ROBERT REICHRobert Riech is one smart guy, and I deeply respect the fact that he appears to actually understand how the economy works.

So I noticed his recent article titled “The Rebirth of Stakeholder Capitalism“.

He makes a powerful distinction between Shareholder Capitalism and Stakeholder Capitalism.  The former structures a business to benefit only the shareholders, while the latter incorporates other beneficiaries: customers, employees, and communities.

What’s surprising to me is his assertion that our society’s intense focus on shareholders really took off in the 1980s.  It’s not a permanent thing, which means it can change.

I’m not against shareholders:  They provide a valuable function for businesses.  Without investment, most companies would never be able to get off the ground, or to grow to a size which provides the kind of efficiencies we appreciate.

But it’s unbalanced, because shareholders really just care about stock value and dividends.  You’d like to think that this stems from maximizing profit, but there’s many examples which show that the connect isn’t that clean.

And even focusing exclusively on profit has its downsides:  There’s lots of important things which only loosely connect with profit.  Happy employees will eventually be more productive and reduce costs, but not when your timeframe is too short.  Pleasing customers will cause them to give you more revenue, but it takes time to filter through the company to end up as profit.

I’m starting to see that the “stakeholder capitalism” in values-based businesses really is about re-introducing the proper balance of time.  If you want to enrich quality of life through your company, you’re not going to do it overnight.  And most rational people get that.

Shareholders seem to have lost the concept that building a robust company takes time as well.