Opinion: It's time to ditch stakeholder capitalism

financialpost.com:

By Ian Robertson

For Canada to be more than a nation that talks about global leadership but can’t compete, we need to acknowledge a hard truth: even good intentions have unintended consequences. Stakeholder capitalism — the idea that, under the watchful eye of government, corporations should serve not just shareholders but “all stakeholders” — was supposed to create inclusive growth. Instead, it has made Canada a jurisdiction of indecision, capital flight and underperformance at a time when the world’s economic heavyweights are retreating to shareholder and state-centric models.

Intended as a “third way” of doing business, stakeholder capitalism’s build-out in Canada gained momentum after the 2008 financial crisis as policy-makers sought a moral counterweight to the problems of supposedly “unrestrained” markets. A tipping point came in 2019 when the Business Roundtable — 200 of the world’s most powerful CEOs — redefined corporate purpose to serve “all stakeholders.” The same year, Canada’s business act was amended to give boards permission to prioritize “stakeholders” and “the long-term interests of society” over shareholders.

Stakeholder capitalism responded to perceived shortcomings in the shareholder model: reckless cost cutting, environmental neglect and unsavoury labour practices. But it relied on two flawed assumptions. First, that business can effectively balance competing interests without compromising efficiency and, second, that “stakeholders” can be clearly defined and will act in good faith. Reality has proven otherwise.

Imagine you’re a CEO. Shareholders expect earnings growth, the board wants its strategies executed, employees demand higher wages, customers want lower prices, regulators expect compliance