Stakeholder Capitalism: Investing as Taking Care of the Village

We’re nearing the end of week 6 of shelter-at-home and physical distancing orders in Canada in response to the global COVID-19 pandemic. On March 26, the Province of Ontario announced that only essential businesses could remain open. Amongst essential businesses, beer and liquor stores could remain open. Even as of April 23, nearly a month later, schools and caregiving businesses are considered non-essential.

I’ve spent a lot of time thinking about what are essential resources. In particular, I’ve wondered about what makes us happy, what the purpose of business activity is, and how these two things may be connected. For people to survive, thrive, and be happy, there are certain things in life we all want and need. We need food to eat and clean water to drink to satisfy our hunger and thirst. We need shelter and clothing to protect us from the elements, and care, treatment, and remedies to protect us or treat changes in our health such as injury, illness, and disease. We need stories, images, and sounds to express ourselves. We need places where we can connect with others, technology to connect us when we’re apart, and transportation to connect us from place to place. We need information from all sorts of sources to make decisions.

I took stock of all these things and summarized them into six categories of what I referred to as essential resources:

  1. Sustenance: Essential resources to sustain ourselves
  2. Expression: Essential resources to communicate and express ourselves
  3. Connection: Essential resources to connect and develop relationships with others
  4. Managing Change: Essential resources to prepare for or experience change or for managing change
  5. Making Decisions: Essential resources for making decisions
  6. Exchange: Essential resources for exchange

Some essential resources show up in more than one of these categories. Food is an essential resource of sustenance however we also use food to express ourselves. A building could be viewed as an essential resource of sustenance as shelter. Physical spaces are also resources for connection (where we gather) and expression (how we decorate and adorn them).

Essential resources are the things that we must access, process, and synthesize to survive, thrive, and be happy.

When I first developed these categories, I was challenged by a colleague to ensure the six categories of essential resources were mutually exclusive and collectively exhaustive. I endeavoured to be as all-encompassing as possible. I tried to think of essential resources from different perspectives to help us find common language and goals around the kinds of essential resources we wanted to be able to access in the world. For example, I focused on essential resources such energy (an essential resource of sustenance) and transportation (an essential resource of connection) instead of making judgements about specific forms (for example, energy from solar, wind, or fossil fuels or transportation in the form of cars, bikes, or mass transit.)

Back to my comment above, I found it curious that schools and caregiving services were not considered essential. For working parents that rely on schools, daycares, and caregiving businesses to be able to juggle work with family, these services are essential resources for managing change.

Stakeholder Capitalism

Writing about responses to COVID-19, Byron Loflin, Global Head of Board Engagement at Nasdaq, wrote in Fast Company recently, “Executives atop [global] companies and many others are acting for the community at large, not just on their shareholders’ behalf.” He went on to wonder whether this marked the end of shareholder primacy. “Thanks to a mix of technological advancements, increased and sustained efforts to improve corporate culture and employee inclusion—combined with the global nature of business—the last 30 years have paved [the] way for a more inclusive concept: stakeholder capitalism.”

Nasdaq CEO Adena Friedman, a signatory of the Business Roundtable’s letter, said recently that “the best path to sustainable earnings growth and corporate success is to attract and retain great talent, to provide value-added products and services to our clients, and to have positive and productive supplier relationships. Therefore, the two concepts–creating shareholder value and creating community value – go hand-in-hand.” Friedman’s thesis was simple: companies are not left to choose between their shareholders or society. They must serve both.

In the Economist, Mark Carney, former Governor of the Bank of England, shared his predictions for the future post-COVID-19. He also remarked about a potential shift from value investing to values investing. “When pushed, societies have prioritised health first and foremost, and then looked to deal with the economic consequences. In this crisis, we know we need to act as an interdependent community, not independent individuals, so the values of economic dynamism and efficiency have been joined by those of solidarity, fairness, responsibility and compassion,” he said. “All this amounts to a test of stakeholder capitalism. When it’s over, companies will be judged by “what they did during the war”, how they treated their employees, suppliers and customers, by who shared and who hoarded.”

People-Focused, Capital-Enabled

Instead of maximizing shareholder returns being the singular goal of investing, I believe we should optimize “taking care of the village”. By village, I mean ourselves, our families, our neighbours, our communities, our planet, and future generations. “Taking care of the village” means ensuring that all the members of the village – stakeholders if you will – have access to the essential resources they need to survive, thrive, and be happy. It is the idea that to have a happy, thriving life, we really do realize that we are interdependent and that operating in isolation is not good for our well-being. It takes a village to do the things that matter. This concept of investing as taking care of the village was a focal point of Integrated Investing, a holistic approach to investing that I developed and wrote about almost half a decade ago.

In a village, there are multiple stakeholders whose interests must be met, and there are future generations who will inherit the village from us.

This means making investment decisions with the village in mind. It means evaluating whether the people we invest in have the same aim and mindset, and it means assessing whether the businesses we invest in serve the goal of taking care of the village. In this approach, we choose to invest in businesses that meet our needs and those of our families, our neighbours, our communities, and future generations, while also taking good care of our planet.

Cost/Benefit Analysis for All Stakeholders

Integrated Investing is a holistic methodology for investing that encapsulates the “why” of investing, mindsets and values guiding investment activities, decision-making that integrates information from analysis, emotion, body, and intuition, and practical tools needed to put all these components into practice.

One of the practical tools from the Integrated Investing toolkit for evaluating investment opportunities is extending the analysis of costs and benefits beyond the walls of a business, applying the analysis to all stakeholders, and doing so in reference to essential resources.

From Integrated Investing: Impact Investing with Head, Heart, Body, and Soul (2016)

Investing as taking care of the village is a focal point and guiding principle of Integrated Investing. It recognizes the village is made up of far more than just shareholders, just as stakeholder capitalism aims to do.

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