Conservatives Helped Defeat Woke, But Not Stakeholder Capitalism
Now that conservatives correctly shot down the virtue signaling of DEI (diversity, equity, and inclusion), LGBQT and related social issues in the wake of the George Floyd murder, it’s time to get back to the process of continuous improvement in capitalism. Stakeholder capitalism is a 70-year or older movement to enhance capitalism and has nothing to do with the virtue-signaling correctly criticized by the right and left. In fact, when the definition is properly explained to both opponents and Americans on both the left and right, most agree that stakeholder capitalism is just better business.By Bruce Bolger
Stakeholder Capitalism Is Nothing Revolutionary
Why Stakeholder Capitalism Will Prevail: It’s Just Better Business
Note: The Enterprise Engagement Alliance by policy is non-partisan, because the implementation of purpose leadership and stakeholder management principles generally does not require legislative action and is not related to the policies of either major US political party. For an update on the state of stakeholder capitalism, tune into a live Enterprise Engagement Alliance YouTube show on Dec. 19 at 1 pm with R. Edward Freeman, Professor, Business Administration at the Darden School of Business at the University of Virginia, author of the seminar work published in 1984, Strategic Management: A Stakeholder Approach, and often called the “father” of stakeholder capitalism; David van Adelsberg, Partner, Irrational Capital, and Martin Whittaker, CEO, JUST Capital. Register here.The conservatives have successfully set back virtue-signaling and greenwashing, not stakeholder capitalism. In fact, only people opposed to capitalism have anything against stakeholder capitalism once they understand it. Stakeholder capitalism isn't a revolution: it's just better business. One opponent on the left, writing in Argia, a leading culture publication in the Basque country straddling France and Spain, Juan Mari Arregi Azpeitia asks: “Is an internal reform of the capitalist system possible? Those seeking a new capitalism want to perpetuate it, offering a more humane, social and ecological face, so that citizenship, especially today's young people, adapts and assumes the system. Those who are betting on this capitalism, reducing even its pay levels, want to continue to dominate the planet. They want to continue to maintain their productive and financial models in order to achieve maximum performance. They want to have governments in their hands, precisely, to keep the capitalist system. But as much as it promises profound reforms, it will never cease to be capitalism. Your wild DNA will always be the same.”
Based on decades of usage in academic research and business practice, stakeholder capitalism is indeed capitalism, but it’s about enhancing returns for investors only by creating value for the employees, customers, supply chain and distribution partners, communities, and the environment. It is indeed based on economics. The proposition is simple: How can any organization sustainably optimize returns for investors by mistreating employees, misleading customers, squeezing suppliers and supply chain partners, and offsetting costs on to communities in the form of pollution and abandonment of facilities, creating litigation risks for future shareholders? It is simply better business.
Instead of studying the decades-old approach to business, opponents on the right such Anson Frericks, co-founder with Vivek Ramaswamy of Strive Asset Management, in this Fox News editorial, triumphantly declares the death of stakeholder capitalism as if that is good for investors. In the article, he seizes upon the Business Roundtable 2019 press release to address the interests of all stakeholders as a new call for business to do “the work government would not.” In response, he claims, the Business Roundtable “radically changed the purpose of a corporation in 2019.” Now, he writes, businesses had a ‘fundamental commitment to all of our stakeholders,’ not just shareholders alone...The impact was immediate. American businesses were at the mercy of progressive stakeholder activists that were much noisier than the everyday shareholder.”He's correct, but there’s only one problem with this scenario and those of other opponents on the left and the right. What they describe related to the Business Roundtable pronouncement has nothing to do with stakeholder capitalism. Examine over 70 years of usage in business, starting with the work of Peter Drucker in the late 1940s and W. Edwards Deming in the 1950s, and nowhere does one find the obligation to divert resources from the purpose, goals, and objectives of the organization to support ad hoc social or environmental causes.” What both the right and left were correctly criticizing isn’t stakeholder capitalism, but rather “woke” capitalism, otherwise known as greenwashing or virtue signaling.
In fact, when presented with the Enterprise Engagement Alliance’s definition created with the help of Alex Edmans, Professor of Finance at the London Business School and author of Grow the Pie, and Martin Whittaker, CEO of JUST Capitals in 2020, both Peter S. Goodman, New York Times Economics reporter, and author of Davos Man, with a progressive orientation, and Wayne Winegarden, Senior Fellow and Director Center for Medical Economics and Innovation at Pacific Research Institute, with a conservative point of view, agreed with stakeholder capitalism if defined this way. Lucien Bebchuk, an early opponent of the Business Roundtable statement from the Harvard Law School Forum for Corporate Governance, wrote in an email to me that of course he would agree with stakeholder capitalism as defined by the EEA, but that this would simply be better business, and nothing revolutionary.
When surveyed by JUST Capital, both Republicans and Democrats largely support companies that pay at least a living wage with benefits; keep their promises to customers, distribution, and supply chain partners, support their local communities consistent with their impact, and do everything possible to mitigate their negative impact on the environment or local infrastructure.
Stakeholder Capitalism Is Nothing Revolutionary
In fact, Lucien Bebchuk is right about stakeholder capitalism. So much so that in 1988, the US Congress under the presidency of Ronald Reagan, created the Malcolm Baldrige National Quality Award based on its principles. By presenting the first Malcolm Baldrige Quality Award in 1988 to Robert W. Galvin, Chairman of Motorola, Inc.; John C. Marous, Chairman and Chief Executive Officer of Westinghouse Electric Corp.; and R. Arden Sims, President and Chief Executive officer of Globe Metallurgical, Inc., President Ronald Reagan symbolically expressed his support for stakeholder capitalism principles, for the annual national award rests still presented each year rests upon the very same principles:
- Leadership: How senior leaders guide the organization and address responsibilities to the public and practice good citizenship.
