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For decades some of the world's most powerful people have gathered nearly every January at a ski resort in the Swiss mountains called Davos. Through its annual week of meetings the World Economic Forum offers ultra-rich corporate leaders a chance to set out their vision for the future of business. For many of them and for the WEF's founder Klaus Schwab, the central philosophy can be boiled down to a snappy two-word phrase, stakeholder capitalism. But what does stakeholder capitalism actually mean and is it necessarily a good thing?
The term gained traction in the mid-1980s. A time when politicians like Ronald Reagan and Margaret Thatcher were promoting the idea that widespread prosperity could be created by unleashing the animal spirits of profit-seeking capitalism. Their policies were built upon the ideas of economists like Milton Friedman, who famously wrote that there was, "one and only one social responsibility of business. To use its resources and engage in activities designed to increase its profits. So long as it stays within the rules of the game."
The doctrine of stakeholder capitalism took off as a reaction against this philosophy. It holds that corporate boards and executives should not simply try to serve their shareholders by increasing profits, but should pay equal attention to the interests of other stakeholders such as customers, employees, and society as a whole. Who could have a problem with that? Actually a large and growing number of people.
The stakeholder capitalist drive has come under attack from the right with conservative politicians arguing that it could conflict with legally enshrined fiduciary duty to investors. Meanwhile, other critics of the stakeholder capitalism agenda say that it's enabling super wealthy corporate leaders and investors to take an unhealthily powerful role in shaping how society responds to urgent social and environmental problems. They worry it could also hinder progress towards tough new regulations by keeping the focus on what companies can do voluntarily.
So is stakeholder capitalism a vital means of achieving a fairer more enlightened world economy or a dangerous idea that will strengthen the power of an unaccountable global elite? That's an important question to consider as you track the conversations taking place at Davos.
