Stakeholder Capitalism


R. Edward Freeman, Kirsten Martin and Bidhan Parmar

How one views capitalism can inform business decisions and operational values. In a 2007 article, Freeman, Martin and Parmar write: “Traditional narratives of capitalism rely upon the assumptions of competition, limited resources, and a winner-take-all mentality as fundamental to business and economic activity. These approaches leave little room for ethical analysis, have a simplistic view of human beings, and focus on value-capture rather than value creation.”

One traditional narrative is Investor Capitalism which states “…the purpose of the capitalist system is to increase wealth for the investor. In fact, any consideration outside that goal – for example, consideration of the welfare of customers, concern for the community, or charity – is seen as in competition with investor needs and diverting resources away from the primary goal.”

The authors discuss other popularly-held concepts of capitalism; these “…assumptions about markets and capitalism that we believe to be counterproductive. Each narrative assumes that market participants have a naive version of self-interest (that one’s self-interest is not connected to, or doesn’t take into account the self-interests of others), that morality is separate from (or even antithetical to) economic prosperity, and that competition for limited resources (value as a zero-sum game) is the dominant mode of prosperity.”

Additionally, they note: “…we have mistakenly taught managers that business within capitalism is by its very nature amoral.”

“Rather than acknowledging the moral dimensions of every decisions – whether in business or not – academics and practitioners have created a separate sphere of norms, rules, and morals and named it capitalism where competition and winning dictate the rules of the game.”

They continue “…survival of the fittest narrative of capitalism ignores the fact that moral concepts, such as relationships, mutually beneficial agreements, teams, trust, honesty, and care are necessary in those instances when survival of the individual, group, or organization is at stake.”

“Business should be about the best that we can create together, rather than about avoiding the worst. If we critically embrace a new set of assumptions about how value is created, the practice of business will soon follow. We do not have to sacrifice the great strides forward to solve some of the deeply troubling issues with capitalism. We need to think critically, acknowledge the social nature of value creation, and work with an insatiable passion to create value for our stakeholders.”

Excerpted from the article “Stakeholder Capitalism,” by R. Edward Freeman, Kirsten Martin and Bidhan Parmar. Originally published in the Journal of Business Ethics (2007) 74:303–314. (c) Springer 2007.

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