The Conservative Approach to Business Needs a Reality Check

C onservatives have been reevaluating their relationship with big business, and big business certainly has reevaluated its relationship with conservatives. In many instances, shareholder value and advocating for American free enterprise and national security are out. Stakeholder capitalism, global commitments, and environmental, social, and government (ESG) factors are in.

The precise meaning of ESG seems infinitely flexible, but its practical impact always seems prejudiced against American energy producers, manufacturers, and consumers. Whatever kind of conservative you happen to be, the way ESG is changing the role of business in American life today should concern you greatly.

Some on the right, however, have not yet settled on a practical response to the changing role of business. While they have been critical of ESG, they can’t seem to decide whether conservatives should demand a return to shareholder primacy or embrace a right-wing version of stakeholder capitalism and ESG.

A prime example is Senator Marco Rubio (R., Fla.). Recently, commenting on legislation to prevent a national freight-rail shutdown by imposing a contract to end a labor dispute, Rubio adopted class-warfare framing usually employed by the Left, claiming, “When workers are treated as little more than line items on a spreadsheet, they become indistinguishable from the freight cars they service.”

Rubio’s criticism shouldn’t come as a surprise, though. In recent years, a growing number of figures on the right have criticized shareholder primacy, the idea that a company should pursue high returns for the people who own its stock. Back in 2019, for example, the Florida senator released a report on domestic manufacturing that asserted that “shareholder primacy . . . tilts business decision-making towards returning money quickly and predictably to investors rather than building long-term corporate capabilities, reduces investment in research and innovation, and undervalues American workers’ contribution to production.” Six months later, Rubio remarked, “When we started only focusing on the right of businesses to make a profit and stopped recognizing the obligation of businesses to reinvest in America, large corporations became nothing more than financial vehicles for shareholders, managers, and banks to assert their claims over.”

So-called common-good capitalism was Rubio’s solution. But in 2021, following the Major League Baseball All-Star Game controversy and other alleged instances of “woke capitalism,” Rubio unveiled his first shot at comprehensive corporate-governance policy: the Mind Your Own Business Act. There, however, Rubio proposed mandating, not transcending, shareholder primacy by requiring “corporate directors to prove their ‘woke’ corporate actions were in their shareholders’ best interest in order to avoid liability for breach of fiduciary duty in shareholder litigation.”

Of course, “woke” is not a well-defined legal concept. Consequently, the bill text was primarily aimed at “non-pecuniary” motivations, which even included marketing and public relations. If passed, the measure would have opened companies up to a slew of litigation over standard business practices, directing even more of their focus away from economically productive activity.

All that to say, Rubio has gone from attacking shareholder primacy to mandating it and then back again, in three short years. His winding journey, though, is just one example of many.

Today, then, it is more important than ever for conservatives to step back and think more deeply about their approach to business. Samuel Gregg has recently argued that ESG and stakeholder capitalism are the most pressing threats to liberty and free enterprise, even more than socialism. That means our thought and strategy must approach ESG with the same levels of depth and seriousness that the conservative movement approached the problem of communism in its early days. The alternative is reacting to the corporate outrage of the moment in ways that are self-contradictory, and therefore self-defeating.

Part of that is accurately defining what the problem with business is, and what factors are driving it. Reality requires us to accept that there are going to be at least a few progressive companies run by progressive CEOs, owned by progressive shareholders and marketed to progressive consumers. The issue with ESG is that it is an attempt to impose a single approach on everyone, from the top down. As an early ESG document asserted, “Only if all actors contribute to the integration of environmental, social and governance issues in investment decisions, can significant improvements in this field be achieved.”

Indeed, despite claims from Michael Bloomberg and Al Gore that ESG is pure capitalism, the architects of the movement have always understood that their agenda required leveraging the power of government. In response, conservatives don’t need to reinvent the wheel: ESG is a bad idea for the same reasons that central planning and cronyism are always bad ideas.

Moreover, if conservatives stick to their guns, there’s no shortage of targets to take aim at. With even red-state pensions and federal agencies from the Securities and Exchange Commission to the Federal Housing Finance Agency supporting the ESG agenda, there’s plenty to do. And rolling back ESG — ensuring that pensions put the interests of their beneficiaries first and that government agencies do what they’re entrusted to do — is popular, too, appealing to all sorts of conservatives and all but the most hardened leftists.

Eager to get back at so-called woke capital and to protect workers, some conservatives are being co-opted by the progressive Left into a bipartisan coalition that ultimately imposes “stakeholder capitalism” and bans shareholder primacy. At the very least this seems like an unequal bargain: What do conservatives stand to gain from imposing new environmental and social objectives on all corporations?

If there is a problem in freight rail, social media, or asset management, that does not imply needing to radically overhaul the entire American economy. Specific problems call for specific solutions, and that’s why corporate law should remain a matter for the states. Mandating any specific form of governance on all American corporations would be hugely disruptive to American industry, whether in the form of Elizabeth Warren’s Accountable Capitalism Act, or some right-wing equivalent.

At the end of the day, Americans are never going to agree on what the universal purpose is for all businesses. That’s best left to each business to decide. A system of federalism and corporate pluralism can easily accommodate a range of corporate purposes, from woke capital to anti-woke capital to those who simply want to solve a problem and make money doing so.