A scorecard for stakeholder capitalism

In This Story

People Mentioned in This Story
Body
Rashed Hasan
Rashed Hasan

The Business Roundtable’s 2019 “Statement on the Purpose of a Corporation” marked a bold departure from decades of economic orthodoxy. The CEOs of America’s largest companies jointly declared that the era of shareholder primacy was over. “Each of our stakeholders is essential,” they wrote, essentially demoting shareholders from sole arbiter of value to one among five—the others being customers, employees, suppliers, and communities.

In one stroke, stakeholder capitalism became the dominant value system of Big Business in America. Or did it? At the time, the statement was met with its share of skepticism. Some questioned the practicality of ‘stakeholderism;’ others doubted the sincerity of the CEOs’ commitment to change. In the years since, Harvard Law School researchers concluded that the Business Roundtable (BRT) signatories’ big talk wasn’t matched by meaningful reforms within the companies they controlled. “The BRT Statement was mostly for show,” the researchers wrote.

But is there a less cynical interpretation? A commitment of this magnitude does not easily translate into action—especially within the relatively brief timeframe of a few years. As is often said in business, what isn’t measured cannot be managed. With all the vagueness and confusion around what is meant by stakeholder capitalism, companies don’t know where to start trying to move the needle. In other words, leaders need more clarity, not more sincerity.

Companies need simple, transparent metrics and benchmarks that accurately represent stakeholder value. That way, they could assess their performance in relation to competitors as well as internal goals. Moreover, investors, activists, and the general public could reward leaders and put pressure on laggards. The ensuing virtuous cycle would produce a climate of continuous improvement.

Rashed Hasan, executive-in-residence at George Mason University’s Business for a Better World Center (B4BW), is working to make this a reality. Alongside a group of researchers and business advisors, he’s developing the Stakeholder Value Index (SVI), which he hopes will be a reliable framework for measuring business impact across the five stakeholders mentioned in the BRT Statement, as well as two additional stakeholders: the company itself and the planet.

The SVI draws upon several decades of stakeholder theory research, as well as Hasan’s 30 years of experience as a corporate manager, management consultant, and serial entrepreneur.

Here’s how it works. For each of the seven stakeholders, the research team has identified three main criteria—21 in all—with some thematic overlap between them.

In the case of Employees, for example, Hasan has isolated three impact factors—diversity/culture/mobility, financial security, and employee productivity. The SVI team will aggregate various data points to arrive at a score for each of the three individually, and the sum of all scores serve as the stakeholder value score for Employees. The same method applies to the other six stakeholders, but using different criteria. The seven stakeholder scores, added together, generate one overall stakeholder value rating.

Some data points straddle several stakeholders. For instance, waste management statistics factor into the ethics and compliance area within Communities, as well as in Planet. All in all, 104 data points are required for a holistic assessment.

“Our work forms part of a growing portfolio of indices covering various facets of ESG, social responsibility, and sustainability. We regard these not as competitors but as allies in the urgent mission of business reform,” says Hasan. Yet he asserts the SVI is unique in both its comprehensive approach and intended use as a strategic decision-making tool for corporate leaders, rather than a framework for risk mitigation.

Hasan and the SVI team are currently applying the framework to the Fortune 100 and generating a stakeholder value score for each company to create the inaugural SVI report, which they plan to release in late 2022. Their ultimate goal is for the SVI to have its own digital home where companies can go to submit their data and benchmark themselves against industry rivals.     

However, the spotty availability of corporate data has created challenges for the SVI team, as it presumably would for any external party attempting to quantify stakeholder capitalism. Holistic indices such as the SVI rely on detailed information, particularly in mission-critical domains. Yet, of the 104 data points necessary to calculate a company’s stakeholder value score, only 70 percent are easily found. Wage information, for example, is a key area where lack of transparency is a major issue. We can assume that companies are all adhering to the federally mandated minimum wage—although wage theft is still a pressing concern—but that says little to nothing about whether workers are being paid a living wage by the standards of their locality.

Hasan believes that if we are serious about transitioning to stakeholder capitalism, we need a scorecard. And that means companies must become more comfortable sharing data they have traditionally withheld. Would-be change agents both within and outside large corporations should start with the data.