The Next Generation of Stakeholder Capitalism: Who Will Carry the Torch?

This article originally appeared on Fortune.com.

Five years ago, Klaus Schwab, the founder and executive chairman of the World Economic Forum, penned the Davos Manifesto stating, “The purpose of a company is to engage all its stakeholders in shared and sustained value creation.”

Today, we are approaching a pivotal moment for stakeholder capitalism. Schwab is expected to step down by early 2025, Jamie Dimon of JPMorgan has hinted at retirement, and Larry Fink of BlackRock may be nearing retirement as well. These leaders have championed a more inclusive, stakeholder-driven approach to business. With their departures on the horizon, it’s important to ask: Who will carry this torch forward?

Now is the time to reinforce the values of stakeholder capitalism and cultivate a new generation of leaders who prioritize long-term value for all stakeholders — customers, employees, shareholders, communities, and the planet — over short-term profits.

For nearly 40 years, I have taught business ethics to thousands of students at the University of Virginia Darden School of Business, and I have spoken with thousands of businesspeople from many countries. These experiences give me hope. My students are determined to do something meaningful for society. I know businesspeople want to be a part of solutions to our difficult problems.

The stakeholder theory articulated in 1984 in my first book, Strategic Management: A Stakeholder Approach has metamorphized — and some of the world’s largest corporations now put its ideas into practice. As one CEO recently put it, “If it didn’t lead to competitive advantage it would disappear.”

Today, most Fortune 100 companies have a purpose or mission statement affirming their intent to serve customers, employees, suppliers, communities, and investors. Companies all over the world have thrived on the idea that stakeholders are interdependent and intimately connected with the ability to create value for shareholders. The Business Roundtable officially endorsed stakeholder capitalism in 2019.

But it’s not enough.

Every week, we see headlines with evidence that some businesses and business leaders continue to pursue profits at the expense of public safety, employee well-being, and environmental protection. High-profile cases at companies often highlight significant disparities between CEO pay and company performance, especially during crises.

While bad intent doesn’t lurk behind every corner, and we’ll never overcome the peculiarities of human behavior, too much corporate decision-making still follows Milton Friedman’s “old story” of business: That profits and money are all that matter.

This old story must be rewritten again and again. In fact, we need even more from business. The network of stakeholders connected to business and the issues affecting them are more complex. The stakes are higher for all of us.

The last 15 years have brought global financial crisis (2007-08), new urgency around climate change, heightened racial and gender discrimination, the re-emergence of wars and continued terrorism by non-state actors, fractured political systems around the world, more awareness of poverty and economic inequality, radical technological changes, and, of course, the COVID-19 pandemic. 

Today, artificial intelligence has the capacity to be the most economically productive, yet societally destructive technology we’ve ever seen. How will we address the surging demand for the energy needed to power AI? Who gets automated out of their careers? How will nefarious actors in the world use this technology?

These are societal but also business problems — and businesses must be part of finding solutions. But will they?

Between pressure to return value to shareholders, an uncertain political environment, and the advent of AI, it might be tempting to think the promise of stakeholder capitalism is fading or becoming less relevant. In some quarters, shareholder primacy is gaining momentum amid a misplaced backlash against stakeholder capitalism.

To be clear, stakeholder capitalism proponents like me don’t think business can or should be expected to tackle every big societal issue. But companies can’t ignore what’s right in front of them. They can and must deal with the issues and stakeholders that are a key part of their business model. They must first recognize that they are a critical part of society, and then be willing to confront the societal and market issues that affect them without taking ethical shortcuts.

We can start by viewing business as the very human institution that it is and give capitalism credit for the enormous good that it has made possible, all while holding it accountable for its harmful effects. We must acknowledge that business and capitalism create (and sometimes unintentionally destroy) value for customers, employees, suppliers, and communities as well as for shareholders and other financiers. And we need to understand that all stakeholders are at least partially interdependent.

Of course, businesses need to make money. Suggesting that profits are somehow bad or unethical is like saying that breathing or making red blood cells is bad. But businesses can do more. They can do better.

Our capitalist system is the most powerful institution of human cooperation and value creation ever invented. Our challenge is to be the generation that simply improves it for everyone. Stakeholder capitalism is just a better way to do business in the 21st Century. There’s no better — or more important time — than right now.