Shareholder expectations, activist investor pressures and burnout levels have all increased exponentially over the last 15 years. The rat race has gotten to a point where it has become hard to grow for companies, specifically by keeping doing the same thing. However, in a world where capitalism has been the driving force behind economies for centuries, there has been a noticeable shift in recent years toward a more inclusive and sustainable approach. Finally!
It took me quite a while though to get to this point myself. Up until a few years, I was one of these people who would be proud, to be able to work day and night and wrongly took this as a sign of resilience. I thought it was an achievement, always saying yes, always taking the business trip, always agreeing to do the presentation and always taking the late shift. It was only when I really got to my limits and my personal life was constantly a third or fourth priority and I tried to start to say no to things, that I realized how engrained these expectations have become in our work culture and how hard it is to make changes. Most companies these days will make generous statements about “doing right by the customer, doing right by the employees, etc.”. Sadly, if it comes down to deadlines, these words are quickly forgotten and sacrificed for the short-term gain. And in today’s business, most of us live in a constant of deadlines. So, what to do and where to go with this information?
Let’s start, that it is crucial to understand that the interests of all stakeholders of a business, not just shareholders, are vital for long-term success. By equally regarding the needs of employees, customers, communities, suppliers and the planet, businesses can create a thriving ecosystem that leads to greater prosperity for all. Most of us are familiar with the triple bottom line. And the ones of you who know me better, would have heard me talk about this often. As this is a term used in Human Resources, most departments responsible for delivering black-and-white quarterly revenue results, wouldn’t be so familiar with the meaning. Now I have come across another term that might resonate better: Inclusive capitalism. And I like it. Let’s have a look at what it means:
Inclusive Capitalism
The concept of inclusive capitalism involves businesses taking into account the welfare of all stakeholders, rather than simply focusing on maximizing shareholder value. This means that companies need to consider the broader implications of their actions on their ecosystem, society and the environment, rather than just the bottom line. Inclusive capitalism acknowledges that businesses are not isolated entities, but rather, they are part of a larger system that includes employees, customers, suppliers, communities, and the environment. By embracing this interconnectedness, companies can create a more sustainable and prosperous future for all.
Sounds too wishy-washy & touchy-feely for you? The Proof is there though:
Many studies and analyses have demonstrated that companies that adopt an inclusive approach to capitalism tend to perform better in the long run. Sophisticated analyses of the complex relationships among stakeholder interests have been conducted by independent rating agencies such as Just Capital and the Drucker Institute. According to the data gathered, companies that create the highest total value across all aspects of performance do not do so by sacrificing shareholder value.
According to Just Capital’s data, those companies in the top 50% of its rankings in each industry are included in the Just U.S. Large Cap Diversified Index. The Just U.S. Large Cap Diversified Index is a stock market index that tracks the performance of large-cap U.S. companies that have high ESG (Environmental, Social, and Governance) scores and also prioritize just business practices. The Just U.S. Large Cap Diversified Index consists of 50 companies selected from the Russell 1000 Index, which is a broader index of the largest 1000 U.S. companies by market capitalization. The companies in the Just U.S. Large Cap Diversified Index are selected based on a ranking system that takes into account factors such as worker pay and benefits, community engagement, environmental impact, and ethical leadership.
Satya Nadella, CEO of Microsoft, calls it “integrated value creation for all stakeholders”, meaning investors, customers, employees, partners and governments. This strategy, truly implemented, paid off for Microsoft, being the company that has rated the highest on overall effectiveness and innovation, since the Drucker Institute began ranking companies on performance in 2017.
Research by Harvard Business School has shown that firms that prioritize environmental, social, and governance (ESG) factors experience higher valuation and a lower cost of capital. By addressing the needs of all stakeholders, companies can reduce risk, attract better talent, and achieve long-term stability, all of which contribute to better financial performance.
A report by McKinsey & Company found that companies with higher levels of gender, racial, and ethnic diversity were more likely to have higher financial returns than their industry median. This indicates that inclusivity and diversity are not just ethical considerations, but also factors that contribute to financial success.
Now, that we know there are proven benefits, how do we get there as a company and as a leader?
