Just over a year ago, Steve Denning, the leadership guru and a former director of the World Bank, argued that stakeholder capitalism is doomed to failure, despite the proclamations from the Business Roundtable to the World Economic Forum that addressing stakeholders’ interest is the only effective way forward.
According to Denning, stakeholder capitalism failed in the mid-20th century, and it will fail again now because corporations must have a single, overriding goal — a “true north” — in order to operate successfully.
Since then, the world has experienced a global pandemic that has turned business and economies upside-down. This chaos has only intensified the debate about the best model for business, with consulting firms such as McKinsey making the case for switching to a stakeholder approach, and groups such as the Shareholder Equity Alliance dismissing that approach as ineffective if not impossible.
A key issue in this stakeholder/shareholder argument is how people are defining efficiency and what level of complexity they are willing to navigate in pursuing a company’s goals. The stakeholder model requires thinking through impacts on many constituencies — customers, suppliers, employees, shareholders and local communities.
Crucially, there is no single stakeholder model that will work to govern every kind of business in every location. Shifting to stakeholder capitalism requires a willingness to think situationally—to analyze the broad context of a particular enterprise, identify the key stakeholders for that company at that time, and remain willing to revisit that analysis over time.
Some business leaders, such as Denning, look at these challenges and declare them to be impossible to address in a way that leaves a company functioning and profitable.
But shifting to a stakeholder approach is not only possible, it is essential if capitalism is going to remake itself into a sustainable system for the future.
This kind of massive change does not just require new strategies; it requires new ways of thinking about the world. And it can’t be done based only on financial data. Making a stakeholder model effective requires the ability to comprehend multiple points of view based on different ways of valuing things.
This is not impossible, but it is hard. And it requires different ways of approaching problems than business programs at the undergraduate and graduate levels have offered for the past half century.
Fortunately, the answer to this conundrum lies in the broad, multifaceted educations provided by liberal arts colleges and by arts and sciences programs at large universities.
The fact that stakeholder capitalism is hard is not a reason to toss it away in favor of ideas such as “customer capitalism” that simply repackage the fundamental goal of maximizing profits. Instead, it’s a reason to devote resources to getting the stakeholder approach right.
Making stakeholder capitalism work requires rewiring how we educate those going into business. Our business leaders need to be able to think creatively, identify connections that are not always obvious, and put information together in new ways: this is exactly what a broad liberal arts education prepares students to do.
A liberal arts approach teaches students to think critically about the way today’s systems operate and about how the status quo can be changed for the better.
Rather than staying focused on the way knowledge is already understood or applied and rejecting information that does not fit a particular model, a liberal arts curriculum teaches students to ask good questions — the kinds of questions that lead them to consider problems from all points of view and to cast a wide net across many types of information to find the answers.
In a liberal arts program, an economics major will learn the theories, models, and formulas that economists use to interpret the world. But they will also learn that historians, anthropologists, psychologists, and professors of religion have different ways of interpreting the world. Most importantly, they will learn that combining a variety of ways of thinking will help make their economic decisions better and more sustainable.
This kind of broad education is the necessary preparation for implementing a stakeholder approach, which requires looking at an enterprise from many perspectives and being able to evaluate long-term as well as short-term impacts and risks.
Liberal arts programs need to claim this strength loudly and fully. At Denison, we are doing this across our campus, finding new and exciting ways to help our students articulate the value and applicability of their liberal arts education.
In our Global Commerce major — preparing to graduate our 3rd cohort of seniors this year — our students combine courses focused on the dynamics and structures of global trade and business with foreign language study and an individually-designed set of courses drawn from across the college curriculum.
The outcome is that our majors understand how businesses work today while also recognizing how the system can be improved. For them, it is not a question of either getting a job or saving the world. It is a matter of “both and.” They are prepared to successfully enter the working world as it exists and to think about how to improve the way businesses operate in the world as they build their careers.
This kind of imagination is just what is needed to create a version of stakeholder capitalism that will work. Predicting that stakeholder capitalism is doomed is a failure to imagine that things might be significantly different than they currently are.
Ignoring the need to create successful ways to take a wide range of stakeholders into account will only push responsibility for society’s growing problems—income, housing, and educational inequality, climate change and environmental concerns, depletion of natural resources—down the road in the interest of short-term financial success for a limited group of people.
Stakeholder capitalism is hard. The liberal arts are necessary to make it happen.