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Stakeholder Capitalism: Creating Common Standards for Social Excellence

Davos, Switzerland - Capitalism seems to have gone fundamentally wrong over the past few years, with the talk in the corridors around the World Economic Forum (WEF) now turning to stakeholder capitalism.

American businessman, investor, and philanthropist, David M. Rubenstein, said the main labour issues globally seemed to be inadequate pay, unsafe working conditions, and gender discrimination.

However, Director-General of the International Labour Organisation (ILO), Guy Ryder said that the top priority currently globally was the issue of youth unemployment. He noted that the ILO was 100 years ago, and started just after the Russian Revolution, which scared government powers at the time because there were concerns that “capitalism need moderating so as to not exploit workers”.

100 years later, the world appears to now be having the same discussion that led to the creation of the ILO, said Ryder.

Stakeholder capitalism, a popular management theory in the 1950s and 1960s that focused on the needs of all constituents, not just shareholders, is expected to make a comeback as people increasingly grow disenchanted with the current world order.

Addressing an audience at the World Economic Forum on Thursday, Ryder, explained that societies have a reasonable expectation that companies should act in such a way as to produce reasonable social outcomes. The consensus in the corridors at WEF, he said, is that the model of maximising shareholder benefit is not working. “Something has gone wrong with the shareholder maximisation model.”

However, unions seem to have fallen out of favour, with only 12 percent of the American workforce being unionised, said Rubenstein. Ryder also added that union density had declined in most countries where organised labour had been strong.

This was due to several factors, including structural change in our economy, which has led to many more organisations than previously; governments discouraging unions or making it difficult for them; and trade unions making their own mistakes and not being able to attract workers, said Ryder.

However, Ryder added that, of 192 countries in UN, more and more have minimum wages. However, many countries do not, seeing bargaining as a better way of “sharing out the cake”.

At the same time, the gap between Chief Executive Officer and average worker pay has grown dramatically over the past few years due to company behaviour, management decisions in terms of pay, and weakening of bargaining processes, said Ryder. He added that, if we are to take the debate of stakeholder capitalism seriously, this is one of the questions that needs to be addressed.

Extending the concept of stakeholder capitalism, and what we have today is a focus on company behaviour in terms of management of supply chains, which is a new notion, said Ryder. “Companies are now doing due diligence down the length of their supply chains to ensure that there are no human rights violations”.