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The recent history of business has been an increasingly desperate search for popular legitimacy, most notably in the United States. The management sage Michael Porter talks about “shared value capitalism.” The hyper-connected Lynn de Rothschild advocates “inclusive capitalism.” A phalanx of leading business people talk about “conscious capitalism” (John Mackey, co-founder of Whole Foods), “compassionate capitalism” (Marc Benioff, CEO of Sales Force) and “JUST capitalism” (hedge fund billionaire Paul Tudor Jones). The epithets may change, but the underlying fear is the same: that capitalism will lose its license to operate unless it embraces far-reaching corporate change.
Corporate change means two things in practice: growing a social conscience and giving more power to stakeholders. Leading CEOs have supported progressive positions on a widening range of polarizing social issues such as public restrooms, immigration, high-capacity rifle magazines, voting by mail, Black Lives Matter, transgender identity, and, when it comes both to internal management and public philosophy, “diversity, inclusion and equity.” In 2019, the Business Roundtable (BR) issued a landmark statement arguing that businesses should pay attention to all business constituencies rather than just focusing on maximizing shareholder value.
Of course, not all businesspeople have been transformed into woke warriors. Most Fortune 500 executives and directors likely still favor Republicans over Democrats. Plenty of family business owners, particularly in the South, wear their MAGA hats with pride. But the new paradigm has the Big Business guns on its side. The CEOs represented by the BR collectively employ 20 million people, generate annual revenues of $9 trillion and have a stock market capitalization of about $18 trillion. BlackRock Inc.’s CEO Larry Fink insists that successful companies “must not only deliver financial performance, but also show how to make a positive contribution to society.” The elite business schools that are training the next generation of business leaders and the consultancies that advise leading businesses all preach the same gospel of corporate social responsibility. Amplify this near-religious zeal and you have the making of a corporate revolution: In April 2021, Yale School of Management dean Jeffrey Sonnenfeld described his success in getting 90 CEOs of prominent U.S. companies to create a common front against Georgia’s legislation on voting as “the start of a spiritual new awakening” akin to America’s previous Great Awakenings.
The Walt Disney Co.’s current problems in Florida suggest that the great awakening will take the form of earthly discord rather than heavenly harmony. Disney CEO Bob Chapek’s reluctance to get involved in the question of Florida’s Parental Rights in Education Bill, prohibiting teaching about gender identity and sexual orientation to children in kindergarten through third grade, was understandable given the subject’s radioactive nature. But it was also foolhardy given the pronouncements by CEOs in recent years on everything from bathrooms to critical race theory. Activist employees treated Chapek’s initial silence as an implicit endorsement of the legislation — and his subsequent volte face acted as a red rag to the Republican bull.
The result was not the “win-win” of progressive corporate lore but “lose-lose” and yet more lose. Chapek has lost the support of many of his employees. Disney has lost 10% of its share value (though to be fair, its share price was shaky before the ruckus). And the state legislature has revoked the special self-governing status that Disney World has enjoyed in Orlando for more than 50 years. A company that grew rich by embracing traditional family values is now on the minority side of some of the most controversial issues of our time. (Polls consistently show that a majority of respondents support the main provisions of the Florida legislation.) Conservative talk show hosts are firing up their audiences by playing a leaked video/recording of a senior Disney executive producer boasting about her “not-at-all-secret gay agenda” of “adding queerness” into children’s programs whenever possible. And shareholder activists are circling: On April 5, Reed Rubinstein, former deputy associate attorney general in the Trump administration, wrote a letter to the Disney board on behalf of shareholders demanding an investigation into the CEO’s wastage of corporate assets and accusing the company of “systemic discrimination against religious believers.”
True, the capitalist reformers do have a powerful story to tell. Capitalism has lost much of its legitimacy since the 2008 financial crisis, when the government stepped in to rescue the very people who had created the crisis in the first place. Both Occupy Wall Street and the Tea Party can agree on that. And capitalism is undoubtedly having trouble winning over the younger generation. Some 40% of Americans under 40 years of age claim that they would prefer some form of socialism.
Reforming CEOs think that they have no chance of winning over younger workers and consumers if they don’t embrace progressive causes. “I didn’t become all of a sudden this activist CEO,” Benioff has said. “I got kind of pushed by my employees.” And they worry that social problems will simply be left to fester if they don’t step in, because the government is too paralyzed and polarized to act.
But the problem with corporate progressivism is that it is destined to be as counterproductive as it is windy. How can you renew business’s license to operate if you are alienating the conservative half of the country? Michael Jordan’s famous observation that Republicans buy sneakers, too, needs to be modified in the light of today’s corporate antics: Republicans have values too. The more businesses endorse the left side of the culture war, the more they will motivate the other side. The Boardroom Initiative, a shareholder coalition led by former McDonald’s CEO Ed Rensi, has demanded a civil rights audit at Bank of America following reports that the bank is making its staff undergo a “race-based training program.”
