The debate regarding Shareholder Capitalism and Stakeholder Capitalism goes back 50 years to Milton Friedman’s seminal New York Times Magazine article:
A Friedman Doctrine
The Social Responsibility Of Business Is to Increase Its Profits (Published 1970)
Friedman advocated for shareholder primacy and left it to individual investors to make their own personal contributions (e.g., philanthropic donations) to society. Recent votes on shareholder proposals regarding environmental, social, and governance (ESG) issues indicate that shareholders as a group are increasingly focusing beyond shareholder returns.
Many have long maintained that in the long run, investing in stakeholders is good for shareholders— and that stakeholders and shareholders are not an either/or proposition, but rather a both/and proposition where addressing stakeholders leads to better long-term shareholder returns.
2021 Shareholder Vote Implications
This year’s votes on shareholder proposals indicate that many shareholders have clearly come to the “both/and” realization and care deeply about a company’s treatment of its other stakeholders. Votes favoring social and environmental initiatives have spiked: more support for environmental (37%) and social (32%) shareholder proposals than in prior years. The sharp increase indicates higher current and future expectations for EEO-1 statistics, diversity and inclusion efforts, board diversity, lobbying payments, climate impact reporting, and emission reduction target disclosure. Engine One’s win at Exxon Mobile was an exclamation point.
This year’s results represent two departures from the past: (1) good stock performance no longer insulates companies from shareholder recommendations and (2) shareholder proposals are now much more specific about the desired changes. Further, many companies that used to hide behind “greenwashing”, are now acting as evidenced by such things as movement away from fossil fuels, more diverse boards, and increased use of ESG in executive compensation.
These changes are likely not fads but rather a part of a lasting movement of corporations taking a more active role in espousing and meeting societal needs.