Whilst there are some very novelty angles on how businesses can get their stakeholder’s interests in better balance, I want to first cover the basics, because the reality is that these things are still not truly implemented, measured and lived in most organizations today.
Basics:
Customer-centric:
Listen to your customers! Understand their problem. Actually try to solve said problem. See the solution through. Take their feedback to improve collaboration and also your product development. Sounds easy, the reality is however that the short-term revenue pressure is so big in most companies, that corners are cut for the quick buck. Guess what, these customers will most likely not be loyal to your company and further invest. Implement operational excellence and automation to achieve best-in-class customer service.
Employee-centric:
Get to know them. Their unique strengths. Accept weaknesses and foster a failure culture where mistakes are seen as an opportunity to learn. Treat your employees with respect – always. Invest in their progress and development. Create a safe and trust-based environment. Include them in decisions and solutions. Offer flexibility. Provide and ask for feedback very often. Incentivize fairly, generously and in more ways than just monetary. Implement operational excellence and automation to balance tedious workloads and allow employees to increase their effectiveness.
Suppliers:
You may be the customer here, but in the same way, as you don’t appreciate when your customer is being an ass, don’t be an ass. We are all humans. Treat them with respect and develop a partnership approach. Co-create. Provide and ask for feedback often.
Shareholders:
Engage with shareholders: Establishing a consistent and transparent dialogue with shareholders is critical. Ensure that your company’s corporate governance practices are robust and open to your shareholders. Avoid activist investors at all costs: Monitor your shareholder base regularly to identify any changes, such as new shareholders with significant stakes or existing shareholders increasing their positions. Aim for realistic and sustainable growth.
Environment:
Build your strategy to align with sustainable development goals. Execute on it. Measure it. Be honest about meeting your targets and if needed make adjustments.
Novelty approaches:
In order to truly embrace inclusive capitalism, businesses must be willing to rethink traditional business models and practices. Here are some strategies that companies can adopt to ensure the interests of all stakeholders are considered:
- Build an inclusive stakeholder governance: Companies can adopt a stakeholder governance model, where they prioritize the interests of all stakeholders, including employees, customers, suppliers, and the environment, alongside shareholders. This can help create a holistic view and a more balanced and inclusive approach to decision-making.
- Open Innovation: Companies can adopt an open innovation approach, where they collaborate with external partners, such as startups, universities, and communities, to co-create new products, services, and business models. This can help expand the pool of innovators and create more diverse and inclusive solutions.
- Circular Economy: Companies can adopt a circular economy approach, where they design products and services for reuse, repair, and recycling, instead of disposal. This can help reduce waste and environmental impact, while also creating new business opportunities and jobs in the circular economy.
- Awareness and transparency: build a transparent dialogue between all stakeholders and create awareness about the requirements and demands of everyone. This helps to build a strong collaboration, helps to understand other’s interests and creates some new perspectives and mindsets.
- Community Ownership: Companies can explore community ownership models, where they partner with local communities to co-own and operate businesses or assets, such as renewable energy projects or community land trusts. This can help promote economic development and create more inclusive and sustainable local economies.
- Profit-Sharing Models: By implementing profit-sharing models, companies can ensure that employees directly benefit from the success of the business. This not only promotes a sense of ownership and responsibility but also fosters a more inclusive environment where everyone feels valued.
- Sustainable Supply Chains: By collaborating with suppliers to promote fair labor practices and environmental sustainability, companies can create a more ethical and responsible supply chain. This, in turn, can lead to long-lasting partnerships and improved brand reputation.
- Carbon Neutrality: In order to address the global climate crisis, businesses should strive for carbon neutrality. By investing in clean energy, implementing energy-efficient practices, and offsetting emissions, companies can minimize their impact on the environment and contribute to a more sustainable future.
Take aways:
Inclusive capitalism truly represents the future of business. The only way for long-term performance and growth. By considering the interests of all stakeholders, companies can create a thriving ecosystem that benefits everyone involved. By embracing diversity, prioritizing ESG factors, and implementing innovative practices, businesses can ensure long-term success and contribute to a more sustainable and prosperous world for all. The time for change is now – let’s embrace inclusive capitalism and create a brighter future together.
