Corporate Leaders Say They Are for Stakeholder Capitalism—But Which Version Exactly?: A Critical Look at Four Varieties

The past few years have seen an outpouring of articles and statements heralding the arrival of a new and more inclusive form of capitalism often called stakeholder capitalism. The new capitalism promises to strengthen companies, improve outcomes for their constituencies, produce better returns for long-term shareholders, and ultimately strengthen the economy and society as a whole. In line with the new ideology, corporate boards and business leaders are being urged to replace the shareholder-centered approach to governance that has guided their work for the past several decades and, instead, to adopt a multi-stakeholder approach. In speaking with hundreds of corporate directors, executives, investors, governance professionals, and academics over the years, I’ve found wide differences in how stakeholder capitalism is understood and what it is thought to require of companies and their leaders. Failure to recognize these differences has been a source of much confusion and controversy inside companies and in the public debate. In this paper, I describe four varieties of stakeholder capitalism (also called stakeholderism): instrumental, classic, beneficial, and structural. The four types reflect significantly different levels of commitment to the interests of stakeholders and rest on very different rationales. Each has very different implications for how companies and their boards function. As more companies embrace stakeholder capitalism, it is important for boards and business leaders to have a shared understanding of what, exactly, they are embracing, and to prepare themselves and their organizations to deliver on their espoused commitment. This paper is intended as a guide to help corporate leaders do just that. It discusses each type of stakeholderism in turn and concludes with some observations on the challenges presented by each.