In the runup to the fall elections, American CEOs are taking positions on climate change, abortion and election denial. Does this constitute constructive "stakeholder capitalism," or cynical posturing by "Woke, Inc."?
The former looks beyond the traditional shareholder focus and recognizes that a corporation exists in a complicated network of stakeholders. The latter is a moniker some have attached to criticize what they see as pandering.
I will gladly sit out the debate on whether this even matters to voters. But there is a helpful debate underway, involving investors, managers and researchers.
The point-counterpoint in a recent issue of The Economist provides a good example. Vivek Ramaswamy — investor and author of Woke, Inc. — makes the case against business leaders weighing in on important political issues. He worries that giving the super-rich an even greater voice in politics distorts the debate.
"The social fabric of a diverse democracy depends on preserving certain spaces as apolitical sanctuaries," he writes. He continues by pointing to history: "Our system of unbridled profit-focused capitalism used to serve as perhaps the most important of those sanctuaries, but no longer."
This is where Ramaswamy misreads history.
Think of our first real corporations: the joint-stock companies of the 1600s. The Dutch and British East India Companies — for example — pooled capital from investors in London and Amsterdam to fund colonial ventures abroad. They certainly practiced what Ramaswamy would call unbridled capitalism (although their work probably did involve bridles). But it wasn’t apolitical: It was based on a political ideology that celebrated imperialism and colonization.
Fast forward to the post-World War II boom. Corporations from the 1950s through the 2010s exerted massive political power on American life. Take the oil and gas industry as just one example: Research into the history of the fossil fuel industry’s lobbying efforts shows its influence over the climate change debate. Industry organizations used coordinated political messaging to make it seem like a remote future risk as opposed to a burgeoning reality. They weren’t simply implementing specific shareholder directives. They were engaging with the strategic landscape in an attempt to shape it. And this activism helped fuel physical infrastructure and cultural assumptions that made fossil fuels the foundation of our economy.
The political beliefs and cultural assumptions of the people who sign the paychecks have always had a huge influence over which sectors and people have been able to build savings and pass on wealth. From the boardroom to the shop floor to the water cooler, our workplaces have always been noisily contested political spaces.
Even a company that claims to be apolitical and doesn’t speak up on an issue, is still engaging in a type of politics.
Polite political silence always serves the group that holds power. That is one of the benefits of holding power. Sometimes, by quietly doing nothing at all, you can have a great impact on the world. It is those who lack power who must make a stink to nudge the world in their preferred direction. So even a company that claims to be apolitical and doesn’t speak up on an issue, is still engaging in a type of politics.
Critics of stakeholder capitalism are concerned that this disruption seems to be coming down from the top instead of up from the bottom. It’s true, executives such as Blackrock’s Larry Fink might be the ones getting quoted. But I believe they are just using their notoriety to channel the energy of other, more important constituencies such as employees and customers.
I am president of a for-profit, purpose-driven firm. Like all businesses, we are in a war for talent. In my company we hear — from the initial interview through the annual review — that people want to work for a company that will positively affect society. They want their employer to go beyond feel-good statements and give them a real role in setting strategy and implementing impact.
And it’s not just employees. My experience with clients is that they want partners who can clearly state what their values are and then back them up with action.
When a CEO speaks with authority about social and political issues, politicians aren’t the only (or even the most important) audience. That CEO is also speaking to their employees and customers to let them know their voice is being heard.
When I hear critics of this stakeholder approach wish that we would all just focus on what’s important— in their eyes, shareholder value — I think of a 2009 quote from General Electric’s former CEO Jack Welch: "Shareholder value is a result, not a strategy. Your main constituencies are your employees, your customers and your products."
Value is created when leaders and teams are fully aware (and yes, awake) to their full strategic context.
Despite the criticism, I expect the current trend of CEOs speaking out on social issues to continue. I trust employees and customers to tell the difference between cynical public statements and real demonstrations of values.
