The Role of Stakeholder Capitalism in Corporate Foreign Policy

Dr. Aslı VAROL

On the 50th anniversary of the World Economic Forum (WEF), a new manifesto on stakeholder capitalism was put forward by WEF founder Klaus Schwab. The basis of the 2020 Davos Manifesto is the original Davos Manifesto of 1973. According to the Davos Manifesto of 1973, businesses should serve the interests of whole society, not just their shareholders. This means “stakeholder capitalism”. Unlike 1973, the 2020 Davos Manifesto provides vision for current issues such as fair taxation, zero tolerance for corruption, executive pay and respect for human rights in the broader context of stakeholder capitalism. At its 2020 Annual Meeting in Davos on January 21-24, the World Economic Forum proposed renewing the concept of stakeholder capitalism to tackle income inequality, social division and the climate crisis (World Economic Forum, 2020).

 

“Statement on the Purpose of a Corporation”, announced by the Business Roundtable in August 2019, is another important statement on stakeholder capitalism. In this text, Business Roundtable emphasizes that: “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.” (Business Roundtable, 2019).

 

Recently, Schwab and Vanham have described the stakeholder capitalism in “Stakeholder Capitalism: A Global Economy that Works for Progress, People and Planet”. According to the authors stakeholder capitalism is “a form of capitalism in which companies do not only optimize short-term profits for shareholders, but seek long term value creation, by taking into account the needs of all their stakeholders, and society at large” (Schwab and Vanham, 2021).

Foreign affairs carries out communication activities that will improve the corporate relations with states, societies, national and international non-governmental organizations, other organizations in the sector, global initiatives and various institutions (Varol, 2020). In this context, foreign affairs should take into account stakeholder capitalism while establishing corporate foreign policy in order to establish long-term relationships with stakeholders. Considering the interests, needs, priorities and relationships of international stakeholders is essential to formulating an appropriate corporate foreign policy.

There are four key stakeholders to ensure that both people and the planet prosper. These stakeholders are governments (countries, states, and local communities), civil society (unions, NGOs, schools, universities, action groups etc.), companies (private sector), and the international community (international organizations such as the UN and regional organizations such as the European Union or ASEAN) (Schwab and Vanham, 2021).

Businesses should consider the impact of their activities and decisions on stakeholders (Varol, 2019). In this context, the purpose of a company is serving the interests of all its stakeholders, including consumers, employees, suppliers, communities, shareholders. In the globalized world, businesses must interact with all their stakeholders. For this reason, businesses should create corporate foreign policies that aim to develop long-term relationships with stakeholders in the global area.

Global Corporate Citizenship and Corporate Foreign Policy

Multinational companies serve all their stakeholders. However, they also act for our global future together with governments and civil society as a stakeholder. Because in the context of global corporate citizenship, companies must work together with other companies and stakeholders to improve the state of our planet (Schwab, 2019).

 

Companies, operating in the international arena or want to expand their investments and business operations towards the international arena, should establish a corporate foreign policy. It should be accepted that an effective foreign policy will provide political, economic, social and cultural gains to companies in the global area. Because corporate foreign policy will determine the scope and direction of corporate diplomacy activities. For this reason, companies should develop a sustainable corporate foreign policy consistent with their business objectives (Varol, 2020).

Stakeholder Capitalism and Interdependence

As Schwab and Vanham stated that today’s stakeholder model is global. Because economies and societies are more closely interconnected than 50 years ago, and the interests of the system are global. The two main stakeholders of the stakeholder model, planet and human, are also fundamentally global. But first of all, the health of the planet must be protected. Because the health of the planet depends on the sum total of decisions made by actors around the world. We need to protect our planet for future generations. Therefore, every stakeholder must take responsibility. The planet is the central stakeholder of the global economic system and its health must be optimized with decisions made by all other stakeholders (Schwab and Vanham, 2021: 176). 

We are in a period that the necessity of stakeholder capitalism is emerging. Stakeholder capitalism is not just for the shareholders of a company; expresses the goal of creating value for all stakeholders. Interdependence is important in stakeholder capitalism. The well-being of one stakeholder depends on the well-being of the other stakeholder. In this framework, all stakeholders must fulfill their responsibilities for the common good. Perhaps the biggest effect of globalization is that it increases interdependence. In order to be prepared for risks and crises, all stakeholders should work for each other’s well-being.

COVID-19 has once again reminded of global interdependence. Schwab and Vanham express that unless everyone is well on the planet, no one will be safe and well. With the widespread spread of Internet technology, people around the world are becoming aware of the plight of people elsewhere. In this case, the importance of global equality is also emphasized (Schwab and Vanham, 2021).

Increasing interdependence brings with it the need for transparency. Because companies must always be transparent in order to receive support from their stakeholders in new crisis and post-crisis uncertainty.

Interdependence requires considering other actors in corporate foreign policy. It is clear that policies aimed only the interests of the organization will not bring long-term success and profit. For this reason, companies need to create a consistent and sustainable corporate foreign policy by considering both their shareholders and all other stakeholders. Businesses must reveal their global corporate citizenship identities in the most accurate way for the health and well-being of the planet.

Conclusion

Companies must create value for all their stakeholders, and this is the core of stakeholder capitalism. Therefore, companies must develop new strategies to achieve stakeholder capitalism. With another words, a new strategic approach is required to achieve stakeholder capitalism. Recently, WEF, Business Roundtable, Bank of America have emphasized the need to rethink stakeholder capitalism. In addition, creating value for all stakeholders in times of crisis and uncertainty is an important way to achieve company sustainability.

Today, it is clearly spoken that being only profit-oriented will not bring more long-term business success. Therefore, a business approach that takes into account the needs and expectations of all stakeholders is required. This necessary business approach is “stakeholder capitalism”. Today, the business world has had to face various global issues such as the climate crisis, financial crises, the COVID-19 pandemic, increasing economic inequality, migration and the threat of terrorism. Therefore, considering stakeholder capitalism in corporate foreign policy is not a choice for companies, it is actually a necessity.

 

References

 

Business Roundtable (2019): “Statement on the Purpose of a Corporation”, August 19, 2019, https://opportunity.businessroundtable.org/ourcommitment/.

Schwab, Klaus, (2019): “Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution”, 02 Dec 2019, https://www.weforum.org/agenda/2019/12/davos-manifesto-2020-the-universal-purpose-of-a-company-in-the-fourth-industrial-revolution.

  

Schwab, Klaus, Peter Vanham, (2021): Stakeholder Capitalism: A Global Economy that Works for Progress, People and Planet, World Economic Forum, Wiley, New Jersey.

Varol, Aslı (2019): Tüm Boyutlarıyla Kurumsal Sosyal Sorumluluk, Cinius, Istanbul.

Varol, Aslı (2020): Kurumsal Diplomasi, Cinius, Istanbul.

World Economic Forum (2020): “Stakeholder Capitalism: A Manifesto for a Cohesive and Sustainable World”, 14 Jan 2020, https://www.weforum.org/press/2020/01/stakeholder-capitalism-a-manifesto-for-a-cohesive-and-sustainable-world/.