10 Things You Should Know about Stakeholder Capitalism

Bags Fly Free

Sep 26, 2020

Marianne Malina, President of GSD&M, discusses Southwest Airlines' strategic decision to offer free checked bags, defying industry norms for customer satisfaction. The key to success lies in prioritizing stakeholder value and rejecting trade-off choices, leading to innovation and long-term success in stakeholder capitalism.

18:05

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Episode guests

Marianne Malina

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Episode notes

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Quick takeaways

Southwest Airlines' rejection of bag fees showcased prioritizing customers over short-term profits.

Choosing to value all stakeholders over traditional trade-off choices can lead to innovation and long-term benefits.

Deep dives

The Choice to Not Charge for Bags at Southwest Airlines

In the summer of 2009, Southwest Airlines faced the decision to generate revenue by charging for checked bags like other airlines. Despite the potential to gain $450 to $550 million annually, Southwest's CEO, Gary Kelly, chose not to implement bag fees. This decision aligned with Southwest's core value of treating customers with respect and avoiding nickel-and-diming them. In the following months, Southwest proved the naysayers wrong by doubling projected revenues and increasing market share without charging for bags.

Introduction

6min

Corporate Decision-Making and Customer-Centric Culture at Southwest Airlines

6min

The Success of Southwest Airlines' 'Bags Fly Free' Initiative

3min

Exploring Southwest Airlines' Approach to Stakeholder Capitalism and Trade-off Choices

2min

The Power of Stakeholder Capitalism and a Tease for the Next Episode

2min

Originally released on September 27, 2020, Episode 3 features Marianne Malina, President of GSD&M telling the story of the fateful 2009 board meeting where Southwest Airlines CEO Gary Kelley chose to reject the tradeoff choice that led every other major air carrier to begin charging for the 1st and 2nd checked bag. What was pilloried by analysts at the time as an inexplicable rejection of much-needed cash, proved to be the smartest bet in the industry by the end of the year. It wasn’t just luck either. There is a method to Southwest’s “madness” and that is the 3rd thing you should know about stakeholder capitalism.

The key is deliberately endeavoring to create value for each of your company’s stakeholders and then rejecting the framing that leads to what appears to be a tradeoff choice between stakeholders. Do that well, and you’ll find opportunity after opportunity for innovation. The tool we mentioned in the episode that can help companies learn to do this is a simple framework developed by Tim Kelley and Nathan Havey that helps a management team to self-assess how they are doing with stakeholder engagement.

This story is more than a decade old, but Southwest is still at it in many ways.

You can listen to more music by the artists we featured in the episode here.