“Stakeholder Capitalism Metrics”
Fifty years ago the New York Times Magazine published an essay by economist Milton Friedman, “The Social Responsibility of Business Is To Increase Its Profits.” Striving to increase profits was how businesses best served society. Businesses existed to produce profits for shareholders.
Friedman’s elevation of profits over all else has been challenged by those who charge that doing so ignores how unchecked businesses may worsen inequality, pollute the environment, discriminate in hiring and promotions, or violate human rights. Shareholders have legal right to submit proposals to corporate managers to right wrongs on these and many other allegations. The alternative term “stakeholders” is raised to assert that decisions must take into account not just shareholders but also employees, customers, suppliers and local communities.
Over the last three years the World Economic Forum’s International Business Council led more than 140 CEO’s “to align their corporate values and strategies with the UN’s Sustainable Development Goals (SDGs),” in the belief that “long-term value is most effectively created by serving the interests of all stakeholders.”
The objective is to measure corporate performance against a set of “Stakeholder Capitalism Metrics.” These metrics measure performance against environmental, social and governance indicators. The business’s performance on these metrics would be incorporated into mainstream annual reporting and indicate progress over time. The International Business Council’s objective is to make the metrics standard across industries.
The business case for including all stakeholders is “the belief that the interrelation of economic, environmental and social factors is increasingly material to long-term enterprise value creation.” That belief is validated by the list of “core” metrics, which include: stakeholder engagement; lobbying positions; anti-corruption training; land used for production; greenhouse gas emissions; water consumption; plastic consumption; re-use of nonrenewable resources; diversity and inclusion of employees; gender, minority and ethnic pay equality; worker health and well-being; employee training and development; employee hiring and turnover; ratio of CEO to median employee compensation; collective bargaining agreements; capital expenditure; research and development expenditure; and total tax paid by country.
This is a partial list of the 21 core and 34 expanded metrics and disclosures. Implemented, they would represent a giant step toward transparency. To some extent, the plan will only work if there is near-universal acceptance by businesses. Fortune magazine’s Alan Murray describes it as a big step forward in measuring companies’ efforts toward addressing social and environmental needs. Murray credits Bank of America CEO Brian Moynihan’s leadership in lending his considerable credibility to the effort.
To use the popular expression, “It’s a big ask.”