Free-market advocates are understandably skeptical of “stakeholder” capitalism—the idea that corporate managers should focus not just on returns to shareholders, but on pleasing a potentially long list of other groups that claim an interest in the operations (and on the profits) of a company. Any given board and management team can apportion their own resources as they see fit, of course, but we small-government types are wary of theoretically voluntary guidelines for social and environmental awareness being transformed into binding legal requirements down the road.
Roviant Sciences CEO Vivek Ramaswamy, however, has another worry, which he described in a recent op-ed for The Wall Street Journal. Expecting corporations to take positions on and advance social agendas, he argues, gives them too much power, and Americans should reserve that sort of authority for the government:
Speaking as a CEO and a citizen, I don’t want American capitalists to play a larger role in defining and implementing the country’s political and social values. I think the answers to these questions should be determined by the citizenry—publicly through debate and privately at the ballot box.
Ramaswamy mentions those two methods of influencing society—public debate and voting—as if they are natural complements, and many a primer on civic engagement would agree. But they’re actually diametric opposites: one is a purely voluntary action and the other involves using the state to force others to do what a majority has decided.
According to Ramaswamy it’s inappropriate for corporations, rather than politicians, to influence the future of, for example, environmental protection and labor regulation, and there I think he’s got things precisely backwards. Not because corporate managers per se should be dictating such things, but because policy based on voluntary action and persuasion is better than policy based on force.
He writes that CEOs are no more qualified to make policy on minimum wages and society’s carbon footprint than “an average U.S. congressman is to make the operating decisions of a complex technology company.” But the truth is that neither of them are more qualified to make binding calls on questions of morals and values than any other American. Asking “who should decide for everyone: businessmen or politicians?” begs of question of how we accepted that one small class of Americans should be making decisions for everyone in the first place.
I don’t think that CEOs and corporate boards should be elevating social justice activist campaigns above their primary goal of generating profitable returns for their firm’s shareholders. But if we must have “social impact” investors jetting around the world giving TED talks about corporate responsibility, at least their influence is part of the voluntary economy. We can all still decide to invest (or not) or to work (or not) at the company in question, and no one is going to be thrown in jail because they told CEO Preachy McScoldface to jump in a lake. But once the patented McScoldface method of corporate management catches the eye of a member of Congress and becomes enshrined in law, all of that changes.
Activist CEOs are a threat to some people simply because they’re worried that the CEOs will endorse policies that they disagree with. But at least in that case we have multiple steam valves for the consequences of bad CEO activism: the news media can expose, activists can protest, consumers can boycott, investors can sell, employees can quit, banks can refuse to loan, and law enforcement authorities can prosecute if the corporate behavior in question violates anyone’s rights. Dumb company policy is vulnerable to many points of attack.
But bad government policy is frequently more like a zombie horde or a T-1000 from The Terminator—invulnerable to whatever countermeasures are thrown at it. No matter how many bad consequences pile up, bad laws and regulations are notoriously difficult to reverse. We’ve been dealing with the perverse consequences of the Dodd-Frank financial “reform” of 2010 for roughly a decade now, and the corrective measures have been extremely slow in coming.
The Journal editors gave Ramaswamy’s op-ed the title of “The ‘Stakeholders’ vs. the People.” But the federal government is not “the people.” The millions of individual Americans who live every day as workers, investors, owners, and neighbors are the people. There are functions of society, like national defense, that a government must do. But we should be seeking always to narrow the scope of things in society that are governed by force and government action, not expanding it. And when it comes to exerting influence on societal norms, I’ll take a big-mouth CEO on TV over a federal agent knocking on my door any day.