This article originally appeard on LinkedIn.
I once read an examination of Karl Marx’s slogan “From each according to his ability, to each according to his needs.” Though an intoxicatingly attractive idea, the piece explained, it boils down to one slippery question: Who decides? Who decides what someone needs (or deserves)?
I was reminded of this question recently while reading the coverage of stakeholder capitalism as the next step in the evolution of capitalism. Last weekend, a whole section of the New York Times was given over to challenging the influential Milton Friedman essay “The Social Responsibility of Business Is to Increase Its Profits,” published 50 years prior. In place of the shareholder-centered system of financial capitalism Friedman proposed, many of those quoted in the current Times section advocate a focus on a broader set of stakeholders. Among them: customers, employees, vendors, partners, investors, the environment and surrounding communities.
Of course, any business is a community of stakeholders, and leaders have responsibilities beyond maximizing profits for shareholders. But who decides how value should be apportioned among them? Who determines which groups of stakeholders should contribute, and which have the most deserving needs? And how do they do that?
Today’s shareholder capitalism is largely a reaction (or overreaction) to unaccountable executives of the post–World War II era, who presented themselves as accountable to a wide variety of stakeholders. Accountability to shareholders was seen as easier to track and encourage. By combining the stick of government regulations and the carrot of stock options, executive interests could be aligned with those of investors. But the outcome has been growing wealth inequality and slumping economic numbers—along with too much pollution and global warming.
So yes, it is time to reconsider shareholder capitalism. But what should come next? A return to stakeholder capitalism risks unaccountable executives. Stakeholder value definitions are vague, broad and unmeasurable. By elevating many different stakeholders to equal stature, companies might create something chaotic, running the risk that public relations campaigns and lip service will camouflage true results.
This brings us back to the tricky question: Who properly decides when companies are doing right? Not, in my opinion, company executives allowed to assess their own performance with a balanced scorecard that touches all stakeholders but is also full of soft metrics requiring judgment and interpretation. Instead, I believe the right deciders are customers, followed closely by employees.
The Net Promoter System® creates accountability because it is based on a very special question: How likely would you be to recommend us? This one question sheds light on how well all stakeholders are treated, something I was reminded of during a recent conversation with the CEO of a global transportation company.
This CEO asked me why I chose that question as the basis of Net Promoter®. I told him we had tested a dozen candidates and that question best predicted the subsequent behaviors that prove customer loyalty, such as repeat and increased purchases, and referrals.
He seemed disappointed that the selection had been so data-driven. To him, the notion of recommendation also touched on the broader responsibilities that he and his team should feel. Yes, caring for customers is central, but a firm like his has duties to employees, to vendors, to partners, to the communities they serve and to the environment. He noted that, by asking how likely a customer would be to recommend a brand to a friend, NPS® touches on all of those stakeholder dimensions, because when customers recommend to a friend, they are publicly associating their personal reputation with that brand.
The CEO was right. NPS does reflect the interests of many stakeholders. Most customers (and employees) won’t enthusiastically recommend a brand that pollutes the environment, cheats employees, relies on child labor, abides unsafe business practices, or that can’t deliver a fair and sustainable return to lenders and investors.
Recommendation does much more than gauge customer loyalty; it sheds light on the full range of stakeholder relationships. In the end, how the customer feels about the firm will define its reputation and shape its future. (Importantly, how customers feel is heavily influenced by how proud employees feel, and that in turn is based on their unique insight into how their company treats all constituents.)
Focusing on customers can only work if companies measure the results and hold leadership accountable. As more companies report customer-focused metrics, including the Net Promoter Score®, it’s critical that these numbers are high quality and consistent. Fortunately, a movement is underway to go beyond softer survey-based figures toward audit-worthy results.
In editions to come, I will be writing about how leading firms are turning the voice of customers into the kind of hard metrics that will truly enable an age of customer capitalism.