The rise of stakeholder capitalism, or woke capitalism — the practice of mixing the pursuit of profit with the propagation of social values — raises unique political questions that go beyond the conventional partisan debates of the last half century. Since 1970, a focal point of disagreement between conservatives and liberals has been the proper role of government in regulating private enterprise. By contrast, the issue of woke capitalism raises the question of the proper role of private enterprises in setting the moral norms of everyday citizens.
This new debate demands a new conceptual vocabulary, for proponents and critics alike. Here I briefly introduce three distinctions that are preconditions for a serious contemporary debate about woke capitalism.
(1) Executives vs. investors vs. consumers.
Woke capitalism isn’t just one phenomenon. It’s at least three.
First, there are woke executives, who use their positions as corporate managers to advance a particular agenda. For example, the CEO of Expensify used his company’s email marketing list to urge every recipient to vote against President Trump — not because he believed this would help Expensify’s shareholders, but because it was his personal conviction that the sustenance of American democracy depended on the outcome of the election. Arguably, the same may be said of certain CEOs who earlier this year used corporate resources to weigh in against new voting laws in Georgia and other states.
Proponents of woke capitalism in this context argue that CEOs bear an obligation to act out their moral convictions and that there is no foul play in using shareholder resources to do so because the corporation exists apart from individual shareholders. Opponents argue that this behavior gives rise to a principal–agent conflict: The shareholder is the principal, and the CEO is the agent. Just as there would be something wrong with the CEO of a public company using the corporate piggy bank to make a multimillion-dollar donation to his high school or church, there is something wrong with the CEO appropriating shareholder resources to advance his pet social causes.
In response, proponents often argue that CEOs are not breaching their fiduciary duties by engaging in this behavior because this is what modern investors demand that CEOs do. In many instances, they’re right: This is what the rapidly growing ESG (environmental, social, and governance) investment class is all about. Sovereign-wealth funds, often representing national interests, frequently have their own ideas about what causes to advance, too, including ones that go beyond the pursuit of pure profit for the firm.
This raises the separate phenomenon of woke investors — that is, the shareholders of a company who themselves demand that CEOs use their companies to advance social causes. In this case, the agent isn’t betraying the interests of the principal, but the principal (a shareholder) is demanding exactly what the agent (the CEO or executive) should do.
Woke executives and woke investors raise distinct issues, each with different supposed beneficiaries and different alleged victims. In the first case, executives are the perpetrators and shareholders are the victims (at least in the eyes of critics). By contrast, in the second case, shareholders are the perpetrators and executives are merely their agents.
To critics of woke capitalism, woke executives violate their fiduciary duty to shareholders and abuse their seat of corporate power. A solution to this problem might be to remove barriers to shareholder lawsuits against rogue executives who misappropriate corporate resources for their own gain, even if that gain is nonfinancial.
By contrast, woke investors raise precisely the opposite problem — since it’s the investors, not the executives, who are allegedly abusing the shareholder-oriented benefits conferred by corporate law, including limited shareholder liability above all, by hiding behind the corporate veil to effectuate a pet social agenda whose effects reach far beyond the market. A solution to this problem might be to restrict the scope of limited shareholder liability to activities aimed at maximizing profit for shareholders.
Notwithstanding these differences, the dual phenomena of woke executives and woke investors are examples of top-down corporate paternalism — that is, business elites using market power to implement their own moral vision for society. Yet there’s a third and even more complex phenomenon at play when it’s the consumers who demand that companies drive social change. Woke consumerism isn’t a top-down phenomenon. Rather, it’s a grassroots, bottom-up demand — one that is closely linked to another new and rising phenomenon: woke employees. Though woke consumers and woke employees raise somewhat different issues, here I will treat them as part of the same “bottom-up” phenomenon.
To be sure, the idea that “consumers (or employees) are demanding it, and we’re just giving them what they want” is sometimes a hollow excuse to justify the forms of top-down paternalism exercised by CEOs and institutional investors. Companies often quietly drop hints to consumers (or employees) to make purchasing (or job-acceptance) decisions on the basis of moral criteria rather than product (or job) attributes, and then many consumers (or workers) do it. Woke consumerism is born when woke companies prey on the insecurities and vulnerabilities of their customers by deflecting their focus away from the price and quality of their products, as Virginia Slims did with teenage girls in the 1990s. As it turns out, moralism often makes for the best marketing tactic.
But there’s no denying that woke consumerism is a phenomenon in its own right. If consumers demand that companies “go woke,” then arguably executives are simply following the rules of old-school capitalism by giving them what they want, since that’s the course of action that maximizes value for shareholders. Because we live in a free society where citizens and consumers alike may demand whatever they want, there is no legal violation — and no legal recourse.
That doesn’t mean there isn’t a normative problem with it. Wealth is a bullhorn, and that’s actually the biggest problem with woke consumerism. Playing politics through consumer boycotts is a rich man’s game — the more money you have, the more impact your boycott has. In classical capitalism, each dollar is like a vote — in the market for products and services, and also in the capital markets for securities issued by firms. It’s perfectly fine for dollars to vote on which goods and services, or which stocks and bonds, rise to the top. The capitalist principle of dollars’ being votes is embodied, for example, in the way companies select members of their boards of directors. Shareholders elect the board, but it’s not that each shareholder has an equal voice — each share has equal weight, so the people who own the most shares have the biggest say. Since shares can straightforwardly be translated into dollars, dollars literally buy votes in the corporate context. And there’s nothing wrong with that. In the marketplace of goods and services, “One dollar, one vote” is appropriate.
