OPINION:
What’s the difference between conservative, values-based shareholder activism, and leftist stakeholderism, ESG, and DEI? The answer has significant implications for corporate governance and the role of corporations in society.
Let’s start with the proposition that, from a conservative perspective, free enterprise, as embodied in free-market capitalism, is the best way to lift all boats. Furthermore, free-market capitalism operates best when corporate decision-makers work to maximize shareholder value. It thus makes sense that the law imposes a duty to maximize shareholder value on corporate decision-makers.
Yet, while corporate decision-makers are legally bound to maximize shareholder value, there are obviously legitimate differences of opinion as to the best ways to reach that goal. The law recognizes this by generally insulating corporate decisions made on a fully-informed basis and in good faith from second-guessing.
Meanwhile, shareholders are generally free to invest and vote their shares as they wish. They are also granted certain rights to make their voices heard by management, and they may sue to enforce the fiduciary duties owed to them.
In recent years, however, woke capitalism has undermined the poverty-eradicating and prosperity-generating power of this system.
Myriad players contributed to this problem, including conflicted asset managers, proxy advisors, and corporate insiders. All of these were further enabled by the vast army of uninformed but nonetheless important actors throughout the corporation who served the role of useful idiots for the active players.
Woke capitalism undermined free-market capitalism by transforming means into ends.
For example, one may reasonably argue that increasing diversity, equity and inclusion (DEI) can increase shareholder value. One would then expect corporate decision-makers to fully inform themselves on that proposition and ensure net-present-value and return-on-investment calculations are at least considered to justify accompanying expenses.
But when diversity becomes an end in itself, all the traditional guardrails to making fully informed decisions can be jettisoned because “everyone knows” diversity is good for business and even if it isn’t, shareholders should gladly sacrifice some return to improve that area.
The same can be said for climate hysteria, transgenderism, and so on.
Enter the Heritage Foundation’s Free Enterprise Initiative (FEI), with a mission of getting corporations to retreat from the ledge of woke capitalism, get back to neutral, and resume lifting Americans across the board.
FEI does this by filing shareholder proposals, engaging with corporations, investing in value-aligned businesses, and essentially using every tool at our disposal — including, when necessary, litigation — to win the culture war for corporate America.
Some may ask: Isn’t this a conservative Environmental, Social, and Governance (ESG) tactic, just the mirror image of liberals turning environmental and social causes into corporate goals? No — for two reasons.
First, unlike the leftists pushing ESG and DEI, we will not pressure — nor do we want — any corporation to subordinate the prosperity-driving north star of shareholder wealth maximization to any other agenda. Second, contrary to the censorious promoters of ESG and DEI, we welcome reasoned discussion of the pros and cons of the means we promote to achieve the ends we seek.
To be sure, there may be times when the only way to free corporations from ideologically captured managers is via lawsuits or boycotts or similarly aggressive methods — but the goal remains simply unbiased decision-making.
Of course, the battle to make U.S. corporations great again takes place within the confines of laws, regulations, and norms that are often contested, and FEI will not shy away from engaging in those arenas to promote and defend conservative values, including free enterprise. But the rule of law remains sacrosanct throughout.
In addition, Heritage is a think tank, and FEI includes scholars. Accordingly, FEI will produce research, op-eds, and other writings that examine the role of values in corporate governance more broadly than just from the perspective of shareholders. Such work ultimately informs FEI’s shareholder activism; it is not in conflict with it.
While FEI may confront ideologically captured corporations, we are by no means at war with them. Our engagements are ultimately about ensuring corporate decision-makers are fully informed, and are liberated from operating within leftist echo chambers regurgitating elitist talking points from the World Economic Forum.
FEI believes in the marketplace of ideas. This is one of the reasons we generally oppose attempts to silence shareholders by, for example, insulating managers from shareholder proposals by making them either illegal or too expensive (though trade-offs can justify, for example, increasing submission thresholds). Many proponents of silencing shareholders underestimate the unintended consequences of such actions.
Shareholder voice serves a safety-valve function in addition to providing practical information to management. But if that safety valve is shut off, pressure will simply be released elsewhere. For example, shareholders unable to improve corporate behavior via engagement may seek increased regulation, which is something conservatives should oppose.
When U.S. corporations are great, Main Street prospers in the form of increased retirement accounts, reduced energy costs, robust national security, abundant opportunities for dignified work, and more. When elites undermine corporations via profit-destroying utopian agendas cooked up over cappuccinos at Davos, Main Street suffers.
The Free Enterprise Initiative is here to protect Main Street Americans and U.S. corporations from out-of-touch elites and radicalized neo-Marxists.
• Stefan Padfield, JD, is a senior legal fellow at The Heritage Foundation and a principal in its Free Enterprise Initiative.
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