- Strategy: How the organization sets directions and determines key action plans.
- Customers: How the organization engages its customers for long-term marketplace success.
- Measurement, Analysis, and Knowledge Management: How the organization uses data to support key processes and manage performance.
- Workforce: How the organization empowers and involves its workforce.
- Operations: How the organization designs, manages, and improves key processes.
- Results: How the organization manages performance and improvement in key business areas—product and process, customer, workforce, supply chain and distribution partner, leadership and governance, and financial and market outcomes.
This definition presents an impossible conundrum immediately seized upon by shareholder capitalists and other opponents—how can any company serve all interests at the same time? Imagine the absurdity of the CEO trying to make everyone happy. Stakeholder capitalism has nothing to do with trying to make everyone happy: it’s about aligning or harmonizing interests by transparently establishing and communicating a clear purpose, goals, objectives and values, so that people understand the reasoning behind the many inevitable tradeoffs in both business and life. The same process of harmonizing interests is applied daily in the military and in sports: of course there are tradeoffs, people make sacrifices and sometimes lose, but hard choices are better understood when made for a transparent purpose, goals, objectives, and values upon which most agree upon.
Why Stakeholder Capitalism Will Prevail: It’s Just Better Business
Sensible shareholder capitalists will eventually embrace stakeholder capitalism because it is indeed nothing more than better business:
- An increasing body of empirical research and actual stock performance increasingly point to the connection between high levels of stakeholder engagement and future equity value creation—is that really so difficult to believe that organizations with all stakeholders highly engaged in its mission will do better?
- Almost no government action is required—stakeholder capitalists need no subsidies and for those that put purpose above shareholder interests, 40 states, about half in Republican-dominated states, have so-called B (benefit) corporation statutes in effect or in the works.
- Stakeholder capitalists carry less risk because they are committed to Milton Friedman’s caveat to act ethically within the law and ethical standards of the times, which includes paying required taxes and not offloading costs on to society by underpaying employees, misleading customers, squeezing supply chain and distribution partners, and damaging local environments.
- The premises of the Golden Rule underly the business operating system—the business leaders do not do on to stakeholders what they would not have done on to themselves in the pursuit of personal profit.
- Most people agree with its principles. People on both the left and the right consistently state in JUST Capital surveys that they want companies to pay at least a living wage and provide basic benefits including paid leave; keep their promises to customers for service and product quality; treat distribution and supply chain partners fairly, and that support community activities to offset whatever resources they draw from, and refrain from polluting or damaging the environment.
- The issue of DEI, instead of being pursued as a matter of corporate retribution, is addressed solely as a source of value creation; i.e., how to draw in and engage customers, employees, supply chain and distribution partners from the broadest possible community to enhance productivity, quality and sales?
In fact, the Strive 500 ETF so-called anti-woke fund managed by Anson Frericks has many of the same holdings as the Harbor Capital HAPI ETF, which based on the Human Capital Factor analytics of Irrational Capital (See ESM: The Holy Grail of Investing and HR? New Solution Connects Human Capital to Return on Equity) and the Goldman Sachs JUST ETF, based on the JUST Capital list of best companies rated based on their level of engagement with customers, employees, supply chain and distribution partners, communities and the environment.
According to an analysis by AI, the Strive 500 ETF run by Anson Frericks consists of many of the same companies in the HAPI and JUST funds with similar returns. Strive 500 ETF (STRV) has a one-year return of 33.95%, with top holdings of Nvidia Corp, Apple Inc, Microsoft Corp. and a focus on information technology, financials, and consumer discretionary. Harbor Human Capital Factor US Large Cap ETF (HAPI) has a one-year return of 36.52%, with top holdings including Nvidia Corp, Apple Inc, Amazon.com, Inc., and a focus on technology, financial services, and communication services. The Goldman Sachs JUST US Large Cap Equity ETF (JUST) has a one-year return of 32.85%, with top holdings that Apple Inc., Nvidia Corp, and Microsoft Corp, and a focus on technology, financial services, and healthcare. Note that in the last 12 months, the S&P has slightly outperformed all three of these funds.
Ironically, all three ETFs have similar ESG (environmental, social, governance) ratings, according to data from Goodsuniteus.com, and all donate a similar percentage to the Republicans in favor of the Democrats, according to the latest data that does not include all of 2024, according to Brian Potts, Goods Unite Us co-founder.
Enterprise Engagement Alliance Services
Celebrating our 15th year, the Enterprise Engagement Alliance helps organizations enhance performance through:
1. Information and marketing opportunities on stakeholder management and total rewards:
- ESM Weekly on stakeholder management since 2009. Click here to subscribe; click here for media kit.
- RRN Weekly on total rewards since 1996. Click here to subscribe; click here for media kit.
- EEA YouTube channel on enterprise engagement, human capital, and total rewards since 2020
Management Academy to enhance future equity value for your organization.3. Books on implementation: Enterprise Engagement for CEOs and Enterprise Engagement: The Roadmap.
4. Advisory services and research: Strategic guidance, learning and certification on stakeholder management, measurement, metrics, and corporate sustainability reporting.
5. Permission-based targeted business development to identify and build relationships with the people most likely to buy.
Contact: Bruce Bolger at TheICEE.org; 914-591-7600, ext. 230.
