Firms have legal and ethical responsibilities to customers, employees, business ecosystems, society, and the natural environment. Should a company go beyond these responsibilities and manage its business in the interest of these diverse stakeholders?

The shareholder primacy as a prevailing model, is a failed doctrine that has been shown to destroy social cohesion and natural resources. It is clear that the interests of society are not best served by firms only maximizing profits to shareholders.

Companies are called to include a broader set of stakeholders in their decision making and value creation approaches, beyond just their shareholders. For today’s value-minded executives, stakeholder capitalism is a real opportunity.

Stakeholder capitalism is a broader concept than shareholder capitalism. By considering everyone that a company’s actions touch, whether that’s employees, suppliers, activists, consumers, local communities (including the society as a whole), or the environmental context, it requires companies to take a broader consideration of who their stakeholders are, and to factor that into their strategy and choices. Thus, a firm should operate in the interests of all its constituent groups and maximize total value creation.

Competing for trust and responsibility are probably some of the most important things that companies have to do, as well as creating deeper relationships with all of their stakeholders that have built on that trust.

Nobody will want to buy products or to work for a company that keeps earning when the world is weighed down with problems. In other words, successful companies will be part of solving the world’s problems. Going back to the foundational principles and finding a broader purpose is the starting point.

Looking in this direction, a long-term commitment to value creation is fundamental, because it by definition takes a broad range of constituent interests into account. Doing so in a sustainable manner calls for meeting the concerns of communities, including the environment, consumers, employees, suppliers, and shareholders alike. On the contrary, a short-term focus necessarily does not take account of some or all of these stakeholders.

Let’s consider employees for a moment. Creating value for employees means, first of all, encouraging a positive work environment and treating them as part of a family, promoting physical, emotional, and mental wellbeing. On the contrary, a company that tries to boost profits by underpaying employees and providing a stressful work environment will have trouble attracting and retaining high-quality employees, with impacts on products’ quality, demand, brand reputation, and turnover. To grow, companies need to create relationships with their employees based on trust and on a mutual exchange of value.

Now, let’s consider customers. A long-term approach would weigh price, volume, and customer satisfaction to determine a price that creates sustainable value. That price would have to entice consumers to buy the products not just once, but multiple times for different generations of products. Without taking a long-term view, a company might still thrive at a lower price point, but there’s no way to determine whether the value of a lower price is greater for consumers than the value of a higher price to all corporate stakeholders.

Pursuing the interests of all stakeholders is inherently appealing, but the stakeholder approach encounters some serious difficulties in practice.

Today, 85% of a company’s value is in intangibles, it is about trust or reputation that take a long time to build, but they can be eroded in a moment. Part of those are competence and resilience around what a firm does, and being reliable in commitment to different stakeholders.

This leads to the need to have more holistic multivariant long-term objectives. However, how can we track and measure them across our stakeholders? Indeed, the interests of all company’s stakeholders are not complementary. Strategic decisions of all kinds involve myriad trade-offs, and the reality is that the interests of different groups can be at odds with one another.

It may be possible to establish distinct goals for each stakeholder group, but having multiple objectives sounds like having no objective at all. Indeed, even if the Board can provide an external and internal balance to represent a diverse range of views and stakeholders, this could result in conflicts and vagueness around performance objectives to be achieved.

Moreover, if the top management is to pursue and balance the interests of different stakeholders, and considering also that managers and investors alike often fixate on short-term performance metrics, how can management performance be assessed?

Another problem is related to the fact that when weak demand and fierce international competition depress the return on capital, few companies have the luxury of sacrificing profits for other goals; in addition, companies that underperform financially suffer a depressed share price, attracting potential acquirers, both other public companies and private equity funds.

Ultimately, you can’t create long-term value by ignoring the needs of your stakeholders. Indeed, profitability over the long term requires loyalty from employees, trusting relationships with suppliers and customers, and support from government and communities.

For these reasons, investing in sustainable growth should and often does result in stronger economies, higher living standards, and more opportunities for individuals. Finally, empirical evidence shows that firms that take account of a broader set of interests, including those of society, achieve superior financial performance, and as competition increases, we see that the interests of different stakeholders converge around the goal of survival.