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Making Stakeholder Capitalism a Reality

The recent push by big business in favor of a more socially and environmentally conscious corporate-governance model is not just empty rhetoric. With the public losing trust in business and markets, it is now in everyone's interest to reform the system so that it delivers prosperity for the many, rather than the few.

BERKELEY – For a half-century, American corporations (and many others around the world) have embraced shareholder primacy, which holds that the only responsibility of business is to maximize profits. But this principle is now being challenged by corporate leaders themselves, with the United States Business Roundtable announcing last year that it will adopt a stakeholder approach that focuses not just on shareholders but also on customers, employees, suppliers, and communities, all of which are deemed essential for business performance.

When US business leaders join their global counterparts this month at the 50th-anniversary meeting of the World Economic Forum, they will discuss how to give concrete meaning to stakeholder capitalism, a concept first articulated by the WEF’s founder, Klaus Schwab, in the 1970s. In anticipation of this year’s gathering, Schwab has proposed a new “Davos Manifesto” that identifies potential tradeoffs between the interests of various stakeholders, and looks for ways to reduce or eliminate them through the common goal of long-term value creation.

Critics have pounced on both the Business Roundtable and WEF statements, dismissing them as “empty rhetoric” or like something out of The Wizard of Oz. Others have decried the travesty of elites talking among themselves rather than with those they have harmed. Yet while some skepticism is justified, there are already promising signs that a change in corporate behavior is coming. Both the WEF and the Business Roundtable have begun to develop blueprints for implementing stakeholder capitalism.

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