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"Social Responsibility" Expectations for Business Pivot from Voluntary to Mandatory

The Financial Times reported recently that many prominent companies have cut dividends to shareholders because they are struggling with the current economic downturn caused by the global coronavirus pandemic. But even after we’ve recovered from the current emergency, reporter Billy Nauman writes, “[the] popularity of environmental, social and governance (ESG) investing could mean that dividend cuts extend beyond the downturn.”

To support this premise, Nauman quotes an analyst at Morgan Stanley, who suggests that the increased popularity of the United Nations’ Principles for Responsible Investment means that more money managers will “judge companies’ cash distributions and executive pay in ‘a context broader than shareholder primacy.’” So corporate America itself is apparently behind the idea that shareholders will now have to wait in line behind “employees, customers and society as a whole” when it comes to profiting from the success of the companies they, collectively, own.

But then the story takes an odd turn, and becomes a platform of sorts for Nicholas Lusiani of the nonprofit group Oxfam America, whom Nauman quotes extensively. Lusiani worries that shareholder primacy is making the impact of COVID-19 worse and exacerbating gender and racial inequality. He asks us to “imagine if companies that were able to pay had paid more taxes and invested that money in public health and social protection.”

So a news article that was supposedly about corporate managers deciding to prioritize spending on employees rather than shareholders in the wake of coronavirus is now about how companies should be more heavily taxed in order to support greater government spending.

Lusiani is a big fan of tax increases, by the way. In a December 2018 blog post criticizing the Tax Cuts and Jobs Act (“a flop”), he claims that lower tax rates haven’t even been good for U.S. companies themselves (“about as healthy as a sugar high”), suggesting that corporate managers should actually be lobbying for higher taxes (“supporting a strong tax base”) instead.

This is a familiar one-two quick step for advocates of ESG activism. Start by claiming that business leaders are embracing some new form of social responsibility, then pivot to the same anti-corporate talking points that fans of big government have been peddling, unsuccessfully, for decades.

We’re told that these ideas couldn’t possibly be too wacky or anti-capitalist—executives at big companies support them! But when it comes to actual policy prescriptions, the supposedly necessary changes in law and regulation are nothing like the hortatory, aspirational guidelines that corporate leaders have actually embraced.

We know this because many big companies, just in recent weeks, have been the target of shareholder resolutions that would force them to disclose more details of their lobbying expenditures. Corporations that signed up for the “sugar high” of positive media coverage by endorsing vague statements about social responsibility and the environment are being taken to task by activists who have noticed that those same companies are not walking the walk, and are continuing to lobby against policies that would impose significant costs on their shareholders. It seems that when you sign a suicide note, some people expect you to actually swallow the poison.  

The FT’s Nauman, paraphrasing Oxfam’s Lusiani, cuts through the obfuscations about ESG goals ultimately being voluntary, writing that “investors will not get there on their own.” Apparently, “we can’t let our society rely on the individual enlightenment of CEOs.”

That means that Congress and other policy makers will have to rewrite the rules on who owns what, and who gets to decide how it’s disposed of. You may have invested your life savings in the stock market, depending on those investments to fund your retirement, your kids’ education, or care for your own aging parents—but don’t get too excited about actually being able to cash out or spend any of that accumulated capital. “Society” has first claim. Or, at least, people who have decided that they speak on society’s behalf think they do.

Don’t worry, though—if the ESG advocates have their way, higher taxes will be able to fund an array of welfare programs that you will no doubt be free to apply for, once they’ve spent the money you foolishly thought was yours.