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For some years we have seen the beginnings of a shift from shareholder to stakeholder capitalism. Actions taken during the Covid19 pandemic and analysed in the IADS White Paper would seem to echo the new “stakeholder” purpose of companies. What they probably signal is in fact a rethink of the department store model in terms of its offer, its structure, its relation to other businesses, and its adaptation to new market realities.

The IADS has published a White Paper reviewing its members’ actions during and after the Covid-19 lockdown and draws key lessons to prepare for new crises and to address the future of the department store industry, at a moment when some regions are facing new episodes of lockdown: “Global pandemic and local department stores”.

One of the observations of the survey has been that IADS department stores were driven by agility, commitment and responsibility. Notwithstanding their size and complex organisations, department stores were surprisingly agile in addressing the pandemic issues, without losing focus on their social role and responsibility. All IADS CEOs swiftly adjusted their strategy to protect staff and customers, accede to government requirements, maintain and nourish relationships with customers and suppliers, while defending their businesses and preserving cash. This translated into a remarkably fast and coherent shift from all IADS members towards their stakeholders: customers, staff, suppliers, community, and shareholders.

In 2019, we saw the US Business Roundtable redefine the purpose of a corporation as serving these five groups of stakeholders, and this was followed by the Davos Manifesto of 2020 which shifted away from shareholder capitalism towards a business responsibility to “society at large”. We should remember that this was seen by many as a significant shift away from the principle of shareholder capitalism, which has been more or less dominant since the 1970s with Milton Friedman arguing that the primary aim of a company is to maximise value created for its shareholders. Doing anything else was described as spending “someone else’s money for a general social interest”.

It would appear then that the Covid-19 pandemic has renewed interest in this conversation about the purpose of a business. No company, to our knowledge, has questioned the appropriateness of taking on these broader interests in spite of the fact that most of them are struggling to keep their head above water in terms of sales and, even more so, profits. Such declarations of solidarity with all five stakeholder groups come at a time when issues such as climate change, diversity and inequality are all being aired and are apparently of concern both to our customers, and to our employees (in a survey, 70% of workers said their CEO should take a stand on climate, diversity and inequality).

So, stakeholder capitalism demands that companies should save the planet, increase diversity, ensure the right standards along the whole of the supply chain, get rid of the gender pay gap, take responsibility for its employees’ health (physical, mental and financial), as well as conduct a profitable retail business through a series of rolling lockdowns. Is this a reasonable expectation?

Furthermore, some of these issues are perhaps ones over which there may be shades of opinion among managers in a company. What happens if not everyone is on the same side in the “culture war”?

A provocative piece in the Financial Times argues that the burden may be too heavy for companies to carry alone. Indeed, it argues, “the social welfare of individuals is more a matter for their families, friends and state-funded community services….the physical health of the population is a matter for public health services, while issues such as climate change are a matter for governments to rule on”. It reminds us that companies pay taxes so that others do such stuff.

What it forgets, however, is that the sophisticated operations of department stores (and indeed other retailers) puts them in a privileged position regarding knowledge of what members of the population think and need, that the health services of many countries have been overwhelmed due to long-term underinvestment, and that they are already often playing an important community role which has not abandoned sustainability even in the face of serious cost overruns.

Whether this balance between business, politics and society is a desirable state of affairs or not, it remains that without the cooperation of businesses, and department stores among others, the situation on the ground would have been significantly more unpleasant for a large proportion of the population in many countries.

The fact that it also makes sense from a business perspective and increases customer and employee loyalty does not diminish the contributions of department stores which have stepped into the breach as detailed in the IADS White Paper.

It may or may not be part of a shift towards stakeholder capitalism, but the actions undertaken have redefined the sense of purpose of department store companies, given them a new lease of life and injected new meaning into the daily activities of many employees. Coupled with innovative adaptations and practices such as remote working, we are perhaps witnessing something special which may yet have positive consequences, with department stores taking back the initiative.

Credits: IADS (Dr Christopher Knee)