At Microsoft, Stakeholder Capitalism Generates Astonishing Growth

Entrepreneurship has been at the core of the American Dream. Every pioneer was an entrepreneur, risking life and limb to create a new life based on nothing but individual initiative. Millions of men and women are pioneers today, creating new services and products, creating income as individual contributors, inventing new ways to get things done. Innovative enterprise used to be the rule for both private and public sectors. Setting foot on the moon was an entrepreneurial triumph, marrying private invention with a public mission half a century ago. The Apollo mission was a beacon for the world. Any organization can adopt the same spirit of purposeful discovery. In any organization with visionary leadership, each employee, down to the custodian in a hospital, acts as an entrepreneur, generating fresh ways to delight those the organization serves.

Before the pandemic, the U.S. economy was churning out new jobs. Two-thirds of those jobs sprang up in small businesses. Entrepreneurial gumption was and is still alive in sectors where small-business workers are thriving: health care, construction, retail and especially in tech. The Bureau of Labor Statistics reports that businesses showing the most growth this summer were health care providers, restaurant workers, software developers, general laborers, landscapers, housekeeping staff, drivers, and financial managers. These are mostly people who work independently or in small organizations. They are an integral part of the engine of American job growth: they see an opportunity to please a customer and they make it happen. Employees of larger organizations can be motivated in the same way if they are supported by the right culture.

What isn’t showing up in these statistics is similar growth in larger corporations. Intrapreneurial spirit, as it’s called, doesn’t seem to be thriving there. Non-durable manufacturing is doing well in sectors such as the generation of fuel and electricity or textiles, representing 4.4 million jobs. But durable manufacturing—the kind of manufacturing that made America an industrial giant half a century ago—represents only a fraction of the U.S. employment base: a mere 349,000 jobs. In its heyday, Eastman Kodak Co. alone employed 145,000 workers. In 2015, it employed 8,000.

We do most of this durable manufacturing overseas now. Contracting it out is one way that corporations reduce costs while shrinking opportunities for innovation from front-line workers and middle management up and down the line. When you offshore the leadership of these crucial workers to foreign companies, you can’t foster an intrapreneurial culture where even front-line workers send new ideas up the org chart to those who can make them a reality.

It doesn’t have to be this way. Some large companies are re-inventing themselves. One company that has managed to instill and nurture the intrapreneurial spirit is Microsoft. What its newest CEO has achieved in little more than half a decade is remarkable.


Microsoft used to be Apple’s charmless older brother, the maker of a generic operating system that evolved into Windows by appropriating innovations in personal computing from Xerox and Apple. And for years Microsoft circled the wagons to protect innovations by Bill Gates. As personal computing became commoditized, Microsoft’s new leadership realized it needed to remake itself. It did. It’s now one of the world’s leading tech conglomerates, with leadership in cloud computing, software and gaming, as well as computers, thanks in great part to the guidance of Satya Nadella, who took the helm in 2014.

Business Insider reports: “Since becoming CEO, Nadella has been credited with a grand reinvention of Microsoft, exemplified by its market value exceeding $1 trillion, one of just a handful in history to hit that mark. When Nadella first took over, its market value was around $300 billion.” Nadella has prioritized growth over the preservation of existing product lines and markets. Under the previous CEO, Steve Ballmer, “Microsoft was notorious for prioritizing its Windows operating system and Office productivity applications . . . over the rest of the company.” At one point, under Ballmer, the company nixed the Courier, a possible future competitor to the iPad, because tablets were seen as a potential threat to the market for Windows. This is the sort of thinking that destroys companies clinging to income from obsolete cash cows as their market steadily withers.

Microsoft diversified boldly into apps, gaming, and cloud computing, and it has thrived. (And oh, by the way, Windows has thrived as well. Imagine that.) The company has been able to innovate and diversify because of Nadella’s “growth mindset” culture. Microsoft values what it calls three dimensions of employee behavior. It isn’t about a scorecard of successes and failures: the culture is centered on teamwork and collaboration. Employees are required to model productive behavior, coach others, and care for their team. They are measured on three benchmarks: individual impact, contribution to the success of other workers, and their ability to leverage the ideas and labor of others. As a result, Microsoft workers are all looking to invent new ways to delight customers by cooperating with, rather than competing against, others around them.

This is stakeholder capitalism applied down to the level of keystroke and mouse click. It’s about investing in a company’s long-term future by treating employees as the creative origin of a company’s success, not as an expensive drain against return-on-equity for shareholders. We’ve been operating on a model of short-term profits, at all costs, for decades in American capitalism, and it’s been the enemy of this sort of “intrapreneurship” within too many of our publicly traded companies. We’ve embraced cost cutting that amputates the spirit of innovation at its roots: downsizing R&D, stagnating wages, skimping on compensation, all to boost quarterly profit. The price of that quick hit of shareholder returns is the death of intrapreneurship throughout the org chart. Workers who are worried about their financial wellness don’t bring creativity to the job.

Microsoft’s response to the pandemic was exemplary as well. It recognized how working remotely would be a norm during the pandemic, that it would reshape the economy, and it seized that moment. Microsoft recognized how an opportunity had arrived for overlooked and underemployed talent in rural and underserved communities. In an annual letter to its shareholders, Nadella writes: “We are continuing . . . to extend broadband access to millions of people in rural and underserved communities. In June 2020, with tens of millions of people displaced from their jobs . . . we brought resources together to help 25 million people connect to digital skills for in-demand roles. We’re helping companies make 250,000 skills-based hires this year, ensuring those who learn digital skills can convert them into jobs.”

This sense of commitment to community and nation is a core part of stakeholder capitalism.

The way back to the spirit of self-motivated inventiveness that established America as an example for the rest of the world is to return to the stakeholder capitalism that reigned in companies in the Sixties. We need to embrace the courage and creativity so endemic to American capitalism half a century ago, before we retreated into a myopic vision of the future, struggling to prop up profits, from one quarter to the next, afraid that we didn’t know how to deal with burgeoning global competition.

Microsoft is a perfect example of how this can be done.

As Goldman Sachs market research puts it: “Microsoft is well positioned to capitalize on a number of long-term secular trends (and) we see a pathway for sustained double-digit topline growth alongside continued margin expansion. . . We believe the installed base of Windows Servers alone represents an $80-$90 billion opportunity . . . Similarly, we see . . . continued growth in Office 365, with the potential for the company to double its installed base of 300 million users to 500 million, given the massive number of knowledge workers worldwide. We continue to see sustainable double-digit top line growth for Microsoft.”

Interesting, isn’t it? Stakeholder capitalism, what its opponents refer to as “woke capitalism”, is actually an engine for astonishing profits, rewarding both employees and shareholders more generously than the fearful, cost-cutting mindset of short-term shareholder primacy. It creates a culture of innovation and continuous adaptation, the heart of the American entrepreneurial spirit. Stakeholder capitalism is just smart capitalism. Period.

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