What is the difference between stakeholder capitalism and shareholder capitalism, both terms sound rather similar?
In: Economics
Shareholders are the owners of a company – specifically they own the equity.
Stakeholders are anybody with any kind of interest in a company. They may be shareholders, creditors, employees, customers, local communities and government for example.
Shareholder capitalism basically means that companies prioritise their shareholders in their decisions. In particular they tend to be incentivised to create shareholder value – roughly speaking to generate more profit for their shareholders over time.
Stakeholder capitalism basically means that companies are expected to balance the interests of various stakeholders in their decisions, rather than prioritising shareholders alone.
There are various ways to do this in practice, but it normally involves legislating or regulating so that control over companies can be influenced by stakeholders, such as adding trade union representatives to company boards for example.
The latter sounds like a nice fuzzy warm idea, but it comes with a whole set of problems. In particular, exactly how you balance the interests of different stakeholders is rarely defined, and frequently becomes an issue of politics rather than the free market. Conflicted goals set by different masters can hurt the performance of a company.
And many interpretations of stakeholder capitalism also hold a rather naive view of how companies interact with stakeholder interests. Most shareholders are not sitting there asking management teams to rip off everyone as much as possible as quickly as possible. They always care to some degree about stakeholder interests, but they weigh them in the context of creating shareholder value.
In most cases, maximising profits for shareholders over the long term does actually involve consideration of the interests of customers (especially!), relationships with government and regulators, and relationships with employees. Ideally shareholders want profits to be high, but also *sustainable* for as long as possible to maximise value.
Here is a good HBR article by Mauboussin about exactly this topic:
https://hbr.org/2016/07/reclaiming-the-idea-of-shareholder-value
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