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COVID-19 drives ESG debate over stakeholder capitalism

30 July: Writing for the Financial Services Faculty, Carlos Martin Torneros covers three key reasons why businesses are shifting their ideological focus through the pandemic crisis.

 The COVID-19 pandemic has revitalised the intellectual debate around stakeholder capitalism. The idea rose to prominence in the aftermath of the Global Financial Crisis and the urge to reform the financial markets prompted by the climate change emergency. The economic challenges brought on by the pandemic have again raised the issues behind the debate into the spotlight.


Over four decades shareholder primacy, or shareholder value maximisation, has been the dominant ideology.

There was consensus across academia, business schools, policymakers, and the mainstream financial press that corporations should be run for the exclusive benefit of shareholders. Increasing their returns was the only social responsibility company directors should observe.

But shareholder value maximisation has now been dismissed as a myth worth debunking. Stakeholder-centric capitalism is making a comeback. 

Until the 1970s, public companies were also considered social institutions that should be run in the interest of its stakeholders: creating secure jobs for employees, serving customers loyally, cultivating long-term relationships with suppliers, raising taxes that are reinvested in the community and thus benefiting society as a whole.

The great debate over corporate purpose seems to be shifting in this direction. Several developments support this change. 

  • First, the growing influence of ESG finance and responsible investment, whereby institutional investors themselves have endorsed this view as they request boards to run companies for the interests of other stakeholders.
  • Second, the European Union’s Green Deal is pursuing what it calls “sustainable corporate governance” and mulling regulatory intervention to reinterpret corporate law and governance frameworks.
  • Third, the US Business Roundtable, which has endorsed the stakeholder-centric view with its August 2019 “Purpose of the Corporation” statement.

The post-coronavirus world will be a true test of the stakeholder vs shareholder debate.

You can read the full article here.