May 30, 2024

Stakeholder Capitalism is Alive, Well, and a Huge Source of Competitive Advantage Part 2 (TPL Insights #224)

By Rob Andrews

Recent articles suggest that stakeholder capitalism is in jeopardy due to Jamie Dimon’s reduced vocal advocacy on the subject, implying that stakeholder capitalism only emerged in 2019. This view is not only misleading but overlooks the rich history and robust foundation laid by earlier movements like Conscious Capitalism. The data is irrefutable. Organizations that operate with a balanced stakeholder approach and set of principles that flow from a purpose greater than just making money, make more money and have more fun doing it.

The Power of Purpose

The peak performing companies studied all subscribe to a purpose for being that is different from and goes beyond making money. They actively align the interests of all stakeholder groups that go beyond stakeholder engagement. They have compensation plans that are far more equitable than most. They devote far more time to workforce training than their industry peers. They have significantly lower turnover, and they empower employees to ensure that every customer is fully satisfied. They typically pay more than their peers but expect employees to work hard in support of their fellow stakeholders. They make a serious effort to hire only those who are passionate about their company and products.

They humanize the experience for customers and employees while having a genuine passion on an emotional level. Their marketing costs are significantly lower and their customer loyalty significantly higher than their industry peers. They view their suppliers as true partners and collaborate with them to move both their companies forward. Rather than trying to extract every nickel of cost from their suppliers, and forcing them to discount their services, they help their suppliers reach higher levels of productivity, quality, and profitability. Suppliers, in return, function as true partners, advocates, and extensions of their staffs, rather than indentured servants.

Each of these peak performing companies recognizes their corporate culture to be their single greatest asset and primary source of competitive advantage. This is also the case among the companies we’ve studied to build the Total Performance Leadership architecture. The leaders of these peak performing organizations know that their cultures are their only sustainable competitive advantage, and that everything else can be copied.

Their cultures are resistant to short-term, incidental pressures, but also able to quickly adapt as needed. Since engagement levels are so high in these companies, they tend to be the innovators and the rule-breakers within their industry sectors. These exceptional leaders understand that corporate culture is tantamount to physical health, and must be constantly monitored and adjusted, they are painstaking in their efforts to establish mechanisms to measure cultural norms and strive for optimal organizational health.

According to Sisodia, financial data surely is important in analyzing a company’s strength and past performance, qualitative indicators are even more important in assessing a company’s prospects. Raj goes as far as to say that in many instances, qualitative factors may be more revealing in drawing an accurate picture of a company’s future performance than quantitative factors. Southwest Airlines has elected a “Culture Committee” in charge of sustaining and strengthening the company’s unique culture.

Firms have developed methods by which they constantly assess the effectiveness of their hiring practices, leadership, clarity of purpose, stakeholder engagement, customer experience, measurement systems, innovation, and financial performance. It is amazing how much these organizations differ in their capital structures, industry sector, size, and even for-profit status; and how strikingly similar they are in their approach to maintaining optimal organizational health. The leaders studied are keenly aware that great cultures take discipline, hard work, and constant attention to build, – and very little to destroy. Even the most powerful culture is incredibly perishable and can evaporate overnight without the right leadership at the top.

I hope you enjoyed this piece on a balanced stakeholder approach as a competitive advantage. The purpose of these blogs is to share what we’re learning about building cultures of peak performance. Please give us a call if you’d like to talk about how we can help your organization.

Warmest Regards,

Rob