But the marketplace of ideas in a democracy is supposed to follow the principle of “One person, one vote.” That’s how we aggregate votes in a democracy. When we use dollars to win battles over ideas, we effectively convert our one-person–one-vote democracy into a one-dollar–one-vote system. In the case of consumer boycotts, market force supplants open deliberation and debate as the basis for settling moral and political questions. The solution to this problem is not to change the law but to change the culture that has normalized this behavior.
(2) Authentic vs. inauthentic woke capitalists.
Critics of woke capitalism must be careful to distinguish which kind of conduct they criticize.
In many instances, corporations and their leaders may simply use social values as a way to distract the general public from more-problematic features of their business. For Goldman Sachs, issuing an edict about board diversity is easy; changing its evaluation practices for mortgages is hard. For Coca-Cola, issuing a statement about voting laws and teaching its employees “how to be less white” is easy; reckoning with the nationwide epidemic of diabetes and obesity to which its products have contributed is hard. In such cases, corporate social-justice advocates do not care about the social cause so long as it advances their own personal or corporate goals. Here, the fundamental sin is one of inauthenticity — what I call “corporate social irresponsibility.”
Yet that’s quite different from companies, executives, and investors who authentically believe in the social values that they espouse and propagate — so much so that they think they are justified in using their corporate power as a tool to advance those values, even if they do so at the expense of their firm’s profitability. Increasingly, we see this pattern on display among the wealthiest capitalists of all. An extra marginal dollar of profit for Twitter means very little to Jack Dorsey, already a billionaire many times over. But the ability to use Twitter to effectuate his personal viewpoints about what perspectives should and shouldn’t be amplified in the marketplace of ideas is far more personally important to him — even if that means sacrificing a modicum of profit to advance those goals.
Opponents of woke capitalism must distinguish which kind of behavior they criticize in a given instance. The first represents an abuse of public and consumer trust; the second represents an abuse of corporate power to shape and influence the marketplace of ideas. Critics may reasonably disagree about which phenomenon is worse, but they are fundamentally different, and both are increasingly pervasive.
(3) “Affirmative” vs. “negative” theories of stakeholder capitalism.
Proponents of stakeholder capitalism — the preferred term of art for proponents — would aid their case by making an important distinction of their own.
“Stakeholder capitalism” might mean one of two things. It could mean that corporations should affirmatively take steps to address important societal issues such as climate change, racism, and workers’ rights. That’s the bandwagon that most companies are jumping on these days.
But there’s a more sympathetic version of the same idea that refers to something much simpler — namely, the idea that companies should account for the negative externalities, or unintended consequences, of their actions before making important business decisions. That just means they should avoid hurting people. We all have a basic moral duty not to hurt others, and we don’t lose it when we band together and start calling ourselves corporations, the argument goes.
For example, a cigarette manufacturer might face a choice about whether to include an ingredient that makes its product more addictive, in a way that leaves both consumers and society worse off. If a company knows that its product will harm people but there’s no technical legal prohibition on selling it, the “negative externality” folks argue that the company should still exercise restraint even though the profit-maximizing course of action is to sell as much of the product as possible.
That’s arguably a hard case for a classical-capitalism purist. If you’re a staunch opponent of woke capitalism, but you still believe that the company shouldn’t include the more addictive ingredient, then at least in theory, that should raise a challenge to your argument — and a compelling example for a proponent of stakeholder capitalism.
Regardless of where you land on this case, here’s the key distinction to bear in mind: A tobacco company’s decision to include ingredients that are less addictive in its cigarettes is still fundamentally different from that same company’s writing a check to BLM or mandating anti-racist employee training about “how to be less white.” The ordinary duty not to hurt people doesn’t require corporations to reshape the world into their vision of a perfect society.
Yet the most woke proponents of woke capitalism resist even that distinction. According to their view, capitalism itself systematically rewards, say, white people over black people. That inequity is a negative externality of the very capitalist system that makes corporations possible. So any company that benefits from America’s capitalist system is contributing to systemic racism — and is obligated to fix it. According to this view, Marlboro should write a check to BLM for the exact same reason that it’s obligated to include less addictive ingredients in its cigarettes.
The sometimes-blurry line between actively doing good and merely avoiding doing harm is one of those iconic debates in moral philosophy, and it reveals an important point about the disagreement between opponents of woke capitalism and sincere woke capitalists. In certain cases, their dispute comes down to this: Woke capitalists think they’re morally obliged to minimize the harm that they already do just by “being capitalists,” whereas opponents think they’re overstepping their authority by trying to affirmatively enact their own conception of the good by improperly using their market power to settle social and political questions.
If proponents of stakeholder capitalism exercise discipline by restricting themselves to the more modest claim — the negative-externality conception of stakeholder capitalism — they strengthen their case considerably against critics. To the extent their demands become more ambitious — either along the lines of the affirmative conception or else one that views the negative externalities of capitalism so broadly as to render the distinction irrelevant — their argumentative burden rises considerably.
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