Why the world needs this 400-year-old business practice

Stakeholder capitalism formed the overarching theme of this year’s World Economic Forum Annual Meeting in Davos. Interacting with the delegates, I observed just how seriously this philosophy is now being taken.

Global business leaders are recognizing that their company’s relationship with employees needs to change, their commitment to communities needs rethinking, and another important stakeholder - the planet - needs to become a central part of any future vision.

Following on from Davos, the need for stakeholder capitalism has become even clearer as organizations across the world deal with the health and economic impacts of the coronavirus crisis.

Stakeholder capitalism is nothing new to Japanese companies, which already have a name for it: ‘Sanpo Yoshi’, meaning three-way satisfaction. The concept − which began 400 years ago among Japan’s merchants − states that a business should satisfy society in general, as well as the buyer and seller.

Chubei Itoh, a feudal era trader who founded Itochu Corporation, divided his profits three ways: between the store owner, the store’s reserve fund, and employees. Merchants of the Ohmi region, where the founder was from, popularized this radical approach in the late-1800s.

And the spirit of Sanpo Yoshi still echoes through companies such as Mitsubishi Heavy Industries (MHI) Group. Several Unesco World Heritage sites in Japan are a testament to the company's early shipbuilding days, which saw both the company and customers flourish, and helped lay the foundations for rapid industrialization throughout the 1800s, which benefited Japanese society.

MHI was among the early adopters of corporate responsibility as well as some of the values intrinsic in today’s definition of stakeholder capitalism.

Back to the future

The ideals espoused by philosophies such as Sanpo Yoshi have been found in progressive companies across the world over the centuries. But today it seems as though we are moving towards something like a global consensus: the Edelman Trust Barometer 2020 found that more than four-fifths of respondents thought stakeholders more important than shareholders to long-term business success.

During my previous visits to Davos, the discussions have centered on what capitalism should look like in the future. This year, talk had moved to what the world needs to look like in the coming 10 or 20 years. And, importantly, what are the challenges we all need to solve?

Environmental, social and governance (ESG) concerns have long been part of our capitalist system. Increasingly though, companies’ credentials in these areas are coming under greater scrutiny as the business world – and, crucially, its investors – place greater emphasis on an organization’s impact on wider society.

Investing in the future

How we monitor this presents a challenge. It’s sometimes easy for companies to pay lip service to ESG goals without taking concrete action, or to ‘greenwash’ their behavior by emphasizing positive aspects of their performance while concealing negative practices.

One helpful tool launched at Davos, is an ESG scorecard which uses standardized metrics to measure each organization’s performance and monitor progress. Importantly, the scorecard allows companies to record and compare numbers.

It is also one way that forward-looking companies can establish and develop trust and engagement with their stakeholders.

Staking a claim

Davos is a good example of this in action. I’m always impressed by how the annual meeting brings together experts from all over the world, gets them talking, and presents a model of trust and inclusion.

One aspect of this inclusivity, which is important to me personally, is the increased numbers of women in attendance. Every year, more women are taking part in panels and sessions, helping engender progressive change in countries around the world.

Of course, countries and cultures have very different histories and change moves at a faster pace in some than others, so there is no one-size-fits-all solution.

Yet Davos helps change attitudes, both by getting people talking about issues like sustainability and inclusion, and by acting on these values: for example - detailing the event’s own carbon footprint and boosting the number of female panelists, business leaders and subject experts at the event.

The companies that attend leave with a broader perspective on the world, helping to export this change around the globe.

In some parts of the world, the focus on stakeholders may represent a new way of doing business. In others, such as Japan, it may simply mark a return to the way business has been conducted for centuries.

This piece is part of MHI Group @ WEF Davos.