Jan 14, 2021 03:00 PM

WEF Says Clear Purpose, Improved Governance and Board Diversity Are Key to ‘Stakeholder Capitalism’

What’s new: A new study suggests companies should aim to have a clear purpose, adopt common environmental, social and governance (ESG) metrics and enhance board diversity as part of a new form of “stakeholder capitalism” that will be an important part of a broader corporate transformation taking place.

The study by the World Economic Forum (WEF), conducted in collaboration with law firm Baker McKenzie and published Wednesday, emphasizes steps that companies “can take to reshape their … purpose and practices.”

Why it matters: Stakeholder capitalism is a system in which companies seek to serve the interests of all their stakeholders, including customers, suppliers, employees, shareholders and local communities, according to Investopedia. “Under this system, a company’s purpose is to create long-term value and not to maximize profits and enhance shareholder value at the cost of other stakeholder groups,” according to Investopedia.

The World Economic Forum, known for its annual winter gathering in Davos, Switzerland, is a major proponent of the stakeholder capitalism concept. But others argue the concept is little more than a public relations stunt, as it doesn’t require specific commitments from businesses.

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