Review: Stakeholder Capitalism

I ordered this book some months ago when it first came out, intending to read it while I am in Sicily. It is one of the few non-fiction books I’ll read this year, and it is worth special mention.

It is written by Klaus Schwab who is the founder and executive chairman of the World Economic Forum, the International Organisation of Public-Private Cooperation, best known for its annual meeting in Davos, Switzerland.

Klaus Schwab

Mr Schwab makes the point that Shareholder Capitalism has failed. The form of capitalism which has been practiced throughout the Western World for the past fifty years is no longer fit for purpose. By focusing all the benefits of business on the owners of the business (the share holders), great injustices have been done to employees, the community, the general public, government and the planet.

In the first part of the book, he describes in some detail evidence against Shareholder Capitalism. The focus on giving shareholders nearly all the benefits has resulted in a shift in power away from labour unions and into the hands of management. Employee pay has stagnated, while executive pay has dramatically increased over the last half century. Communities have been devastated by the closure of local businesses and the relocation of the business overseas in order to improve profits for the shareholders. The general public has been injured by unregulated risk taking and non-competitive behaviour of businesses. Government has been unable to collect the taxes to which it would be entitled by tax avoidance schemes which benefit only shareholders. And insufficient attention has been paid to pollution as a cost saving which benefits only the shareholder.

Schwab argues that it is time to change our form of capitalism to one where the benefits are more fairly distributed, where employees have more of a say in their work and receive fairer compensation, where the needs of the community which houses the business are considered, where the government has a stronger regulatory role, and the life of the planet is given full attention.

This change, Schwab argues, can be brought about by repurposing companies so that they benefit their customers, their employees, society at large and their shareholders. He says, “in September 2020, the International Business Council of the World Economic Forum – comprising 140 of the largest global companies -presented the Stakeholder Capitalism Metrics. They are a core set of metrics and disclosures on the non-financial aspects of business performance, including variables such as greenhouse gas emissions, diversity, employee health and wellbeing.”

The book is well written and certainly persuasive. It is also timely. Although it is early days, I think that more attention should have been given to implementation of Stakeholder Capitalism. More examples of companies which have actually done it, and more about the actual metrics.

Left unsaid – likely for political reasons – is the application of stakeholder capitalism to the Chinese version of capitalism, where the main beneficiary is the Chinese Communist Party and its ideals.

The world would be a very different place if stakeholder capitalism were to be universally adopted.

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