The New North Star: Stakeholder Capitalism
It is a simple idea matching the needs of our time. Today, more than ever, Americans expect a great business to behave justly. Increasingly, people are choosing one product over another because of a company’s environmental or social record. Or they are looking at the purpose, values, and ethical practices of an organization before applying for a job or investing capital. The market, in other words, is increasingly looking to reward (and punish) companies on things that transcend pure financial return. A new, more just marketplace is being born.
We are JUST Capital, a nonprofit of committed capitalists who believe free market enterprise is capable of producing extraordinary prosperity for all Americans – not just shareholders.
Our mission is to promote just business practices, a decision born from deep engagement over the past four years with nearly 100,000 Americans through one of the most comprehensive ongoing polls ever conducted on public attitudes toward corporate behavior. Having studied Americans’ issues and challenges, we have come to understand what precisely this concept of a just company means to the hard-working people of this country. We know how deeply people expect business to aspire to far more than mere profits. We also benefit from working with hundreds of large corporations to discover, measure, and monitor best practices toward this goal. A goal which, not coincidentally, also yields far greater profits, employee retention, brand loyalty, and market dominance.
This model of measuring corporate performance will, without doubt, be the wave of the future. Those companies that embrace it sooner rather than later will almost certainly lead their particular industry. Our investable indexes and financial analysis of most just companies have already proven that assertion.
And we are not alone in this belief. Recently, 181 CEOs of the Business Roundtable also recognized the evolving role of business in society, signing a new statement of corporate purpose that embraces a new “stakeholder” model of governance. Perhaps most importantly, we know from our 2019 survey that a substantial majority (95%) of the American people – regardless of politics, income, location, ethnicity, gender, or education – also support this model. This truly is a new brand of capitalism of, by, and for the people.
Business Governance, Reimagined
For a modern company to thrive now and in the future, it must optimize the creation of value for five specific stakeholders:
- WORKERS
All those employees and contractors outside the C-Suite who have become the true value creators in 21st century business must be treated with respect and provided with fair compensation, sharing in the incremental value they help create. Unfortunately, this has not happened in any meaningful way in the past 40 years. Overall, national wages have been flat or under inflation for most of the past four decades. Employees must be motivated and engaged, their merits recognized and rewarded. They need to be trained or retrained for the tasks of today and tomorrow. How a company treats and compensates its workforce have been the top-weighted Issues in our polling since 2015. - CUSTOMERS
Each new customer must be prized and nurtured, considered a lifelong asset, and treated with respect, integrity, and honesty. They are entitled to safe, quality products at a fair price that do not harm health, the environment, or society. To make someone a customer for life, a business must not only fulfill their functional needs with superior value versus competitive offerings, but instill in customers a sense of loyalty and pride in using their product or service. - COMMUNITIES
The modern-day corporation’s sphere of influence extends to the physical and virtual communities its operations impact, the suppliers it relies on, and all the governmental, non-governmental, and civil organizations it touches around the world in the course of its daily operations. These communities need to be carefully tended to, to maintain the social license to do business. Creating new jobs in communities that need them; applying strong ethical standards of behavior throughout supply chains; investing in wider community health and education programs; and contributing to fair tax revenues; all are part of today’s theater of operations and require constant analysis and investment. - THE ENVIRONMENT
Our collective socio-economic health depends on the vitality of the planet. Currently, this is in existential crisis. Enlightened businesses today understand they must take on a leadership role in tackling systemic environmental challenges, alleviating the impacts of climate change, and preserving the scarce natural capital on which humans as a species depend. Integrating such thinking into planning, risk management, product development, strategy, and operations is crucial to sustaining long-term business viability. - SHAREHOLDERS
The American people know that businesses must make money in order to thrive. They know that providing a fair and reasonable return for the capital invested in a business is a critical pillar of justness. Likewise, capital markets will continue to reward businesses that provide sustainable revenues and profit growth in the short and long term. Shareholders and the financial community are crucial stakeholders, and must be treated as such, receiving full and transparent information about all the issues with the potential to substantially impact a business’s plans and performance. Today, the shareholder has important rights in dealing with corporations. Those rights must be protected, but of course, abuse of those rights must be monitored and eliminated.
At the center of it all lies the entity on which all the stakeholders above depend: the corporation itself. Building and maintaining a successful and just company requires constant vigilance, attention, and re-investment by its stewards – namely, the CEO and the Board. The ethics of leadership; the quality of governance and oversight practices; the prioritization of resources; investing in technology, workers, and R&D so as to improve productivity and innovation – areas where we lag our major global competitors: China, South Korea, Japan, Germany – all these things matter immensely in the protection of long-term business value. The encouraging news is that just companies already do many of these things and their shareholders continue to thrive.
The JUST 100
Through our data, our modeling, our corporate analysis, and our public company rankings, JUST Capital is uniquely positioned to become the most trusted, most valued independent platform for measuring and improving corporate performance in the stakeholder economy. Our work empowers the market to hold companies to account for how they perform in serving the needs of their five vital stakeholders. We achieve our mission of building a more just marketplace by tracking corporations’ progress openly and honestly, using data-driven approaches, by engaging with them to promote inclusive and profitable growth, and by creating tools and products that enable users to invest in, work for, buy from, and otherwise support the most just companies that are aligned with their values.
JUST Capital champions America’s Most JUST Companies, including the JUST 100 and Industry Leaders, as the companies with the most just practices across all industries, as well as within each industry sector. As a change agent, we share best practices and build benchmarking tools that provide any company with the information they need to produce superior results across all critical constituencies. The success that follows can be transformational.
The Fierce Urgency of Now
The system of free enterprise capitalism that drove America to become the most dominant economic and military power in the world – from WWII to the 1980s – had a sense of responsibility to a broad set of stakeholders. During this period, America created the largest economic market in the world: America’s great middle class. In the last forty years, all of this has changed. Business governance evolved into “maximizing short-term shareholder value.”
The effect on American society has been deeply divisive and is now unsustainable. Between 1979 and 2016, real average income among working-age individuals grew by 170% for America’s top 1%, compared to 24% for the bottom 90% of Americans. Today’s staggering socio-economic inequality is negatively affecting our society.
That is why action is urgently needed. We salute the significant announcement made by the Business Roundtable. We collectively agree that some form of multi-stakeholder capitalism is the inevitable way of the future. We salute leaders in finance, such as Larry Fink, who for the past several years has spoken about the need for business to contribute to society. It is now imperative that other equity management and pension firms join this platform. We strongly urge them to join forces with us now. CEOs, through the Business Roundtable, have publicly spoken. It is now the boards of directors’ turn to step up and help create constructive individual corporate governance principles.
On our end, JUST Capital is committed to working with America’s corporations to measure and celebrate their successes, to guide them on their journey, and to provide the tools needed along the way. We are also committed
to capturing and amplifying the voice of the American people, so that we can shape a market that reflects and serves their priorities. Finally, we are committed to supporting investors, policymakers, activists, and advocacy groups in building a more just economy.
We can envision a day soon when free market enterprise will unleash a robust period of productivity and innovation unlike anything we have seen in years. One that works for all Americans. All that is possible if we embrace stakeholder capitalism and commit to measuring performance on what really matters for our collective, long-term success.
