224. “Stakeholder Capitalism”?

Have you heard: “It’s time for stakeholder capitalism” (v. “shareholder capitalism”). These terms are irrelevant to non-public companies (like most distributors). The phrase is code for legislating more -compensation, benefits, and job security – to workers which will add friction to the US economy.

Stakeholders?

Every small/medium business (SMB) has four main stakeholder groups: customers, employees, suppliers, and (management)/shareholders. Huge/public companies have more groups: c-suite and board members with obscene stock options; taxing authorities; lobbyists; legislators of corporate-tax-code welfare; etc.  

All stakeholders want more of a company’s economic pie. “Shareholder Capitalism” suggests that greedy capitalists prosper by chiseling more from a static pie. They: sneak prices up to customers; reduce employee compensation while working them harder; and beat suppliers for lower prices and other trade concessions.  

These zero-sum, I-win-you-lose tactics can only work short-term.  In free markets, abused stakeholders quickly retaliate. Customers switch to better-value suppliers. Employees and suppliers first cut back on their efforts. Then, the best leave for better, alternative companies to work with. Weak employees often stay; coast even more; and maybe form a union.

If legislation dictates that workers must get higher, total compensation, then – on the margin- more jobs will be: automated; migrated to lower-cost states or countries; or, liquidated as the now, non-competitive firms shut down.

The, Alternative, Smart Solution: Forward-Invest in Best Stakeholders to Innovate

Case example: to win more, best customers, a distributor must have best service-value which is invented and delivered by best, engaged employees. One distributor:

  1. Targeted a most-net-profitable customer niche with 8 service metrics tuned to the niche.
  2. The employees improved the metrics, and the company’s sales, productivity and profits soared.
  3. Service-value innovation expanded the pie for a 4-way, all-stakeholder win. Customers got best-service value. Employees got big, gainsharing bonuses. All suppliers’ sales and rebates grew. And, shareholders got a higher ROI.

Distributors’ Two-Step Innovation Challenge

Legacy distributors and their channels must “digitally transform”. But, first: most distributors must fix the unprofitable customers that they have (unknowingly?) accumulated. How? See my “Core Renewal Roadmap” and 12 recorded webinars.

Bottom Line:

90% of distributors average only one-third of the pre-tax return of top 5% distributors (8% v 24%). The 90% negotiate over their static pie while the economic and technological currents have turned against them. The 5% are perpetual innovators. They – attract, keep, and engage – the best quality stakeholders. They will win at “eCommerce 2023”.  

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