Milton Friedman’s vision of profit-centric capitalism is being challenged in the 21st century. Sustainability practices focused on ESG (environmental, social and governance) factors politicize organizational behavior. AT&T recently faced a group of activist shareholders with demands to explain how giving money to Republican politicians is consistent with company values. Such proposals were unheard of not so long ago, but do they drive shareholder value or unnecessarily politicize corporate America?
Today, we are told that profit does not generate value, rather it is values that generate value. BlackRock CEO Larry Fink’s rhetoric for ‘stakeholder capitalism’ echoes this notion of companies emphasizing ‘consistent values’ and striving to be more than just producers of profits. . Stakeholder capitalism raises public expectations that companies profess support for causes such as the fight against climate change, racism and human rights abuses. In his book Reinventing capitalism in a world on fireHarvard professor Rebecca Henderson writes that the root cause of our problems is the belief that a company’s only duty is to maximize shareholder value. Fink and Henderson’s attempt to redefine capitalism may explain why American corporate boards have become increasingly opinionated.
As You Sow is the left-leaning nonprofit that tried to force AT&T to provide additional explanations about its bipartisan political donations. He alleged that AT&T was not managing shareholder risk properly because it gave money to Republican politicians who voted not to certify the 2020 election, and supported the voting rights bill. of Texas and Governor Greg Abbott’s pro-life legislation restricting access to abortion. The As You Sow proposal was rejected after receiving 44% support. The group then issued a statement hailing the vote as a “strong rebuke” of AT&T’s political involvement while simultaneously affirming AT&T’s belief that it should be involved in politics. Translation: Donating to Democrats is OK.
Ideological crusades are a dangerous area for business. Ask Disney CEO Bob Chapek how his company, stripped of its special self-governing tax status, has helped shareholders. Chapek has publicly opposed Republican Florida Gov. Ron DeSantis’ decision to sign a bill banning classroom instruction on gender identity and sexual orientation from kindergarten through third grade. The result: a massive self-inflicted wound worth an estimated $50 billion.
I am not aware of any data showing that giving to one political party, rather than another, better maximizes shareholder value. The As You Sow survey asserted that Republican contributions invite risk. However, one would assume that contributing to Democrats similarly invites risk, as only 21% of Americans support defunding the police and President Joe Biden’s jobs approval currently sits at 39%. Congressional Democrats also trail Republicans on the generic ballot by a whopping 8 points in battleground districts, according to Democrats’ own polls. So what is best for shareholders to whom boards owe a fiduciary duty?
In 2021, 46% of Americans identified as Democrats and 43% as Republicans. Companies that engage in political debates are therefore likely to offend at least 40% of the population, including customers, shareholders and elected officials.
Objectively, donating to both Republicans and Democrats makes the most business sense because it mitigates the exposure that comes with electoral turnover. Many companies have political action committees with rules that prevent them from giving money to non-incumbent politicians, regardless of their political affiliation. Think of it as putting all your eggs in one basket. This strategy protects shareholders.
I spent nearly a decade on Capitol Hill in leadership positions in the Senate and the House. The political pendulum has been swinging wildly back and forth for several years. Today, new concepts of capitalism redefining shareholder value are used in part to politicize corporations. Activists calculated they could circumvent Congress to achieve political ends by grabbing market power from American companies. AT&T didn’t acquiesce, but the companies that do are making political bets that do little to protect shareholders.
Chuck Flint is a lawyer and former chief of staff to a US senator. He wrote this column for The Dallas Morning News.