Toward Stakeholder Capitalism (CLOs)
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Toward Stakeholder Capitalism (CLOs)

December 06, 2021 | Report

What the Shift Means for Chief Legal Officers

The concept of stakeholder capitalism is not new. Its origins reach back at least to the early years of the Great Depression. Where the business community is seeing change is in increased pressure for businesses to engage more publicly and act more transparently as social media platforms amplify the voices of diverse stakeholders, and investors place greater focus on stakeholder issues ranging from diversity, equity & inclusion, to sustainability, to employee well-being and workforce management, to community impact.

While many organizations have talked about the current shift toward stakeholder capitalism, The Conference Board has uniquely focused on what it means, in practice, for CEOs and the C-suite. During 2021, The Conference Board held a series of roundtable sessions with CEOs and chief financial, legal, human resources, government relations, communications, marketing, and technology officers focusing on 1) whether the shift toward stakeholder capitalism is significant and durable, and 2) what it means for their roles, the organizations they lead, and the composition and functioning of the C-suite. The discussions were held under the Chatham House Rule, with participants free to use the information received but barred from identifying speakers or their affiliation.

Here is what chief legal officers told us:

What Is Changing

CLOs see the shift to a stakeholder focus as durable because all types of investors are embracing it:

  1. Passive index funds, which by definition invest across sectors and thus are interested in systemic risks and opportunities, are focusing on broader stakeholder welfare.
  2. Managers of both passive and active investment funds need to be responsive to their institutional and individual investor clients who are increasingly interested in broader ESG issues and in serving diverse stakeholders. Indeed, stockholders are not only stakeholders, they are also customers, employees, and community members themselves.
  3. Activist investors are embracing ESG issues in campaigns to change the strategic direction of companies. In addition, CLOs note that the legal framework (particularly in Delaware, where most major US firms are headquartered) does not need to change to accommodate this shift. Except in limited circumstances (such as insolvency and putting the company up for sale), Delaware law already gives boards wide latitude under the business judgment rule to consider the welfare of stakeholders in making decisions.

The consensus among roundtable participants: the variety of demands on CLOs that extend beyond the focus on quarterly earnings targets is now salient. These demands include addressing racial inequality, reducing greenhouse gas emissions, and fostering a more inclusive work environment. Given the complexity of many business issues involving multiple stakeholders, greater communication and collaboration across the C-suite is necessary. While participants recognize the momentum behind the shift, they agree not all companies, boards, or investors are in the same place.

What the Transition Means for CLOs

The business leaders participating in the roundtables and interviews shared lessons, perspectives, and expectations for what lies ahead as the shift from stockholder to stakeholder capitalism spreads. Here is what we learned:

  • CLOs see their role expanding from legal adviser to general business and strategy adviser, with an even higher level of uncertainty as they deal in relatively unregulated areas such as brand and marketing, climate change, income inequality, stressed natural resources, supply chain labor conditions, and an increased reliance on business to lead change.
  • Participants believe the shift requires CLOs to have a broader vision of risks and opportunities. Achieving this perspective entails more meaningful cross-function collaboration as well as interaction with new constituencies outside of the legal function. One participant says the CLO role has become that of a “circus conductor” trying to align functions when dealing with nonfinancial or extrafinancial risks.

“The job description hasn’t changed, but day-to-day activities have radically changed. CLOs need to see the whole playing field, and it is causing CLOs to interact outside of the legal world, to interact with other constituencies. In this new environment you have to able to lead, not follow.”

More specifically, they see the need to:

Deal with added dimensions of risk and opportunity. Only a few years ago, the legal function was comfortable dealing with mostly legal, financial, and business dimensions in analyzing the costs and benefits of any problem presented to them. The shift to a stakeholder focus introduces additional layers of risks and opportunities, including political risk, public perception risk, employee/customer risk, and competing pressures based on customer attitudes. For CLOs and their teams to be trusted and constructive partners to business leaders, they need to factor these additional risk layers into their advice.

Consider whether and how to expand their core role. In addition to grappling with a broader set of legal risks and opportunities, CLOs may be well positioned to assume more responsibility in government relations and public affairs.

Focus on data. Investors increasingly expect companies to set, and report on, measurable ESG goals. As the demands for ESG disclosure increase, and as boards assume a greater role in this area, companies are being called upon to produce, manage, and disclose massive amounts of data. In particular, the shift to a stakeholder focus and the resulting demand for nonfinancial data collection mean the CLO is ultimately responsible to ensure that data are investor grade and legally compliant, which in turn requires CLOs to be data literate and data focused. One participant said the function now has a full-time person running data reports for external ESG-related requests. Another participant said only a few years ago he spent about 5 percent of his time on such activities. Now it is closer to 50 percent.

