Perspectives on “Woke Capital” and Politicized Investing

Recently, the Competitive Enterprise Institute hosted a virtual book event for Political Forum publisher Steve Soukup’s new book, The Dictatorship of Woke Capital: How Political Correctness Captured Big Business, featuring Steve, myself, and CEI president Kent Lassman. Steve’s book raises a number of interesting issues regarding corporate governance and the role of business in the modern world. See the video below for our full discussion.

In addition, I’d like to share a few highlights that reflect on CEI’s own work on the same themes. I asked Steve during our conversation about the extent to which businesspeople have been infected by the anti-capitalist mindset of society at large, and feel the need to apologize for making money, or “buy back” their moral status by supporting a laundry list of left-wing policy positions in their roles as corporate managers.

This is a theme CEI’s founder Fred Smith has discussed frequently. Writing for Forbes in 2014, Fred cited earlier 20th century writers like publisher Ernest Benn and economist Joseph Schumpeter on this trend:

Businesspeople have responded weakly over the last century to [attacks on their moral legitimacy], rarely mounting any strategic moral defense. Economist Joseph Schumpeter explained this passivity as the result of the rationalistic nature of capitalism. The rational attitude of businessmen, he argued, would lead them to believe that logical arguments, emphasizing capitalism’s economic achievements, would suffice. Jobs and tax payments are noted but the role of business in advancing a moral society is rarely mentioned.

But at least one businessman responded creatively and aggressively. That man was Ernest Benn. In 1925, in an England already well down the road to socialism, he wrote the memoir Confessions of a Capitalist. The book is a clear, cheerful discussion of the creative role of business in society.

The ease with which Fred reaches back a century for examples of the current debate emphasizes how little is actually new in this discussion. The original progressive theorists of the early 20th century provided most of the theoretical basis for the demands currently being made of corporate America. Steve devotes quite a bit of time in his book to the origins of public administrative (and how government regulators are expected to know better than the rest of us), including the baleful influence of such now-controversial figures as Woodrow Wilson. 

I wrote for OpenMarket in January about the new joint ESG venture between big companies and the World Economic Forum, which had recently launched its “Measuring Stakeholder Capitalism” report. It was presented as some kind of revolutionary new initiative, but was perhaps less than the hype suggested:

There’s a long history of capitalism’s critics coming up with new systems for assessing ethical business operations. Management scholars and business executives started talking about “corporate social responsibility” as far back as the 1950s, when economist Howard Bowen coined the term in his 1953 book Social Responsibilities of the Businessman. Since then, various related theories and movements have waxed and waned, including socially responsible investing, extended stakeholder management, total corporate responsibility, impact investing, and the triple bottom line, among others.

We also talked about how some big corporations are using concepts like corporate social responsibility and environmental, social, and governance (ESG) theory, less to apologize for prior bad behavior and more to secure a strategic advantage over their rivals. At CEI, we often write about the concept of “regulatory capture,” the economic process by which government rules end up being written more to benefit corporations than restrain them, as a result of lobbying and special-interest influence. We can see that when some of the biggest corporations in the world sign up to a new project that will supposedly force them to act against their own financial interests.

We see this effect all the time, including in areas like antitrust. My colleague Jessica Melugin wrote in January about how regulatory capture worked historically in the context of the state-sanctioned AT&T telephone monopoly and the Federal Communications Commission, and our friend Alex Stapp tweeted just today about how it’s working now in the context of Microsoft, Google, and Facebook. The world of ESG rules is no different, and companies can be expected to manipulate the regulations we will likely see in the near future to their own advantage.

But does all of this need to be fought out in the realm of government mandates at all? I posed this question as part of the event, and there seemed to be some light at the end of the tunnel. As I wrote for National Review in September of last year, private certification and voluntary governance models can provide the structure for ESG-type goals that their proponents assure us are so popular and important. If corporate American is really moving in this direction already, a flexible, decentralized framework should be just what the doctor ordered:

[ESG proponents] point out that corporate law and precedent in the U.S. generally requires boards of directors to manage their firms to maximize shareholder returns, meaning that adopting policies that are ethically desirable but not profit-maximizing could expose them to shareholder litigation. Fortunately, it is possible for those business owners and managers who are afraid of being sued for doing too much good to incorporate in most states (including business incorporation fan-favorite Delaware) as a “benefit corporation,” the structure of which explicitly lifts the expectation of shareholder primacy from its directors.

If any change is necessary, it will be in the creation of additional, competing certification bodies. Many investors and managers concerned about ESG issues support the socially liberal B Lab, but there are also many people of goodwill who don’t embrace the same ethical framework and priorities. Why not have a socially responsible business-certification entity informed by the teachings of the Roman Catholic Church? Or perhaps one based on the Adam Smith Society, which has chapters at business schools across the country?

For more on what policy makers are saying about the future of ESG and corporate governance, see the recent Federalist Society event (and my writeup of it) with Securities and Exchange Commission member Elad Roisman, former commissioner Paul Atkins, and former Delaware Supreme Court chief justice Myron T. Steele.