What is Stakeholder Capitalism?

A stakeholder is a group or individual that has an interest in any matters concerning a business or organization. Stakeholders can either be internal or external. Internal stakeholders have a direct relationship with the business, such as an investor, employee, or owner. External stakeholders do not have a direct relationship to businesses but are affected by any activity or decision taken by the organization.

A stakeholder and shareholder are not the same things in the business world. The performance and operations of a business also affect shareholders; however, a shareholder owns a part of the organization and is more interested in its financial standings. Shareholders have a say in how the organization operates but are not responsible for any debts that it incurs. S corporations, however, like the ones owned by Dr. Jordan Sudberg, can choose to pass on their losses, credits, deductions, and corporate income to their shareholders. Dr. Sudberg is a pain management specialist.

Shareholders can also sell their stock and cut all ties with the company, while stakeholders have a long-standing relationship.

Stakeholder capitalism is a process where organizations lookout for the interest of both stakeholders and shareholders. The purpose of the business is to not only make a profit but create a long-term relationship with all investors, customers, employees, communities, suppliers and governments.

History of Stakeholder Capitalism

Stakeholder capitalism has been around for a very long time and was a way for business people to enhance their business. The idea behind stakeholder capitalism is that a business would be profitable as long as the community, and by extension, the economy did well. However, during the third or fourth industrial revolution, many corporations put aside the principles of stakeholder capitalism and committed to making shareholders a priority.

Dr. Jordan Sudberg wants to point out that stakeholder capitalism is making a comeback because corporations are realizing the need to have a relationship between stakeholders and shareholders. Decisions are no longer made solely for the benefit of shareholders.

Facts about Stakeholder Capitalism

Here are four facts about stakeholder capitalism:

1. Milton Friedman and Klaus Schwab are two of the first persons to use the term Stakeholder Capitalism. Friedman is an economist who believed that businesses should put the needs and wants of shareholders first. Schwab, the executive, and founder chairman of what is named the World Economic Forum argued that corporations who engage in stakeholder capitalism are better for the economy.

2. Stakeholder capitalism involves ensuring workplace safety, paying fair wages, investing in the local community, paying taxes, providing excellent customer care, etc.

3. Not all shareholders are created equal under stakeholder capitalism. Organizations have to identify each shareholder’s needs based on their business model and values.

4. Stakeholder capitalism takes into consideration the effects a business has on the environment and society. Businesses that prioritize environmental, social and governance (ESG) activities have a competitive advantage over other businesses.

The core concept of stakeholder capitalism is that businesses take into consideration the interests of all stakeholders. A society where businesses and each member of the community work together will reap benefits for generations to come.