Stakeholder Capitalism: A Path to Sustainable Growth

Brands today almost agree that sustainability-related strategies are essential to be competitive.

This is very natural. From the perspective of brands, sustainability issues offer tangible benefits to society and the environment. These issues also provide intangible benefits to the brand itself. The most fundamentally reduced costs, more accurately managed risks; at the same time, issues such as increasing reputation with consumer and talent attractiveness, perception scores, being a preferred brand and workplace…

From all these perspectives, the search for purpose is crucial. It is one of the main issues for brands to sustain themselves.

On the other hand, let’s be honest.

Communication specialists are adept at making delicious packaging for brands. However, this issue is so important that it cannot be overlooked with good packaging.

Any work done within the framework of sustainability has benefits. This is true regardless of the intention. These benefits include raising awareness and reaching more people. However, I am one of those who think that communication specialists have a very important responsibility in these matters.

By going a little deeper into the concepts and models, it is necessary to realize what is actually done (green packaging/washing, purpose wrapping or a complete change in the business model, stakeholder management and impact, etc.). Otherwise, as in everything else, there is a risk that these issues will be emptied and meaningless.

_{^{Why do companies (and brands) exist?}}

Today, brands are chasing ‘purpose’. But this does not mean that the entire system was lack of purpose in the past. It is necessary to evaluate the issue in parallel with the change and development of economic doctrines.

If we draw the line from Friedman first, the purpose of companies is clear: ‘Making money for the shareholder!’

Milton Friedman, winner of the Nobel Prize in Economics, defined this doctrine in the 70s as “The business of business is business.” So, the focus of companies is nothing but making a profit. They focus on cost, process control, and efficiency. Their aim is market control and increasing market value. Ultimately, they generate economic value for shareholders. Social or ecological concerns should not distract companies. These are ultimately the business of states. (Very clear, isn’t it?)

_{^{First off-market pressure to companies!}}

The clear purpose began to become more complex over time. The first step that brought the sustainability axis into the economic paradigm came from outside the traditional market dynamics.

Environmental and social concerns had to enter into the economic process due to the pressure from stakeholders such as NGOs. The public and the media also expressed their concerns. Economic risks (and opportunities) started to emerge, triggered by environmental and social concerns.

However, it must be said that the decisive factor here is to create value for the shareholders. Even with sustainability concerns in mind in decision-making and action, business objectives are clearly focused on gaining shareholders. This approach can be described as reactive. It focuses on managing risks that will affect economic gain.

_{^{Transition from shareholder focus to stakeholder capitalism!}}

A critical manifesto was published at Davos in 2020. The companies aim to involve all their stakeholders. They want to create common and sustainable value.

In creating such value, it was stated that a company should serve not only its shareholders. It should also serve all its stakeholders – employees, customers, suppliers, local communities, and society in general.

This understanding goes beyond managing the impact of environmental and social risks on profitability. It is based on creating value not only for shareholders but also for people and the planet. The issue has turned from reactive risk management to proactive target and program execution of brands to create value for different stakeholders. Another important difference is that all steps taken in this field have started to be measured and reported.

This approach focuses on creating value for all stakeholders in three legs: economy, human, and planet. It moves away from an approach that keeps the shareholder in the center as the sole stakeholder. This shift is actually a very important break for companies to review their business models.

_{^{“Every social and global issue of today is a business opportunity in disguise” Peter Drucker}}

Introducing the concept of stakeholder capitalism in this way is a serious break. Even today, this has started to move to a different dimension with ‘social entrepreneurship‘.

We witness business initiatives that set out to solve sustainability-based issues by generally relying on new technologies.

Here, too, it is possible to talk about a paradigm shift. These initiatives take action primarily to find answers to some key questions:

– How can we contribute with which (existing/new) products and services to solve the sustainability problems in society?

– How can we use our resources and competencies to contribute to the solution of economic, social or environmental challenges?

– What structural contribution can we make on issues such as the climate crisis, gender equality, education, and access to finance?

These initiatives seek to transform the resolution of social and environmental issues into “economically sensible” business opportunities. In other words, the issue of creating economic value is not in the background.

The business idea begins with a review of these sustainability-focused challenges. Then it continues with developing new strategies and business models that will solve these problems.

This represents a very different strategic approach to the traditional business world. As a truly sustainable business model, as Drucker says, it sets out to solve a social problem, while actually creating economic opportunity.

_{^{Sustainability should be the business model itself, not just a brand strategy.}}

“We focus on sustainability not because we are environmentalists, but because we are capitalists and trust our customers. This requires understanding how companies are adjusting their businesses for the big changes the economy is going through.”

The words of Larry Fink, CEO of Blackrock, the world’s largest wealth management company, actually reveal the connection between the economy and sustainability issues. Blackrock manages a fund size of 10 trillion dollars. Fink says they will continue to pressure companies to pay attention to climate change because it makes financial sense.

Fink’s words matter. Expressing these issues with such clarity by the market players themselves will affect all business plans of the companies.

On top of that, the social consciousness triggered by the new generations will create a serious pressure for change on companies. Today, companies that act on sustainability-related risks have a difficult chance of surviving. Continuing to run their business model solely on the axis of creating value for shareholders is not enough for long-term survival.

The future will belong to companies that create long-term value for all stakeholders. These companies do not operate ‘as if’ on the triple leg of economy, human, and planet. Instead, they sincerely harmonize their business models with social enterprise dynamics.

Companies that embrace sustainability not only as a distinctive brand strategy but also as a business model will win.

Thus, on the one hand, new market opportunities, business and subject areas will emerge.

It seems utopian to create social and environmental value while including all stakeholders. Achieving this while the economy engine is running appears challenging. However, this approach actually offers a window of opportunity. It brings hope for humanity.

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