Moreover, moving left on culture is no guarantee that you will overcome the left’s long-standing anti-business bias: Witness three new hit series about rogue entrepreneurs — Elizabeth Holmes (“The Dropout”), Adam Neumann (“We Crashed”) and Travis Kalanick (“Super Pumped”) — which give the impression not just that business is open to rogues just like any other walk of life, but that capitalism is more or less synonymous with cheating, fakery, egomania, self-indulgence, white privilege, sex mania and general loutishness.
And how can you restore faith in business if you go about promising far more than you can possibly deliver? Getting “kind of pushed” by your employees is hardly an exercise in leadership. Corporate progressives like to chide Milton Friedman and his supporters for short-termism. But what could be more short-termist than winning easy applause by promising to solve the world’s most pressing problems? Rebecca Henderson, a Harvard Business School professor and one of the leading gurus of the new paradigm, called one of her books “Reimagining Capitalism in a World on Fire.” Corporate progressives, however, are fighting fire with gasoline.
The BR’s stakeholder rhetoric contains an implicit promise that companies will be kinder to their stakeholders (variously defined as anything from the company’s employees and suppliers to the entire planet). Making such a promise is unwise at the best of times, when you don’t have to make many trade-offs. In difficult times when the trade-offs multiply, it is idiotic. For in making these trade-offs, companies will almost certainly come down on the side of shareholders because that is what the signals that CEOs value most highly tell them to do: boards of directors selected for their expertise in serving shareholders, financial auditors who focus on financial returns, activist investors who can profit from share price increases, equity analysts who call out decisions that don’t increase shareholder value, executive compensation systems tied to share price, a liberal market in corporate control, and omnipresent stock markets. The greatest legacy of the shareholder value movement may well be to add woke-washing to the list of corporate crimes.
So, how should we address the very real problem of corporate legitimacy? Companies should start by sticking to their knitting rather than sprawling all over the place. The best way a CEO can advance the social good is to produce better goods and services at lower prices, not accept implicit responsibility for social problems that are out of their control. Market-friendly commentators should point out that many of the structural injustices that are blamed on capitalism, not least America’s troubled K-12 education system, are the result of government failure. And, finally, great philanthropists, of whom America has a wonderful abundance, should do what they have done throughout the country’s history: Use their private wealth (as opposed to corporate money) to provide innovative solutions to the country’s manifold problems — starting, I hope, with its broken ladder of educational opportunity.
The recent history of business has been an increasingly desperate search for popular legitimacy, most notably in the United States. The management sage Michael Porter talks about “shared value capitalism.” The hyper-connected Lynn de Rothschild advocates “inclusive capitalism.” A phalanx of leading business people talk about “conscious capitalism” (John Mackey, co-founder of Whole Foods), “compassionate capitalism” (Marc Benioff, CEO of Sales Force) and “JUST capitalism” (hedge fund billionaire Paul Tudor Jones). The epithets may change, but the underlying fear is the same: that capitalism will lose its license to operate unless it embraces far-reaching corporate change.
Corporate change means two things in practice: growing a social conscience and giving more power to stakeholders. Leading CEOs have supported progressive positions on a widening range of polarizing social issues such as public restrooms, immigration, high-capacity rifle magazines, voting by mail, Black Lives Matter, transgender identity, and, when it comes both to internal management and public philosophy, “diversity, inclusion and equity.” In 2019, the Business Roundtable (BR) issued a landmark statement arguing that businesses should pay attention to all business constituencies rather than just focusing on maximizing shareholder value.
Of course, not all businesspeople have been transformed into woke warriors. Most Fortune 500 executives and directors likely still favor Republicans over Democrats. Plenty of family business owners, particularly in the South, wear their MAGA hats with pride. But the new paradigm has the Big Business guns on its side. The CEOs represented by the BR collectively employ 20 million people, generate annual revenues of $9 trillion and have a stock market capitalization of about $18 trillion. BlackRock Inc.’s CEO Larry Fink insists that successful companies “must not only deliver financial performance, but also show how to make a positive contribution to society.” The elite business schools that are training the next generation of business leaders and the consultancies that advise leading businesses all preach the same gospel of corporate social responsibility. Amplify this near-religious zeal and you have the making of a corporate revolution: In April 2021, Yale School of Management dean Jeffrey Sonnenfeld described his success in getting 90 CEOs of prominent U.S. companies to create a common front against Georgia’s legislation on voting as “the start of a spiritual new awakening” akin to America’s previous Great Awakenings.
The Walt Disney Co.’s current problems in Florida suggest that the great awakening will take the form of earthly discord rather than heavenly harmony. Disney CEO Bob Chapek’s reluctance to get involved in the question of Florida’s Parental Rights in Education Bill, prohibiting teaching about gender identity and sexual orientation to children in kindergarten through third grade, was understandable given the subject’s radioactive nature. But it was also foolhardy given the pronouncements by CEOs in recent years on everything from bathrooms to critical race theory. Activist employees treated Chapek’s initial silence as an implicit endorsement of the legislation — and his subsequent volte face acted as a red rag to the Republican bull.
