To its critics, shareholder capitalisms flaws are many. But it does have one undeniable virtue: simplicity. The single-minded imperative of maximizing shareholder value is a North Star for making decisions, and, its proponents say, cleanly demarcates business interests.
By contrast, stakeholder capitalism (creating value for customers, employees, investors, suppliers, communities, and others) appears to complicate decision-making exponentially. With so many stakeholder interests and demands to consider, even the boundary of what is and isnt relevant to a company becomes blurry, thus exposing it and its leaders to accusations of indifference, overreach, and increasingly, both. But this neednt be the case.
Since 2020 we and colleagues at Yale School of Management have interviewed more than 100 CEOs, board chairs, and chief experience officers on the how of stakeholder capitalism. They had much to say. Most view a stakeholder orientation as a competitive necessity to win over talent, customers, investors, and the implicit license to operate in society. They view it pragmatically, as an effective way to succeed over the long haul. They also identified gaps in skills, training, and tools. In particular, they are looking for better ways to navigate the stream of stakeholder issues from climate change, social justice, and geopolitical conflicts, to gun control, voter access, reproductive rights, and more.
Materiality assessments help determine an issues impact on the organization and its relevance to the organizations stakeholders. The best assessments do more than mitigate risk. They identify opportunities to further a companys purpose, advance its strategy, and strengthen relationships with stakeholders. But even if leaders do that well, the central question remains: When a company decides that an issue or opportunity is indeed material, what should it do?
The answer too often is, Lets issue a statement. While some stakeholders value a company standing with them, if actions dont follow words, the company becomes vulnerable to charges of virtue signaling and purpose- or green-washing.
Its possible to do much more. We analyzed 50 actions taken by companies on a wide range of issues. We chose these companies because they took concrete steps that focused on implementingnot just promisingchange. We sorted the examples into a taxonomy of actions:
- Make a statement
- Donate money/resources
- Refocus investments
- Offer new products and services
- Withdraw existing products and services
- Transform supply/distribution chains
- Transform internal practices
- Transform industry practices
- Shape public policy
- Transform core business
Most of the companies, we learned, did more than make a pledge. Three-fifths of them set specific goals or goals with measurements, committing to publicly report progress; and 54% acted in partnership or collaboration with others, such as joining or forming a coalition. While the sample size is modest and we didnt quantify the impact of these programs, its encouraging that many companies are doing more than tweeting. They are acting, often in innovative ways.
Developing products, programs, and policies that serve multiple stakeholders isnt the norm for most companies. One CEO put it this way: Most of the time we ask our people to deliver along one axisthe customer or the employee and so forth. But when I ask them to find a solution that serves the interests of more than one stakeholder, theyll do that, too. Its an eye-opener. How do we do more of this?
We believe that one solution is to tap intoand evolvea capability that exists inside most companies today: Design. Designers are experts at identifying a range of constraints and developing solutions against them. Over the past couple of decades, businesses have invested in design teams tasked with understanding problems, generating new concepts, and refining them through an iterative process. But design has largely been applied to one stakeholder: the user. Were exploring an alternate approach we call stakeholder-centered designto frame problems and create solutions for multiple stakeholders.
Recently, we ran a stakeholder-centered design lab with a large insurance company. They wanted to generate ideas to help their company meet its zero carbon pledge. What made this session different from a typical brainstorming workshop? The problem was framed multi-dimensionally. The needs of key stakeholders, including internal stakeholders, were identified so they could be addressed as a holistic set of design constraints. Any solution had to materially reduce carbon and be profitable and comply with regulation and leverage the companys competitive advantages and fit the companys operating model. This aggregation of stakeholder constraints constituted the design brief. Logically, the team had to be, and was, multidisciplinary: experts in underwriting, risk assessment, finance, regulation, legal, and marketing. Classically trained designers? No. Were they designing? Yes.
The team generated several ideas that, by intent, solved for the requirements of multiple stakeholders. Two of the ideasa sweeping change in policy provisions and a proposal to form an industry coalition to establish standards for low-carbon policieswere immediately greenlit for further exploration by senior management. The complexity of inputs and the collaborative process to come up with ideas built confidence in the recommendations.
As your company embraces a multistakeholder approach, do more than manage hot button issues. Identify opportunities to advance your companys purpose and strategy and leverage your unique capabilities. If you decide that an issue is material to your company, explore a full range of type and scale of actions. Most importantly, consider stakeholder-centered design as an approach that helps multidisciplinary teams create multistakeholder solutions, products, and programs.
Stakeholder capitalism may be a more complex way of leading an organization than shareholder capitalism-but with the application of new approaches, it offers something of higher value than simplicity: outcomes that deliver real value and build trust with all the stakeholders who determine your long-term success.
Jon Iwata is an executive fellow and lecturer at the Yale School of Management and the practice leader of the recently established Yale Program on Stakeholder Innovation and Management.
Nicolas Maitret and Lisa Maulhardt are senior leaders at SYPartners, a transformation and innovation consultancy based in New York City. SYPartners collaborates with the Yale Program on Stakeholder Innovation and Management as a member of its Knowledge Network.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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