The concept of stakeholder capitalism is redefining the role of corporate boards, compelling them to consider a broader range of stakeholders, including employees, customers, suppliers, and society at large, alongside traditional shareholders. This shift reflects the growing importance of sustainability and corporate social responsibility (CSR) in ensuring long-term business success.
Historically, boards focused predominantly on maximizing shareholder value. However, the rise of Environmental, Social, and Governance (ESG) issues has significantly expanded this focus. According to a report by The Conference Board, 68% of executives believe ESG considerations will have a substantial impact on board operations, while 53% predict stakeholder capitalism will shape future board agendas .
Addressing these changes requires boards to integrate ESG factors into their decision-making processes. This involves understanding the environmental and social implications of business operations and adopting sustainable practices. As highlighted by the Harvard Law School Forum on Corporate Governance, the board’s role in ESG is primarily one of oversight, ensuring that corporate strategies align with sustainability goals.
Global sustainability standards are becoming crucial. The establishment of the International Sustainability Standards Board (ISSB) aims to create a global framework for sustainability reporting, enabling companies to manage risks more effectively. These standards benefit both organizations and investors by fostering greater transparency and accountability. For instance, companies adhering to ISSB guidelines can better address stakeholder concerns while strengthening their market positions.
One of the most pressing challenges is the "green skills gap" in corporate leadership. A lack of sustainability expertise can leave boards ill-equipped to navigate ESG risks and opportunities. According to Reuters, boards should prioritize sustainability education, recruit directors with relevant skills, and engage stakeholders to understand evolving expectations. This approach ensures boards are prepared to lead in an increasingly sustainability-focused landscape.
An emerging trend in stakeholder capitalism is the demand for proactive engagement with diverse stakeholder groups. A recent study published in MIT Sloan Management Review emphasizes that active communication with employees and communities fosters trust and aligns corporate goals with societal expectations. Boards that excel in stakeholder engagement often outperform peers in resilience and long-term value creation.
According to the PwC 2023 Annual Corporate Directors Survey, nearly 70% of corporate directors recognize that addressing climate change is a priority for their boards, reflecting the growing importance of ESG factors in corporate strategy. This increasing focus on ESG is part of a broader trend where companies are expected to integrate sustainability and climate considerations into their long-term strategies. As businesses face mounting pressure from investors, regulators, and society, many directors are adapting their governance approaches to address the urgency of these issues, with many reporting that ESG will play a pivotal role in their strategic planning moving forward.
Definitions
Stakeholder capitalism: system in which corporations are oriented to serve the interests of their stakeholders incl. customers, suppliers, employees, shareholders. The aim is to create long-term value and not to enhance shareholder value at the cost of other stakeholders.
Corporate social responsibility: form of business self-regulation aiming to contribute to societal goals of charitable nature; measures may include, but are not limited to offering pro bono programmes or administering grants to non-profit organisations.
The Conference Board: Non-profit business membership and research organisation with over 1,000 public and private corporations and other organisations from 60 countries.
Sources:
The Conference Board, https://www.barrons.com/articles/esg-boards-investors-conference-board-51675886249
Harvard Law School Forum on Corporate Governance, https://corpgov.law.harvard.edu/2024/01/15/esg-performance-metrics-in-executive-pay/
Financial Times, https://www.ft.com/content/3fb80e89-4ce6-4cc8-8472-ae4c8c99b12d
MIT Sloan Management Review, https://sloanreview.mit.edu/article/the-social-responsibility-of-business-is-to-create-value-for-stakeholders/
PwC’s Annual Corporate Directors Survey 2023, https://www.corporatecomplianceinsights.com/pwc-2023-corporate-directors-survey/
Comments