Opinion: Why Stakeholder Capitalists Stay Out of Politics

One major fallacy that came out of the anti-woke and anti-ESG campaigns over the last few years is the notion that stakeholder capitalism calls for organizations to get involved with political and social issues outside the purpose, goals, and objectives of an organization. This is a distortion that arose when the Business Roundtable made its pronouncement that organizations should address the needs of all stakeholders and when Larry Fink, CEO of BlackRock, declared his support for stakeholder capitalism principles without ever defining what that meant.

By Bruce Bolger

The Only Requirement of CEOs: Be Ethical
Politics and Social Issues Are a Rabbit Hole for Business
Business Should be a Safe Haven From Social and Political Discord

CEOs should not get involved with societal or political issues outside the direct purpose, goals, and objectives of the organization, and the concept of doing so has nothing to do with stakeholder capitalism based on its 50 years of theory and usage.

I am not alone among the few people who call themselves “stakeholder capitalists” who actively oppose mixing business with politics. Leo E. Strine, Jr., former Delaware Supreme Court justice, and an early advocate for the Public Benefits Corporation statutes, told ESM in a EEA YouTube show last year that “companies should stay out of politics and focus on the welfare of their stakeholders—employees, customers, supply chain and distribution partners, and communities that create wealth for shareholders.”

The Only Requirement of CEOs: Be Ethical

If stakeholder capitalism meant that CEOs should get involved with politics or societal issues, it would be called societal capitalism or perhaps democratic socialism. Stakeholder capitalism is about enhancing returns for investors only by creating value for customers, employees, supply chain and distribution partners, and communities—the organization’s stakeholders, not all of society. Of course, society benefits when organizations conduct themselves this way, but the ethical obligation of an organization without stated broader social goals goes no further than a commitment to not externalize organizational costs on society by deceiving consumers, underpaying employees, discriminating, or polluting, etc., unethical behaviors that would have been soundly denounced by Milton Friedman based on his writings.

How did the concept “stakeholder capitalism” get conflated with addressing the concerns of non-stakeholders? A literature review of the frameworks and theory underlying stakeholder management theory will find many references to acting ethically—that is, not externalizing business costs on to stakeholders and society. The concept of getting involved with politics outside the purpose, goals, and objectives of the organization mostly comes up in statements by opponents of stakeholder capitalism since 2019, when latecomers to the concept incorrectly conflated the issue of stakeholder management with the need to make social or political statements during the height of the George Floyd tragedy. One will be hard-pressed to find in any literature review of stakeholder capitalism scholars or businesspeople advocating for CEOs to take political or social stances unless specifically related to the stated purpose, goals, objectives of the organization.

The recent terrorist attacks in Israel are a perfect example of why most CEOs—except those based in Israel, Palestine, or Gaza, or whose purpose, goals, and objectives are directly related to the welfare of safety of Israel or the Palestinians--need to steer clear of any pronouncements on the Mideast and focus instead on addressing the individuals or offices of the company that might be directly affected. That might mean making personal phone calls; establishing special policies to support affected people, including counseling support if appropriate, time off, etc. Beyond that, making public pronouncements opens the door to a rabbit hole of a never-ending need to survey the world for tragedies, slaughters, and other misdeeds and compare how each might affect certain stakeholders and what statements need to be made, even though they have nothing to do with the purpose, goals, and objectives of the organization.

Politics and Social Issues Are a Rabbit Hole for Business

The Writers Guild of America recently came under attack from its members for its failure to issue a statement condemning the terrorist attacks by Hamas in a letter signed by 300 members, including Jerry Seinfield, according to the New York Times. The letter asked why the union had previously made statements in support of the Black Lives Matter and #Metoo movements. Similarly, New York Times column Thomas Friedman recently writes, “Be advised: If Israel does invade Gaza, corporations everywhere will be facing competing demands from employees to denounce Israel or Hamas.”

Once CEOs make pronouncements about one tragedy, they immediately enter the frightening world in which they must choose and compare tragedies daily. Are we offending our Armenian friends by overlooking the recent expulsion of over 100,000 of them from Nagorno-Karabakh if we do not comment? How about conditions in Venezuela, where many have died or fled, or Yemen and Sudan, where many women or children have died? Surely, someone will criticize me for putting any of these other areas of conflict in the same light as the slaughter of innocents in Israel or leaving out the plight of the Ukrainians? That is the point.

One might ask, why was it okay to speak out about Ukraine? I’m not sure it was necessary for any companies not directly involved to speak out. Obviously, the US and its allies decided to impose serious sanctions on Russia creating a significant impact on the ability for western-based companies to do business there. That has a direct impact on the purpose, goals, and objectives of an organization doing business in Russia and would require a statement from those CEOs affected along with a transparent plan for compliance. On the other hand, there are many people of Russian dissent who are customers, employees, investors or other stakeholders who might not themselves all agree on the question of Ukraine. Unless a company’s purpose, goals, objectives, and values are rooted in this conflict, or it offers some form of solution, what good does a CEO’s pronouncement do that helps the organization?

Business Should be a Safe Haven From Social and Political Discord

The main reason to steer clear of politics and social issues: to ensure that your stakeholders feel safe and comfortable; that means customers, employees, supply chain and distribution partners, and communities. Unless your organization’s purpose, goals, and objectives are related to politics and social issues, which is perfectly legal provided these are transparently conveyed to all stakeholders, taking partisan social or political stances will only contribute to making some stakeholders feel unsafe and unwelcome. After all, most stakeholders sign up to do business with an organization for its products, job opportunities, distribution, or supply opportunities, or as an investor, not because it takes moral stances consistent with their own.

Unless taking a political or moral stance is foundational to the purpose, goals, and objectives of your organization, it’s best to stick to business. And please stop attributing the absurd notion of mixing politics with business to stakeholder capitalism: in fact, making major donations to political parties and social causes remains a tradition in shareholder capitalism.

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