Stakeholder capitalism needs more talk and more action

Stakeholder capitalism is a phrase that attracts a fair number of raised eyebrows. Sceptics point out that it’s often little more than performative – a PR stunt for companies looking for a positive angle to divert attention from their ills and issues.

Like ‘greenwashing’, the corporate practice of overstating your environmental credentials, or ‘pinkwashing’, where companies set out overblown commitments to LGBTQ+ causes, there are certainly plenty of instances where stakeholder capitalism has turned out to be an empty gesture.

But what about those companies which do want to show meaningful appreciation to their stakeholders and communities, yet have no mechanism to do so? Raised eyebrows aside, more education is needed to explain what stakeholder capitalism is (and isn’t) and how progressive companies can put it into practice.

Meaningful debate

So what is stakeholder capitalism? Put simply, it’s the philosophy that businesses should focus on more than generating short-term profits or pursuing only shareholder value.

The underlying principle is that a diverse community of people contribute to a company’s growth, and that they should be able to share in the success they helped to build. Nearly anyone can be a company’s stakeholder – employees, customers, partners, communities. And, of course, shareholders are stakeholders too.

This all seems sensible. But for decades stakeholder capitalism has barely been discussed as a viable model, compared to maximising shareholder value. That’s why, for an old idea first proposed in 1932, it is often mischaracterised as a modern ruse to appease the high expectations of millennials and Gen Z.

It burst onto the business agenda at the World Economic Forum in 2019, where founder and executive chairman Klaus Schwab set out a manifesto for renewing this form of business. If anything, this intervention was long overdue. The notion of ‘shareholder value’ as the primary goal of business had been under attack since the 2008 financial crisis, with the Covid pandemic, the climate crisis, and other global economic shocks and disturbances all adding to the notion that corporations should answer to more than just their owners. In 2023, there’s finally broad awareness that companies need to be good citizens too, ones which care about their employees, suppliers, customers and other people who contribute to their success?

Corporates and startups

Stakeholder capitalism has plenty of evangelists, but it can be an uphill struggle to turn talk into mutually-agreeable action. Danone’s CEO Emmanuel Faber was a devotee of sustainability and stakeholder capitalism, actively building it into the £22.7bn corporation’s business model – until its shareholders forced him to leave the company in 2021.

In reality, multinationals are unlikely to lead the change. They have the turning circle of a shipping liner; it may take decades for them to reshape their business models and embed sustainable, community-based practices that shareholders are willing to accept.

On the other hand, startups are as nimble as jet-skis. Hence, while larger corporates struggle to reward stakeholders, this creates an opportunity for startups and scaleups to set themselves apart and build communities into their business model early.

So, in practice, being an early-stage founder who identifies your stakeholders, addresses their needs, builds trust, and rewards their loyalty is far from an empty gesture – it’s smart, long-term business thinking. And the reality is that stakeholder capitalism is more suited to new, growing companies which are mission- and purpose-led.

Your business may have a wide circle of supporters who are traditionally left unappreciated – freelancers, advisers, consultants, gig workers, volunteers, beta customers, partners, or people you simply rely upon. The question is: how do you motivate this community, incentivise them, and give them ownership of the business they’ve helped create?

Positive action

Movements can happen by small acts and gestures. The starting point is for progressive early-stage founders to devise transparent and measurable loyalty systems for their startup, offering fair and equitable rewards to all those individuals who’ve contributed.

How do you show appreciation and reciprocate this loyalty? “No need for over-the-top gimmicks. A simple thank you note, a free lunch, or a gift card are all great ways to show your appreciation,” according to submission management platform Submittable. Well, yes and no. One-off gestures can show stakeholders that you care, but they don’t build long-lasting relationships.

Here’s a more meaningful example of how to put stakeholder capitalism into practice. Give members of your community an equity-like stake in your business – a token which is less clunky than equity itself but more motivating than a thank-you card.

The best way to create a meritocracy in your company is to reward everyone for their input. This also has an energising effect, as it gives people in your community more skin in the game. The more they contribute, the more they benefit from your company’s future success.

Helping start-ups lead the movement

It’s human nature for each of us to want recognition, whether as employees recognised for hard work, or customers rewarded for their loyalty. What if all those individuals who helped get your company off the ground – your suppliers, partners, freelancers, customers, and so on – could see their commitment repaid, as standard corporate practice?

In business, there should never be an expectation of a free lunch. Whether it’s positive reviews, warm business leads or referrals, these things require input from a community, utilising someone’s network and influence. As a result, people who add value to the business growth should be rewarded accordingly. Since there was no solution on the market that could do this, Koos.io was born.

The platform simplifies shared ownership to allow business-critical contributors earn equity-like stakes in the business they positively impacted. When certain milestones are reached, these stakes turn into a financial reward, resulting in a win-win situation for both the business and its community. Simply put, it’s a legal promise to give a contributor a part of the company as a token. When the company achieves a predefined business goal – for example, an IPO, exit, acquisition or specific revenue targets - the token is translated into financial rewards based on a predefined formula.

Giving out equity without messing up the company’s cap-table used to be an unresolvable task, but we managed to overcome the problem. Our model creates new opportunities in sales and marketing, solving the typical “Founders’ amnesia” issue. Our vision is to have a more equitable distribution of business wealth, where people choose to only work with and purchase from brands they have stakes in, perfectly aligning their values and priorities with the company’s.

Stakeholder capitalism isn’t for everyone. Many larger corporates are still wedded to outdated notions of shareholder value, or struggling to turn their ship around. But while some in the business community are raising their eyebrows or making empty promises, this creates even more advantage for progressive leaders to set their business apart, with community at its heart.

Stakeholders are the future of business – only authentic leaders need apply.

Taavi Kotka is the CEO and co-founder of Koos.io, a company building a new form of ownership to serve organisations who are committed to giving a true stake to their contributors. He is the former chief information officer of Estonia.