Every company is on this journey, intentionally or not. How does your company measure up?

By Nathan Havey

In 2019, Business Roundtable redefined the purpose of a corporation to promote “an economy that serves all.” Stakeholder business or stakeholder capitalism — when a company strives to benefit all of its stakeholders instead of merely its shareholders — is hardly new. But “doing good” has never been more important to the business world than it is today. 

Around the same time as Business Roundtable’s announcement, major investors like Larry Fink, CEO of Black Rock, echoed the sentiment that stakeholder business is becoming table stakes in the business world. And of course, the proclivity of Millennials and Gen Z to flock to purpose-driven companies as both consumers and employees makes even very profitable companies who struggle to say how they’re making the world a better place look dangerously vulnerable.

The Road to Becoming a Stakeholder Business

With all this pressure to “do good,” it seems like we’ve reached a new era of corporate citizenship. But if we scratch the surface a bit, we quickly see that companies’ efforts to “do good” may look similar to their marketing materials and ESG (Environment, Social, Governance) performance statements, but they are, in fact, at different places on their stakeholder business journey.

As we survey the current landscape, we see a continuum of roughly six stages of stakeholder business, outlined in the following section. In general, the people in the companies at each stage are well-intentioned. They may be interested in making progress to the next stage and beyond, but as the world continues to change, many companies aren’t clear on their path to make progress in the near-term.

Note:

Read the following six stages of stakeholder business as a map of the journey we are all on, rather than a tool to point fingers or feel disheartened. By identifying which stage of stakeholder business your company is currently at, you’ll more easily discern the next steps to take to become an organization that truly makes the world a better place.    

Stage 1: Saving Face

At this stage, a business has an almost total absence of purpose or mission beyond making money. Any efforts to “do good'' here are largely driven by the marketing department and are in no way related to a true stakeholder business model. Efforts at this stage often serve to add “brand equity” and distract from less savory parts of the company’s business model and its lobbying positions. 

The real impact of corporate donations or volunteer hours is mostly irrelevant except to a small team who organizes them, because the purpose is to tell a good story, plaster the “our company cares” page on the website with smiling employees “giving back,”, and keep control of the narrative around the corporate brand. 

These businesses often spend more marketing their “doing good” efforts than they invest in the efforts themselves. Leaders in these companies are ignorant or apathetic to the negative impacts the destruction of environmental and social capital are already having on their business (much less the community and world at large).

Stage 2: Following the Rules

At this stage, a business may have a well-developed purpose or mission statement and perhaps a corporate philanthropy focus.

However, outside this area of focus, these companies generally bristle at efforts to get them to consider incorporating their social and environmental impacts. They follow the letter of the law and assert that government and nonprofits — not business — should deal with those other issues (and many spend plenty on lobbyists to fight regulation, both existing and new). 

Through their area of impact focus, these business leaders may have tasted the fruits of growing non-financial capital and its impacts on retention and engagement, but they still only see the tip of the iceberg when it comes to the benefits of stakeholder business.

Stage 3: Giving But Not Solving

At this level, a business has a clear mission statement or higher purpose. The business was founded to do some good in the world, but it is focused on a proxy measure for the “good” it seeks to do, and not on real impact. These proxy measures are often built into the business model, such as giving a specific percent of profits to charity or a one-for-one model like the one made famous by Toms Shoes. 

These business leaders enjoy many of the talent and customer attraction benefits of stakeholder business, in addition to retention and engagement advantages — at least for a while.  

The trouble with staying at this stage is twofold. First, as Toms Shoes discovered, their charity model was big-hearted but not sound-minded. Sending a ton of free shoes into a poor community kills the fledgling enterprises in that community working to meet that demand — exacerbating the problem, not eliminating it.  

Similarly, giving money to nonprofits does not mean that money is being put to good use and that problems are being solved. Many, if not most, nonprofits have more success addressing symptoms of problems (a worthy goal, to be sure) than actually solving problems once and for all.  

Secondly, companies at this stage are often so focused on their mission, they fail to see the impacts their business models have in other social and environmental areas. Indeed, many of the problems that nonprofits seek to solve are unintended consequences of the way even businesses at this stage operate.

Stage 4: Resting on Their Laurels

Companies at this stage take a more holistic view of their business model and their stakeholder ecosystem. They generally seek to understand the totality of their impacts and take real action to optimize their impacts on people, planet, and profit. Their goal is to leave the world better than they found it. 

Here, companies give generously of their resources and their financial capital. There is a genuine commitment to reducing any harm that the company may inflict and offsetting what cannot be reduced with positive contributions.  

These companies are currently operating at a high level and enjoy most of the benefits of stakeholder business. The major weakness at this level is the temptation to rest on one's laurels. Having achieved a level of do-no-harm neutrality, with plenty of positive impacts to tout, companies at this stage may feel like they’ve arrived. If we lived in a different time, perhaps they might have. But it is not here that the journey ends. Stakeholder business asks companies at this stage to strive for even greater things.

Stage 5: Becoming a Conscious Company

In addition to the holistic view of the systems that allow it to function — including the flows of human, social, ecological, and financial capital that are its lifeblood — at this stage, a company is aware of its power to achieve a specific, worthy purpose beyond profit. It designs its culture and operations to leverage everything at its disposal to fulfill that mission. Growth and profit remain important, but no longer for their own sake. Now, growth and profit are a necessary factor of achieving the company’s main purpose. This differs from level three because here a company seeks to solve a problem, not just mitigate symptoms.  

As a company makes a bold stand for its mission or purpose, it must also do the continual work described in stage four. As many companies discover, their worthy purpose is interconnected with other problems. What starts as a narrow focus often must expand beyond the boundaries of the company to have a hope at success.  

At this level, the lines between for-profit, social enterprise, non-profit, and activist movement blur and the company enjoys a truly unfair (but well-earned) advantage over its competitors in terms of employee attraction and retention, innovation, customer and employee loyalty, and engagement across all of its stakeholders.

Stage 6: Operating as a Stakeholder Business

At this stage, a stakeholder business distinguishes itself through exemplary performance on six key metrics:

1. It’s highly profitable and ensures that the value it generates is paid appropriately to all those throughout the value chain who created it, with special attention to ensuring that everyone in the value chain can exceed their basic needs.
2. The company culture is psychologically safe to the point of healing. In interacting with the company, people from many stakeholder groups experience profound levels of care as they discover their own genius and become fuller, more complete versions of themselves at work as well as at home. 
3. The company seeks out and transforms areas where it has been complicit in systems of discrimination and turns them into systems designed to proactively dismantle those systems.
4. The company finds ways to align its entire value chain and all of the processes therein to support and amplify the life-supporting natural services provided by the environment.
5. The goal of company negotiations with its stakeholders is to discover smart ways to add as much value as it can for the “other side” while providing for its own needs.
6. The company does all of the previous five things while on a mission to solve the worthy problem that is its reason for existing.

At present, we are unaware of a company that has reached the zenith of the stakeholder business continuum, or stage six. By virtue of the changing times, every company is on this journey (intentionally or not), and every company has many opportunities to make progress and become a better-performing stakeholder business. 

Which company will be the first to truly behave as a stakeholder business? Why not yours?

If you'd like to see how some companies are approaching stage-six status, check out 3 Business Purpose Examples And Why They Work.