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Stakeholder Model

Shareholder corporations traditionally have owed little to their employees beyond wages, to their suppliers beyond payment for supplies, to their customers beyond delivery of purchased goods, or to governments beyond taxes often relatively small.  They owe little to the communities in which they operate or to the environment as a result of harmful byproducts, waste, depletion of resources, and pollution of earth, air, and water.

That is beginning to change as some corporations move toward the stakeholder model. 

The stakeholder model requires that all of the parties affected by management decisions, in addition to the shareholders themselves, management, employees, customers, suppliers, communities in which the company operates and the environment from local to global, all must be considered as fairly and justly as possible. 

In the early days of capitalism goods were scarce and the material needs of most of the population were greatly benefited by expanding corporate operations and giving them limited liability, thereby producing a cornucopia of goods and services.  The shareholder model did the job better than anything the world had seen.  In the current era the need is increasingly to curtail, even reduce, total material consumption and to live as lightly on the earth as we reasonably can.  At some point soon we are likely doomed to a vast "dieback" of many living species including our own unless we shift over from dominance of corporations operating under the shareholder model to dominance by the stakeholder model.  Looking into the future as knowledgably, scientifically, and practically as possible, we can curtail these risks and achieve development sustainable for at least the next seven generations.  We need to curb the size of the regional, country, and local "footprint", the contribution per capita to production relative to depletion of resources and the hidden social and environmental cost of that production (See "Ecological Footprint Analysis", Wackenagel, 1999). 

1Stages in the History of Corporations 

The old shareholder model evolved from feudal origins.  In the feudal age and continuing for centuries, kings owned most property in the kingdom.  The first corporations, such as the British East India Company, were broadly chartered by kings or powerful nobility to achieve wealth by trading, taking slaves and war booty, and stripping the commodity and resource wealth of colonies and weak countries.  The managers and investors of the Company satisfied the needs of the king, paid out to others as little as necessary, bilked most of the investors and workers, and often kept vast amounts for themselves. 

In the industrial and modern age, laws were passed to curb the feudal excesses of companies and their benefactors.  The legal form of corporations evolved to the present shareholder model. (See "Transnational Corporations and Global Citizenship", Hazel Henderson) 

In today's world, to meet the competition from investors seeking high returns, corporations must grow their profits at rates greater than the returns on low risk investments like government and agency bonds.  A typical target is an annual increase in profits of 15%.  The most successful corporations have grown at that rate for many years (both internally and by acquisitions) and are now among the giant multinationals.  To get into that club they have also had to find and acquire new giant markets.  Growth rates in developed countries with a very few exceptions simply cannot be as high as 15+% annually. 

To realize that relentless growth imperative, companies have turned to the global marketplace and fostered economic globalization, opening up instant free flow of capital, access to lower cost labor and supplies, and often lax legal and environmental requirements.  The top multinationals have diverse operations in many countries.  Often with several thousand operating locations, these great corporations dominate an industry, sometimes several.  They are often the dominant employer in many communities, the dominant polluter in many of their locations, the dominant buyer in many markets and the dominant supplier to many consumers.  

2Stakeholder Model to the Rescue 

Established corporations make routine decisions on entering or leaving new markets, on producing or discontinuing products and on relocating or abandoning outmoded plants.  Sometimes this behavior eliminates a substantial fraction of the jobs in a community.  All of this is controlled by the often distant corporate managers, under the direction of the board of directors, and subject only to the needs and wishes of the shareholders.  This is the situation prevailing in the developed world where the dominant model of corporations is still the shareholder model.  The shareholder model requires that the needs and interests of all of those affected by management decisions: management itself, employees, suppliers, customers, communities, and environment take a back seat to the shareholders' needs and interests. 

The stakeholder model as a key to sustainable development is increasingly understood and practiced.  In the last few years it has been proven that it is possible to treat employees, customers, suppliers, communities, and natural environment well better than most companies are now doing, and at the same time both make a good profit and produce products which themselves help assure sustainable development.  Examples of such products are high efficiency, low cost, low polluting, alternative renewable energy sources.

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