ENVIRONMENT: A New Stakeholder Paradigm, November 1998
SOCIAL TOPICS (Archive): ENVIRONMENT
A New Stakeholder Paradigm
Published, November 1998
A generation ago, the progressive community challenged the conventional notion that businesses existed solely for the benefit of the shareholder by developing a new paradigm, the corporate stakeholder model. We were told the modern corporation had many stakeholders — employees, communities, the natural environment and so on — with a special responsibility to each. The stakeholder model has recognized social and natural constraints on the absolute liberty of corporations to pursue the greatest possible profit.
While many corporations regarded the corporate stakeholder model as economic heresy, others over time have begun to embrace it. The term “stakeholder” is now commonly found in corporate reports, particularly those dealing with issues of social responsibility.
Yet even as the stakeholder model has enjoyed some degree of success, it has also led to some unintended consequences. Commonly drawn, the stakeholder model shows the corporation in the center of a circle with the various stakeholders found on vectors radiating from the circle. This conception suggests all activity revolves around the corporation. It teaches us as citizens, employees and investors that it is in the corporation that we have our stake.
In a time of rapidly increasing concentration of power in the hands of larger and larger corporations a corporate-centered model, however constrained by the recognition of limits imposed by the needs of stakeholders, reinforces a power structure both debilitating to communities and potentially damaging for the environment. For instance, workers are threatened with the loss of their jobs (to those who will work for less somewhere else in the world) unless they agree to wage concessions in a debate framed by the implicit assumption that the corporation’s need to grow its profits is paramount. Similarly, communities face business departures unless they can outbid another community’s promise of tax abatements or subsidized financing. The rationale for this economic blackmail: profit margins of corporations are under attack by global competition. If the corporation is to survive (i.e. continue to grow its profits sufficiently to satisfy Wall Street), its costs must be reduced.
Another example is found in the emerging debate over global climate change. Several business coalitions (centering around the energy industry) have sought to limit U.S. commitments to reduce emissions of carbon dioxide and other greenhouse gasses with fear-mongering language that such commitments will “destroy the economy.” A generation ago we were told the “Communist menace” was a threat to life as we know it. Today we are similarly warned that attempts to constrain the unfettered growth of corporations will lead us down a path of economic doom.
If we embrace a corporate-centered stakeholder model then our behaviors agreeing to wage concessions, tax abatements and limits to emission reductions seem rational. Even as funds for human welfare and community economic development are reduced, corporate welfare remains largely unscathed. We have subordinated the needs of stakeholders to the needs of the corporation at the center. Simply put, we have invested where we have our stake.
Consider an alternative paradigm, one in which the community and the ecosystem are in the center and in which corporations join workers, investors, governments, citizens and others on the stakeholder vectors. The community and ecosystem stakeholder model recognizes that all economic activity depends not on corporations, but on a healthy planet and strong communities. Can an economy exist without multinational corporations? Certainly. Can it exist in a spoiled environment with dysfunctional communities? Perhaps temporarily, but as current reality demonstrates only at significant cost to the human society which created the economy.
Far from being an academic exercise, changing our paradigm profoundly changes our questions. Instead of basing environmental policy decisions on what is good for corporations, we will begin to base corporate policy decisions on what is good for the environment and for the community. Unceasing corporate growth, required to satisfy the logic of capitalism, becomes subject to examination in the light of the requirements for human development and environmental health. As investors we need to look behind the traditional measures of corporate health, profit margins and growth rates, to see the effect of these measures on the community and the ecosystem. Does a food retailer have a premium profit margin because it intimidates workers who complain about being forced to work extra hours "off-the-clock?" Is an auto manufacturer able to increase its rate of growth by making high polluting and less fuel-efficient vehicles, in part by successfully lobbying against environmental legislation that would provide economic disincentives for operating such vehicles?
Only by shifting the questions and engaging this discussion will we be able to come to terms with the central paradox of modern economic life: a world in which corporations produce ever-greater piles of stuff and yet a world increasingly plagued with human and environmental indignities, beset by fears of violence, and suffering under growing poverty and income inequality. The resulting paradox comes as no surprise. Either implicitly or explicitly we have accepted a philosophy that diverts our attention from connecting our economic lives with the communities and the ecosystem that ultimately sustain us. The stakes are great. It’s time for a change.
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