Stakeholder Capitalism

Stakeholder capitalism contrasts with shareholder primacy, the view, famously argued by economist Milton Friedman in 1970, that a company’s main responsibility is to increase profits for its shareholders within the law.

Supporters argue that companies that treat employees fairly, serve customers well, support communities and protect the environment are more sustainable and successful in the long run, and that businesses have responsibilities beyond profit. In 2019, the Business Roundtable, a group of leading US chief executives, issued a statement redefining the purpose of a corporation to include all stakeholders, which drew wide attention.

For example, a company practising stakeholder capitalism might invest in training staff, pay suppliers promptly and reduce its emissions, even if these reduce short-term profits.

Critics argue that stakeholder capitalism blurs accountability, since managers serving many groups may effectively answer to none, and that it can be used to justify poor performance. Others argue that serving stakeholders and creating shareholder value are largely compatible over the long term. The debate is closely linked to ESG investing.