Our CFO Alberto De Paoli recently took part in an on-line discussion and offered Enel’s insight into how business can move beyond shareholder primacy to provide value for all stakeholders with a view to building a more just and sustainable future. The webinar, “All talk (and no action)? How businesses can make good on stakeholder capitalism,” took place on March 15, was supported by Enel and organized by Economist Impact. The discussion was moderated by Alice Fulwood, The Economist’s Wall Street correspondent. The panel of experts also included Anjuli Pandit, head, sustainable bonds, EMEA and Americas, HSBC; Dame Vivian Hunt, senior partner, London, McKinsey & Company; and Mark R. Kramer, senior lecturer, Harvard Business School, and co-founder/senior adviser, FSG.
The panel discussed the need for companies to embed the values of stakeholder capitalism in their corporate strategy, and to develop a sustainable finance that takes the emphasis away from the entrenched narrow focus on profit and shareholder value and looks at the broader picture of company value within society.
De Paoli talked about Enel’s belief in the importance of embedding the values of corporate capitalism in a company’s corporate strategy, describing stakeholder capitalism as the natural evolution of the Group’s decision to adopt a sustainable business model.
This framework can then be translated into the broader company strategy, directing its operational and financial decision making, and allowing investments and outcomes to be valued and measured against environmental, social and governance (ESG) targets, as well as financial ones. Essentially, what this means is that companies would be credited for their efforts in reaching medium and long-term ESG goals, and not only their short-term financial performance.
The panelists argued that it was appropriate that businesses were taking the lead in trying to define stakeholder value, rather than waiting for government legislation, and they said this was helping to fuel innovation. The power of stakeholder capitalism, the power of taking material ESG issues seriously, is the innovation it leads to. This is because it enables companies to discover things that their competitor has missed, new ways of doing business, working with employees, new products for customers, new markets to enter that traditionally companies haven’t paid attention to. Significantly, it was noted that, if policies regulating the sector are applied too soon, they can stamp out innovation. However, as businesses do not share the same stakeholders, their ESG priorities will also vary. It is likely that companies in the future will develop their own ESG metrics based both on industry standards and regulatory frameworks.
A renewed purpose for the future
Shareholder capitalism has proven itself to be an adaptable and successful economic model over the centuries, but as businesses start to take responsibility for creating a fairer and more sustainable world, stakeholder capitalism offers a stronger, more resilient and more impactful approach. Companies that fail to adopt this broader view of their societal contribution and remain focused on quick, short-term wins risk finding themselves less competitive in the medium and long-term. What emerged from the discussion was the need for companies to be able to show ESG value as “mind-blowing” for people that have only ever looked at financial metrics to determine long-term value, and this is creating a fundamental shift in the financial system. It is no longer about the short term, but rather that the company which has the tools and resources, is making the right investments and has the right strategy approach, will be able to keep doing this in the longer term.
There are indications some CEOs have not changed their corporate behavior but companies that take this idea of stakeholder capitalism seriously can find ways to gain a real competitive advantage and improve their performance by looking out for the well-being of their stakeholders.