Source: S.R. Piccoli

There are at least three terms to describe the concept of stakeholder capitalism — corporate wokeness, woke corporatism and woke capitalism. The last of the three was coined in 2015 by Ross Douthat when writing a piece for the New York Times. He defined it as how companies signal their support for progressive causes in order to maintain their influence in society. Since then the concept has become very popular in the U.S. and worldwide, corporations have gone political and seek, or at least profess to seek, change in the world.

On January 24, for one thing, former Unilever CEO Paul Polman wrote in a piece for the Financial Times that “Today, staff and customers believe you should… speak out on big, touchstone issues, from race to fake news and climate change.” In a historic moment of multiple and converging global challenges, he thinks, we have no other option but to embrace so-called stakeholder capitalism. After all, evidence is stacking up to show the “financial benefits to companies that consistently apply their principles and actively work to solve societal problems,” he argues. “Not everyone agrees, however,” he sadly but honestly acknowledges. In fact, if there is a big support for stakeholder capitalism among corporations, there’s also been a backlash from conservative voices, as we will see below. But let us dwell a little more on the supporters of stakeholder capitalism.

In his annual letter to BlackRock shareholders a few days ago, CEO Larry Fink argued that expectations of business leaders have changed dramatically in the last few years. Increased profits, happy shareholders, and more jobs are no longer what a chief executive is expected to deliver. For instance, most stakeholders — from shareholders, to employees, to customers, to communities, and regulators — “now expect companies to play a role in decarbonizing the global economy.” And “few things will impact capital allocation decisions — and thereby the long-term value of your company — more than how effectively you navigate the global energy transition in the years ahead.” This illustrates perfectly what stakeholder capitalism — the new mantra of the Business Round Table as announced in August 2019 and endorsed by almost 200 CEOs of the largest corporations — is all about. In Klaus Schwab’s words,

That is the core of stakeholder capitalism: it is a form of capitalism in which companies do not only optimize short-term profits for shareholders, but seek long term value creation, by taking into account the needs of all their stakeholders, and society at large.

Stakeholder capitalism supporters sometimes love to insist that their credo is not about politics. It is not a social or ideological agenda, they assure, much less it is “woke.” “It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism.” As Fink himself wrote in his letter, “We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients.” Stakeholder capitalism, he said, “is not a social or ideological agenda. It is not ‘woke’.” At this point, one might wonder why, then, is BlackRock launching a Center for Stakeholder Capitalism — one that brings together “leading CEOs, investors, policy experts, and academics to share their experience and deliver their insights” — and not simply a Center for Capitalism? There seems to be a contradiction here. Or, talking about down-to-earth things, one “might question whether most people really care whether the management of Tesco supports taking the knee,” as Rupert Darwall puts it in response to Paul Polman’s piece. “More importantly, does it matter if they don’t? Or are customers actually more bothered that their weekly shop remains affordable during a time of spiraling inflation?”

But that’s nothing compared to the avalanche of criticism on the stakeholder theory and the deluge of objections that have been raised against it. Take Vivek Ramaswamy’s Woke, Inc.: Inside Corporate America’s Social Justice Scam, a book that decries America’s turn to stakeholder capitalism. A biotech entrepreneur, the author lifts the lid on the “dirty little secret” behind corporations supporting social causes such as the Black Lives Matter movement and takes the reader behind the scenes into corporate boardrooms and five-star conferences, into Ivy League classrooms and secretive nonprofits, to reveal “the defining scam of our century.” He explains how U.S. companies are exploiting “woke” values and pretending to care about social justice in order to boost profits and gain more power at the expense of the American people. He accuses big companies such as Coca-Cola of capitalizing on the outrage over George Floyd’s death after employing and promoting progressive values in the workplace.  

American capitalism has become a “con,” says the author. The con works like a magic trick, which generally consists of three parts, as Ramaswamy explains in an article he wrote for the New York Post:

First, the Pledge: You find an ordinary market where ordinary people sell ordinary things. The simpler, the better. Second, the Turn: You find an arbitrage in that market and squeeze the hell out of it. An arbitrage refers to the opportunity to buy something for one price and instantly sell it for a higher price to someone else. That much is well known. But here’s the dirty little secret underlying the third step of corporate America’s act, its Prestige. Here’s how it works: Pretend like you care about something other than profit and power, precisely to gain more of each.

And so it was that Wokeness remade American capitalism in its own image. “The modern woke-industrial complex divides us as a people,” the book’s description says. “By mixing morality with consumerism, America’s elites prey on our innermost insecurities about who we really are. They sell us cheap social causes and skin-deep identities to satisfy our hunger for a cause and our search for meaning, at a moment when we as Americans lack both.”

Meanwhile in Britain, at the end of January, the Adam Smith Institute published a new paper, “Capitalism After Covid,” that says companies should ditch woke capitalism or risk derailing the UK’s post-pandemic recovery: “Companies should stick to traditional profit-driven shareholder capitalism rather than pursuing ‘woke capitalist’ social objectives that often require political action and leave firms facing accusations of hypocrisy.” The think-tank’s statement comes as City investment titan Terry Smith lashed out at consumer goods giant Unilever for being “obsessed” with its sustainability credentials. 

How do we come out of the con? The way to counter all of this is not to fight back directly, Ramaswamy writes. To do so is a “losing battle” and “you’ll be canceled before you even stand a chance.”

The true solution is “to gradually rebuild a vision for shared American identity that is so deep and so powerful that it dilutes wokeism to irrelevance. One that no longer leaves us susceptible to being divided by corporate elites for their own gain.” This looks like a good path to follow.