Is the Stakeholderism Debate Over? Here’s Why It Shouldn’t Be.

January 14, 2021

Just before Christmas, strategy + business declared stakeholderism the new corporate law of the land. They published a piece boldly entitled, “The stakeholder-shareholder debate is over.” Is it? And if is, is that a good thing?

Fundamentally, stakeholderism isn’t a stand-alone philosophy on how to a run a business. Stakeholderism is really about opposition to Milton Friedman’s declaration on shareholder primacy. Friedman maintained that companies promote social good best when they put shareholders’ interests first. By contrast, stakeholderism doesn’t say any specific interests should be prioritized. Instead, it says they all should, from employees, to customers, to the environment, to communities, to suppliers… the list goes on. But as the CEO of Levi Strauss succinctly put it, “if you stand for everything, you stand for nothing.”

For that reason, at the end of the day, stakeholderism is one of two things. First, it may be purely PR. CEOs may issue statements purporting to support a certain stakeholder’s interests, but because a stakeholder can be anything or anyone, there’s no accountability mechanism. For instance, if a company decides to open a processing plant in rural Idaho, the CEO can laud the move as “in the interests of the rural community, an important stakeholder that will see 15,000 new jobs.” If a company decides to close a processing plant in rural Idaho, the CEO can declare the move “protects the fragile Idaho environment, a critical stakeholder as we seek to end our adverse climate impact.” The decision to open or close a processing plant actually comes down corporate profitability. The only change stakeholderism makes is whether a company is honest about it.

Stakeholderism Makes a New Political Class

Alternatively, stakeholderism might be more than PR – and it might have more detrimental consequences. For years, companies have been under mounting pressure from political activists who become shareholders so they can introduce resolutions that have nothing to do with the company’s fiduciary responsibilities. In fact, sometimes the resolutions directly undermine those responsibilities. One of the leading organizations in the activist-turned-shareholder space is As You Sow, which introduces new resolutions every year on climate change, lobbying, diversity, and more. As You Sow asked ExxonMobil to produce reports on how it will “reduce its contribution to climate change.” Exxon is an oil company. How could Exxon possibly stay profitable, without completely changing its business model and hurting shareholders, under such dictates?

In the context of this political pressure, stakeholderism enters stage left, and it looks like a get-out-of-jail-free card. By giving CEOs an opportunity to tell their attackers the company is simply acting in the interests of a particular stakeholder, they respond in political language to political criticisms. In effect, they choose the winners and losers of their corporate policy. CEOs become de facto political figures.

Even stakeholderism’s fiercest proponents acknowledge that it will result in the making of millions of new pseudo-politicians. In the strategy + business article, the writer declares, “CEOs are becoming more like politicians, who have to be prepared to answer questions on just about any aspect of society.” But surely, the last thing our country’s institutions need is more politicians. Do we really want CEOs to become hypocrites to survive in the new hyper-political corporate order? Do we want CEOs to contribute to the conversation in their official capacity every time there’s a national problem, one that doesn’t actually impact their business, profitability, or their shareholders? Is that really beneficial to a deeply polarized country?

More Honesty, Not More Politicians

Honest discourse from our leaders – in both the corporate and political sphere – is swiftly becoming a relic of the past. The surest way to provoke honesty and accountability for corporate leaders is to reinvigorate shareholder primacy. When companies are accountable to their shareholders, they prioritize the individual investors, who make up an increasing share of the stock market, who own 401ks, Roth IRAs, and HSAs invested in the company. When companies aren’t accountable to their shareholders but rather to nebulous “stakeholders,” they’re in fact accountable to no one. In a scenario where the “stakeholderism debate is over,” no one really wins.