30 Jun 2020 Ideology Trumps Investment When “Stakeholders” Hold the Cards
When a group of CEOs banded together to redefine the responsibilities of a corporation, leftists gave them an assist by relieving those captains of industry of lots of responsibility.
For the left, the redefinition is more than a foot in the door that makes the corporate world their oyster; it allows them to push an agenda in ways they could never do through government. For CEOs, the new focus on “stakeholders” frees them of having to be totally beholden to the pesky shareholders who are selfishly hoping for a return on their investment to fund their personal entrepreneurship or retirement nest eggs.
Any group is conceivably a stakeholder, including ill-defined groups like “activists” of various sorts, whose interests are malleable and whose leadership structures are either unclear or entirely fanciful. Hence, almost any decision made by corporate leaders under a stakeholder-primacy standard can be defended according to some concatenation of interpretations of stakeholder interests. And ultimately no one would have the necessary standing objectively and conclusively to assert that, no, this amorphous collection of ill-defined interests required some different result as a matter of law.
To do this dilutes the authority of the shareholder by giving CEOs the opportunity to justify their actions on the part of the company as something for the freeloading type of stakeholder without a vested interest in the company:
[M]ake no mistake: a move to a stakeholder primacy model would ultimately give corporate leaders more discretion, not less. Responsibility to one set of interests – shareholder primacy – necessarily implicates other considerations, such as employee retention and customer service policies, but still provides an ultimate and objective yardstick against which corporate managers can be measured. A broad smear of potentially infinite and ultimately illimitable “stakeholder interests” does not.
And don’t think this isn’t something the left has been anticipating. The rise of the stakeholder also heralds the rise of left-wing corporate influence:
It’s this opportunity for hectoring interference in other people’s lives that has attracted the strange-bedfellow supporters of increased corporate-director autonomy: the National Professional Left. This congeries of pressure groups has worked – with increasing strength and success – to fuel the left’s long march through American institutions. These groups have taken over American education almost completely, and have throttled Silicon Valley, pushing its center-right employees into the fearful, hiding closet that the left once abjured. Now they are coming after American corporations generally – and they think that this move toward stakeholder primacy gives them their chance.
While employees, suppliers and customers also constitute stakeholders, the dynamic is different. In many ways, these stakeholders are in the same boat as shareholders after the left sinks its teeth into a corporate flank. As Scott writes:
We know who the losers in this process will be: shareholders, employees, customers – everyone who has been protected by shareholder primacy, whether they realized it or not. But when trying to identify the winners, it would be useful for all of us, especially those who lean liberal but who aren’t part of the National Professional Left, to ask: who’s playing whom? And why?
To read all of Scott’s commentary – “Stakeholder Primacy: Who’s Playing Whom?” – click here.