Religion & Liberty Online

Woke Capital and the End of the Friedman Doctrine

(Image credit: Associated Press)

A new book outlines what happens when businesses forsake their true mission—to serve the customer—and instead seek to transform the culture. Is there any hope that business will get back to, well, business?

Read More…

The woke agenda in corporate America is increasingly tyrannical and must be stopped to preserve free markets and the American way of life, so writes Stephen R. Soukup in the newly released second edition of The Dictatorship of Woke Capital: How Political Correctness Captured Big Business. Soukup dives into the battle for political and cultural control of the boardroom, currently captured by the left. This book could be viewed as red meat for Republicans, fueling the current pop culture of political tribalism—the red cover and clever amalgamation of the Disney, Amazon, and Apple logos signal the primary villains before you turn a page.

Diversity, Equity, Inclusion (DEI); Environment, Sustainability, Governance (ESG); stakeholder capitalism; woke capital; climate change; and Marxism fill Soukup’s pages. The name-dropping starts early, including BlackRock’s Larry Fink, Michael Bloomberg, and Marc Benioff of Salesforce, and reads like a burst of Trump bombast. Yet this red meat has teeth. It’s not just the tyranny of “woke capital” but the politicization of business, big and small, that has damnable consequences for economic growth and the American way of life.

Soukup commences with a nuanced backstory often missing from these discussions. He calls it “The long march through the institutions.” Scientism, the idea that economies can be planned and made in the image of the elites, captured larger and larger swathes of academia throughout the 20th century, beginning with the arrival of the Frankfurt School at Columbia University in 1935, where Marxism found sanctuary within the American academy.

Initially insulated from Marxism and critical theory, business schools finally became their victims and began marching in lockstep toward a new world order, and a new business plan was crafted: The shareholder is greedy, if not downright evil, and the fundamental role of business in society is to reform it. Corporations are encouraged to reshape culture in the image of enlightened elites who presume to care about various stakeholders. The methodical advance of new progressivism thus unleashes the modern administrative state with its tentacles reaching into corporate boardrooms.

Stakeholder prominence was originally addressed in Milton Friedman’s powerful 1970 New York Times op-ed, wherein he explained the shareholder theory of capitalism. This would become known as “The Friedman Doctrine,” which argues that the corporate executive is an employee of the business owners and has a direct responsibility to them. The purview of the business executive is to serve its owners by serving customers well. This is the social responsibility of a business, which does not preclude other social responsibilities the business executive may assume outside the corporation. The Friedman doctrine effectively destroys the shareholder-stakeholder false dichotomy.

Soukup reinforces Friedman’s point by invoking Calvin Coolidge: “The chief business of America is business.” In market economies, firms must battle each other (not the customer!) to determine what people need and want and then provide it. Consumers get more than just stuff. Markets erode historical patterns of discrimination and exclusion, as Nobel laureate Gary Becker demonstrated in 1971. Maybe markets were “woke” before woke was weaponized. Yet entrepreneurship is nevertheless a risk-laden and daunting venture in a market economy characterized by free-flowing prices, well-protected private property rights, the rule of law, and profit and losses. Firms are here today and potentially gone tomorrow.

Predictably, firms seek government refuge from the vicissitudes of market volatility. And the new “stakeholder capitalism” advanced through ESG and DEI initiatives is a smokescreen for such refuge and political privilege.

The right-left power struggle to influence and control corporate boards reads like a live-action David and Goliath battle. Soukup lists the few players on the right, including Justin Danhof, a one-man show at the National Center for Public Policy Research; the American Legislative Exchange Council (ALEC); the Capital Research Center (CRC); and center-left billionaire Warren Buffet, who remains outspoken on the dangers of the politicization of corporate America.

Soukup then opens fire on the villains of woke capital, and the list is long. Larry Fink, CEO of BlackRock, the world’s largest asset manager, is dictating pervasive DEI and ESG goals with the government’s approval. Obama’s disgraced attorney general Eric Holder is the new diversity guru. The Sustainability Accountability Standards Board (SASB), an activist group, establishes itself as the final authority on what constitutes a “sustainable” business. Soukup insists this hyper-regulation is tyrannical. These “extra-regulatory standards created to circumvent the U.S. government” free them from the pesky democratic process. It allows Larry Fink to control corporate standards without answering to the American government or the American people. This is corporatism on steroids.

The author then indicts Disney, Apple, and Amazon for capitulating to the ESG and DEI narratives. On its own, there is nothing wrong with this. Businesses should be able to experiment freely with different philosophies and charitable interests, just as they can experiment with different production methods. Then they should succeed or fail on their merit. For example, Hobby Lobby is outspoken in supporting conservative Christian causes, which means it loses potential customers, but it’s a risk they are willing to take. Let the market pick the winners and losers in corporate governance. As Soukup points out, the dynamics of publicly traded companies change what companies do, the political pressures they face, and their ownership structure. For example, if Chick-fil-A were publicly traded, it would have opened on Sundays long ago, forcing them to operate against its values.

The modern business environment differs because these are not one-off experiments but a concentrated agenda to control businesses and grow the administrative state. The new tolerance is intolerance toward anyone who questions the narrative. And “failure” at achieving diversity goals, for example, will not be tolerated. The irony that should not be lost here is that this amounts to old white men calling the shots and creating new rules to ensure that white men no longer call the shots and create the rules. It’s never been about diversity or the environment per se; it’s always been about controlling the levers of power.

How did we get here? Soukup offers several explanations. First is the altered nature of public-company ownership structures, like proxy advisory services, which are authorized to vote on behalf of their clients. Soukup argues that the same regulatory requirements do not constrain them as they do asset managers, and they tend not to be as worried about their recommendations reflecting the interests of their clients—a huge principal-agent problem. Moreover, large asset managers have a wide reach. Tim Cook can influence the governance of Apple, but Larry Fink can steer social-governance behavior across many industries and companies. Finally, outside activist groups in the 1980s began to seize opportunities to use capital markets to advance political and social agendas “too important to leave to the democratic process.” For example, the Human Rights Campaign created the “Corporate Equity Index” to score companies on diversity quotas, and corporations have scrambled ever since to comply lest they be viewed as bigoted.

There is some reason for hope not mentioned in the book, however. The left’s stranglehold on corporate decision-making can go too far; ask Anheuser Busch, now down $27 billion. Consumer values still matter, and markets have not been entirely co-opted by leftist corporatism. Soukup’s descriptions of the problem of corporatism are amplified by modern culture wars and increasing political tribalism.

Soukup begins the book suggesting that the government must push back against what he calls “woke” business. This is not necessarily desirable because it essentially asks the fox to guard the henhouse. There is too much government involvement in the corporate agenda already, not too little. And he never specifies how this pushback could be accomplished without giving the government even more power to intervene in the private sector, thus compounding at least one problem that needs fixing.

This is why the last three sentences of the book might be the best: “Depoliticize business. Depoliticize markets. Back to Neutral.” Maybe the best thing the government can do is to stop what it is now doing. Disentangle itself from large corporations, end favoritism, stop subsidizing the DEI and ESG agendas, and allow businesses to serve customers well.

Anne Bradley

Anne Bradley, Ph.D., is an Acton affiliate scholar, the vice president of Academic Affairs at The Fund for American Studies, and professor of economics at The Institute of World Politics.