measured, prioritized, and rewarded — to change history.
Phil Rubin is Founder of Grey Space Matters, a firm that helps companies accelerate growth through innovation, strategy, development and execution.