It didn’t take long for the notion of stakeholder capitalism as introduced last year by the Business Roundtable to spill over into political correctness and social justice politics. In an op/ed entitled “The Stakeholder vs. the People” last month, Vivek Ramaswamy made the claim that stakeholder capitalism empowers capitalist leaders to “play a larger role in defining and implementing the country’s political and social values”. Not so, says a reader in response, as follows: “In reality, stakeholder capitalism is nothing more than an extension of liberal-progressive activism”. The reader has it nailed, and stick around, the notion is becoming well-embedded in the political campaigns and in the financial services industry. And the latest manifestation of it should give everyone concern.
I’m talking about the Sustainability Accounting Standards Board (SASB), a non-profit entity substantially funded by Mike Bloomberg, modeled after the Financial Accounting Standards Board (FASB), which for many years has governed acceptable practice in how businesses report financial information. SASB goes beyond generally accepted accounting practices (GAAP) and establishes guidelines based on the kinds of “sustainability” it believes businesses should disclose to investors that are “material” to its success. Their standards range across 77 industries based on what its “stakeholders” consider relevant to a company’s success beyond simply financial performance that enhances shareholder value. The standards vary by industry group, but almost all include metrics developed by Bloomberg which measure a company’s performance in the ESG categories–environmental, social, and governance. No surprises there, and the ESG categories include such things as racial and gender board diversity, compensation policies, and “climate risks”.
Almost all the major public accounting firms have evidently signed off on this and why not? More billable hours for the compliance audit. And investment managers are already charging higher fees for funds with an ESG mandate, so follow the money there and to the plaintiff attorneys for misreporting claims.
In a political climate of populism on both the right (Tea Party/Trump) and the left (Sanders/Warren/the Squad), it is not surprising to see business leaders working to sand off the rough edges of capitalism. Many younger voters on the left have no negative impression of socialism, but view capitalism with deep suspicion.
I see the stakeholder capitalism movement much like the progressive “trust-busting” movement of the early 20th century. During that period, capitalists worked to re-establish the positive aspects of free enterprise by creating self-regulatory bodies and promoting business/service organizations like Rotary, Lions, Kiwanis, Chambers of Commerce, etc.
There is mounting quantitative evidence that companies with higher ESG quotients improve their competitive positions in the marketplace. I expect that the stakeholder capitalist movement will continue and will become completely mainstream in coming decades. It is not a threat to capitalism, but a lifeline in a tumultuous policy climate.
Bob – I don’t disagree, but the companies that are most supportive of the ESG issues are the ones that fund the volunteer networks you have described, and only after they have fulfilled their primary obligation which is to enhance shareholder value.
Like the “diversity and inclusion” silliness, ESG will siphon away energy that would be better focussed on meaningful activities. I believe it’s a stalking horse for global warming hysterics!
No doubt, Robert, and this SASB vehicle is the horse!