What the Cynics Get Wrong About Stakeholder Capitalism

Just a few months ago, many pegged Airbnb — the vacation rental online marketplace — as the poster child of the stakeholder capitalism movement. Airbnb did more than talk the talk. They walked the walk.

CEO Brian Chesky penned an open letter to the Airbnb community in January outlining his vision for a new “21st century company,” one that benefits all stakeholders. “We believe that building an enduringly successful business goes hand-in-hand with making a positive contribution to society,” Chesky wrote. “Increasingly, this is what citizens, consumers, employees, communities, and policy-makers desire — even demand.” Chesky went on to name Airbnb’s own stakeholders — Guests, Hosts, Communities, Shareholders, and Employees — and established metrics for measuring their progress in realizing this vision.

And then came coronavirus.

COVID-19 arrived on the scene and rocked the travel industry, devastating Airbnb’s core business in the process. Travel cancellations skyrocketed. Revenue projections were halved. A highly anticipated IPO was ditched. And then 1,900 employees — a quarter of the company’s workforce — were laid off.

Here Come the Cynics

Some are now pouncing on a delicious opportunity for “I-told-you-so.” All that nice talk about stakeholders sounds perfectly pleasant, they say. But talk is cheap. When backed against a wall, the bottom line will always win out. One bump in the road and look how quickly that those high ideals evaporated in favor of ruthless cuts aimed at appeasing shareholders.

To me this represents a fundamental misunderstanding of the basic premise of stakeholder capitalism. It behooves proponents of the movement — and I count myself among them — to correct that misunderstanding, to say clearly what stakeholder capitalism is and what it isn’t.

Wants Versus Cares

The key is to understand the distinction between immediate wants and fundamental cares. Let’s use an example:

Jamal maps out the perfect Caribbean winter vacation. Over dinner with his wife Candace, he excitedly takes out his iPhone and shows her pictures of the resort he found. The issue is: Candace really can’t take time off in December. It’s crunch time at the office.

In this case, what does Jamal want? No ambiguity there. He wants Candace to use her vacation days to join him on this trip of a lifetime! Okay, but what’s Jamal’s fundamental care? What truly matters to him? That’s less obvious. It might be something like: romantic connection and quality time with Candace.

Now, here’s where the distinction between wants and cares makes all the difference. If Candace narrowly defines success in this interaction as giving Jamal exactly what he wants, she is doomed from the start. Either she agrees to go on the vacation and puts herself in a bad position vis-à-vis her manager. Or, she declines to go on the vacation and leaves Jamal feeling thwarted.

But if success in this interaction means addressing Jamal’s fundamental care, Candace is playing an entirely new game, with many pathways to win. She can say “no” to Jamal’s specific request regarding the Caribbean vacation in December, while saying “yes” to his fundamental care of connection and quality time. Practically, that can look like a vacation at a different time of year, a recurring local date night, or a whole host of other ideas they might come up with together.

What Stakeholder Leadership™ is Really About

Stakeholder capitalism isn’t about giving every stakeholder — whether an employee, an investor, a supplier, a local community, or whomever — getting exactly what they want. It’s just not possible. That’s the stuff of fantasy. Market conditions are real. Profit and loss statements are real. When Airbnb’s revenue takes a nose-dive, expenses will get slashed, and consequently, layoffs are all but certain.

Understandably, nobody wants to get laid off, and nobody wants to lay their people off. But the wants are less interesting to me. What’s more interesting to me is how Airbnb responded to the fundamental cares of those employees. That is the mark and the promise of stakeholder capitalism. It is the duty of a Stakeholder Leader™. That those fundamental cares are taken into account when making decisions.

Ultimately, I wasn’t in the room, so I can’t say for sure what those cares are, but let’s say one of those deeply held fundamental cares for employees is: being treated with dignity and respect. In that case, to give Airbnb a grade, I’d look for answers to questions like:

· How did they lay people off? What did they say?

· What did they try before getting to layoffs, and how long did they try it for?

· Do they keep more employees than they would have otherwise?

· Will they hire back those folks first when/if revenue bounces back?

We do have some evidence to go on here. The New York Times reported that Airbnb’s severance packages “included three months of salary and a year of health benefits, which was more generous than many other start-ups doing layoffs.” In addition, they created several initiatives to support laid off employees find another job through a public-facing talent directory to potential employers, four months of career services, giving them their company-owned Apple laptop to keep, and turning the Airbnb Recruiting Team into the Alumni Placement Team. And there was more. Perhaps not all employees got what they wanted, however, Airbnb did their best to address the fundamental cares at play.

Could they have done more? Maybe. Before the layoffs, they “cut $800 million in marketing costs, dropped bonuses and halved executive pay for six months.” My intent isn’t to be the final arbiter of whether Airbnb did well by their employees. My intent is to reframe the discussion around what we consider an adherence to the tenets of stakeholder capitalism.

Stakeholder Capitalism, not Stakeholder Socialism

Stakeholder capitalism is capitalism, after all. Profit fuels the engine, and the free market all but ensures there will be ups and downs for most organizations. At the risk of sounding harsh: we’re not talking about charity here. Businesses must be viable.

Where stakeholder capitalism corrects course, though, is in underscoring that quarterly profits are not the only metrics of success. Shareholders or perhaps more accurately, their asset managers, aren’t the only stakeholders that matter. In fact, the data says focusing on the short-term wants of shareholders alone will lead to less profit in the long run, in addition to the other ills that myopic profit-seeking visits on society. A Stakeholder Leader™ understands this well and masters the delicate art of balancing stakeholder interests.

But this does not mean giving each stakeholder exactly what they want. If that is the goal of a Stakeholder Leader™, they will never succeed. If the goal, however, is to acknowledge and act consistent with the fundamental cares of all stakeholders — to include shareholders, they will play an instrumental role in creating more value, more opportunity, and more goodwill in the organizations they lead and the societies they are a part of.