The Emerging Re-Branding Battle: Stakeholder And Woke Capitalism

The gloves are coming off.  The lines are being drawn.  Just like everything else these days, the interpretation and branding of a new version of “capitalism” is being politicized, dividing business and community leaders, and of course politicians.  The steadfast emergence of stakeholder capitalism as a model for promoting the public good beyond just making a profit, has created an intense backlash, mainly among conservatives who label it “woke capitalism”.

The driving force of social responsibility, especially among young people and also many corporate leaders, has significantly expanded the outreach policies in business.  New “ESG” (Environment-Social-Governance) proposals have helped fuel the growth of this broader version of capitalism.

“Stakeholder Capitalism” Grows

Whereas the focus of shareholder capitalism is on increasing profits for the owners, stakeholder capitalism goes a big step further – i.e. to improve society and increase the well-being of everyone.  The target audience is not just owners, but also customers, employees, suppliers, the community, etc.  ESG principles provide a roadmap for guiding new stakeholder proposals, although critics say it is too ambitious and too vaguely defined.   However the “E” or environmental category (e.g. transitioning to low-emissions technology) still attracts broad support as a major commercial opportunity for business.  McKinsey has dubbed it the “largest reallocation of capital in human history”.

Elite business schools are focusing more on questions about what is capitalism today, and what are its essential components beyond shareholder primacy?  Professor Curtis Welling at Dartmouth’s Tuck School (my alma mater) asks students every year whether capitalism should be reformed or re-branded.  A decade ago, roughly one-third said yes.  Today two-third say yes.  These progressive leaning students want to discuss the fast-changing expectations of business‘s role in society, how it has created social ills and how it may solve social issues like racial injustice, climate change, abortion, diversity and inclusion.

Another driver is the fact that more people trust business leaders (61%) over government (52%) today, and more want chief executives to take responsibility to speak out on such social causes (source: Edelman research).  Some examples of companies taking a public position on these sociopolitical issues:

• Coca-Cola and Delta Air Lines criticizing revised election laws in Georgia
• Disney’s battle with Ron DeSantis in Florida over his bill to limit teaching of gender identity
• Support for cutting climate emissions, diversity improvement and other ESG proposals from major investment firms, i.e. BlackRock, Vanguard and State Street (they manage $20 trillion in assets).

The “Woke Capitalism” Response

This is basically a backlash against the idea that business should look beyond profits, or stakeholder capitalism.  The term “woke capitalism” was first coined by Ross Douthat in 2015 in the NY Times as “how companies signal their support for progressive causes in order to maintain their influence on society”.  This adverse interpretation is driven primarily by populist politicians who have become exasperated by how big business is increasingly weighing in on so many sociopolitical issues. Related to woke capitalism are other conservative attacks such as “cancel culture” and accusations that ESG policies are mere “greenwashing” (Musk called ESG a “scam”), and even claims by a HSBC executive that “climate change was not a financial risk that we need to worry about”.  Some other initiatives:

• Senator Marko Rubio introduced legislation to let investors sue companies that stray from maximizing shareholder returns.
• Mike Pence has attacked ESG principles as “pernicious”.
• Peter Thiel, the prominent libertarian tech investor, said he would rather “happily invest in oil and gas stocks” increasingly shunned by big asset managers, and encourages CEOs to just “focus on making money, not taking stands”.

The evolution of stakeholder capitalism will continue as society becomes more vocal for demanding business do more for the public good, especially as the younger generation moves into executive positions.  However the response to “woke capitalism” could also force business to be more precise and accountable for achieving ESG credentials.  But the partisan rift from this re-branding of capitalism is yet another unfortunate reminder of the sad state of our divided social and political situation.