Become even more creative problem solvers. When trying to meet stakeholder expectations in multiple areas (e.g., the environment, political activity, workforce diversity, disclosure generally) that go above and beyond the legal minimum, CLOs need their teams to focus more on problem solving than problem spotting. If there is no clear legal barrier, some degree of legal risk should not stand in the way of exploring solutions. As one participant offered, CLOs need to get to “yes” faster.

Ensure the board is prepared for its broader roleand for the CLO to play an expanded role with the board. Boards are now tackling a broader array of issues (e.g., environmental issues, pay for frontline workers) as they weigh the interests of multiple stakeholders. CLOs, too, need to become more fluent in broader ESG issues so they can ensure the board has the governance policies and practices in place to address these issues. They also need to be able to discern what needs to go to the board for information, review, or approval and whether they are receiving appropriate information to fulfill their roles. Further, CLOs typically have a high level of exposure and engagement with the board, but given their more strategic role, they need to be prepared to weigh in on the risks and benefits that go well beyond traditional legal considerations.

Build a broader set of relationships internally—working on ESG-related projects is a way to do so. In companies where the shift is underway, participants say the legal department’s connection with communications and government affairs has intensified. The challenge is to build deeper relationships with marketing, brand, procurement, and other areas. This is true for both the CLO and the legal team.

Build a broader set of relationships externallytrust is the key. CLOs have often had either a direct or an indirect role in engaging with shareholders. Now they are developing more relationships with nongovernmental organizations and community groups. CLOs need to address these organizations in a constructive rather than a defensive manner—especially as they will often need to tell these organizations what they don’t want to hear. Developing a relationship grounded in trust is key.

Remain balanced in emotionally charged atmospheres. When facing polarizing issues where there is a lot of passion and controversy both internally and externally, it is critical for CLOs to give balanced advice and to be aware of their own biases. By leaving the emotion out of it, CLOs can bring rigor to the company’s analysis of these challenging issues.

Be sensitive to global priorities and differences. In a world without borders, the changing relationship between stakeholders is not confined to a single country or region. CLOs must appreciate the nuances of global difference, and they must act with agility to make quick decisions and adjustments to respond to regional demands and issues. While many US-headquartered companies tend to think of stakeholder governance as a primarily US-based phenomenon, the changing relationship between investors, customers, consumers, and employees is following a similar trend, regardless of geography—and in many cases other regions are further along on the journey.

Use ESG and the broader mission of the legal department to attract and motivate talent within the legal function. There is a generational opportunity and imperative here. Younger lawyers are excited about addressing broad legal issues with wide societal impact and want to be involved. Give them the opportunity. It will help you in attracting, retaining, and motivating talent. But what is absolutely key is positioning ESG as an opportunity rather than a burden; and you must believe it—your lawyers will detect inauthenticity in a moment. An insincere or shallow embrace of ESG may do far more harm than good with your team.

Become more adept at time management and adjust priorities rapidly. Time demands will increase as the need for broader data collection and ESG reporting expands. It is about managing budgets, talent, and time.

Lead with more humanity and humility. People want to work for companies with empathetic leaders. CLOs have an opportunity to harness and guide that energy, but they need to act with humanity, humility, and integrity—building trust that will enable them to explain the inevitable difficult trade-offs among stakeholders with credibility.


To understand how the shift to a stakeholder focus is affecting chief financial, human resources, legal, communications, marketing, and government relations officers—and the functions they lead—see the full series here.

Additional Resources From The Conference Board

Choosing Wisely: How Companies Can Make Decisions and a Difference on Social Issues, June 2021

Lessons from Leaders for Leaders: Organizational Impact & Social Change, May 2021

Lessons from Leaders for Leaders: Innovative People Approaches, May 2021

Brave New World: Creating Long-Term Value through Human Capital Management and Disclosure, December 2020

Insights for Investors and Companies in Addressing Today’s Social Issues, October 2020

Purpose-Driven Companies: Lessons Learned, October 2020

Sustaining Capitalism 2020 Election Series, September 2020 | CED Compendium

Organizational Characteristics of US Benefit Corporations, April 2020

Consumers' Attitudes about Sustainability – Part 2: How Sustainability Features Influence Consumers’ Choices, February 2020

Sustaining Capitalism: Bipartisan Solutions to Restore Trust & Prosperity, February 2017

Sustaining Capitalism Podcast Series, 2018–2021

CEO Perspectives, Episode 3: Multistakeholder Governance, May 2021 | Podcast

Sustainability Watch: What Can We Learn From 15 Purpose-Driven Companies?, September 2020 | Webcast



Senior Director, Content Quality
The Conference Board


President and CEO
Society for Corporate Governance
The Conference Board ESG Center

Rebecca L.Ray, PhD

Former Executive Vice President, Human Capital
The Conference Board

Dana M.Peterson

Chief Economist and Leader, Economy, Strategy & Finance Center
The Conference Board

Dr. Lori Esposito Murray

Former President
Committee for Economic Development

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