The result was not the “win-win” of progressive corporate lore but “lose-lose” and yet more lose. Chapek has lost the support of many of his employees. Disney has lost 10% of its share value (though to be fair, its share price was shaky before the ruckus). And the state legislature has revoked the special self-governing status that Disney World has enjoyed in Orlando for more than 50 years. A company that grew rich by embracing traditional family values is now on the minority side of some of the most controversial issues of our time. (Polls consistently show that a majority of respondents support the main provisions of the Florida legislation.) Conservative talk show hosts are firing up their audiences by playing a leaked video/recording of a senior Disney executive producer boasting about her “not-at-all-secret gay agenda” of “adding queerness” into children’s programs whenever possible. And shareholder activists are circling: On April 5, Reed Rubinstein, former deputy associate attorney general in the Trump administration, wrote a letter to the Disney board on behalf of shareholders demanding an investigation into the CEO’s wastage of corporate assets and accusing the company of “systemic discrimination against religious believers.”
True, the capitalist reformers do have a powerful story to tell. Capitalism has lost much of its legitimacy since the 2008 financial crisis, when the government stepped in to rescue the very people who had created the crisis in the first place. Both Occupy Wall Street and the Tea Party can agree on that. And capitalism is undoubtedly having trouble winning over the younger generation. Some 40% of Americans under 40 years of age claim that they would prefer some form of socialism.
Reforming CEOs think that they have no chance of winning over younger workers and consumers if they don’t embrace progressive causes. “I didn’t become all of a sudden this activist CEO,” Benioff has said. “I got kind of pushed by my employees.” And they worry that social problems will simply be left to fester if they don’t step in, because the government is too paralyzed and polarized to act.
But the problem with corporate progressivism is that it is destined to be as counterproductive as it is windy. How can you renew business’s license to operate if you are alienating the conservative half of the country? Michael Jordan’s famous observation that Republicans buy sneakers, too, needs to be modified in the light of today’s corporate antics: Republicans have values too. The more businesses endorse the left side of the culture war, the more they will motivate the other side. The Boardroom Initiative, a shareholder coalition led by former McDonald’s CEO Ed Rensi, has demanded a civil rights audit at Bank of America following reports that the bank is making its staff undergo a “race-based training program.”
Moreover, moving left on culture is no guarantee that you will overcome the left’s long-standing anti-business bias: Witness three new hit series about rogue entrepreneurs — Elizabeth Holmes (“The Dropout”), Adam Neumann (“We Crashed”) and Travis Kalanick (“Super Pumped”) — which give the impression not just that business is open to rogues just like any other walk of life, but that capitalism is more or less synonymous with cheating, fakery, egomania, self-indulgence, white privilege, sex mania and general loutishness.
And how can you restore faith in business if you go about promising far more than you can possibly deliver? Getting “kind of pushed” by your employees is hardly an exercise in leadership. Corporate progressives like to chide Milton Friedman and his supporters for short-termism. But what could be more short-termist than winning easy applause by promising to solve the world’s most pressing problems? Rebecca Henderson, a Harvard Business School professor and one of the leading gurus of the new paradigm, called one of her books “Reimagining Capitalism in a World on Fire.” Corporate progressives, however, are fighting fire with gasoline.
The BR’s stakeholder rhetoric contains an implicit promise that companies will be kinder to their stakeholders (variously defined as anything from the company’s employees and suppliers to the entire planet). Making such a promise is unwise at the best of times, when you don’t have to make many trade-offs. In difficult times when the trade-offs multiply, it is idiotic. For in making these trade-offs, companies will almost certainly come down on the side of shareholders because that is what the signals that CEOs value most highly tell them to do: boards of directors selected for their expertise in serving shareholders, financial auditors who focus on financial returns, activist investors who can profit from share price increases, equity analysts who call out decisions that don’t increase shareholder value, executive compensation systems tied to share price, a liberal market in corporate control, and omnipresent stock markets. The greatest legacy of the shareholder value movement may well be to add woke-washing to the list of corporate crimes.
So, how should we address the very real problem of corporate legitimacy? Companies should start by sticking to their knitting rather than sprawling all over the place. The best way a CEO can advance the social good is to produce better goods and services at lower prices, not accept implicit responsibility for social problems that are out of their control. Market-friendly commentators should point out that many of the structural injustices that are blamed on capitalism, not least America’s troubled K-12 education system, are the result of government failure. And, finally, great philanthropists, of whom America has a wonderful abundance, should do what they have done throughout the country’s history: Use their private wealth (as opposed to corporate money) to provide innovative solutions to the country’s manifold problems — starting, I hope, with its broken ladder of educational opportunity.
