October 22, 2024 - 4:10pm

In the Financial Times last week, John Burn-Murdoch argued that the continuing centrality of ESG and DEI in Western businesses owes more to the rise of “stakeholder capitalism” than “woke capitalism.” The term “woke capitalism” here refers to the theory that ESG and DEI are ruses perpetrated by businesses to get government regulators and progressive customers off their backs and into their corners. By “stakeholder capitalism”, Burn-Murdoch means the fashionable idea popularised by Klaus Schwab and the World Economic Forum that businesses must provide value not only for their shareholders but for an amoebic universe of other interested parties, including customers, employees, government regulators, the local community, the environment, and the whole world.

Burn-Murdoch’s evidence that the corporate shifts over the last few years are due to stakeholder capitalism is a recent study by a professor at Columbia Law School, which used data on political contributions to analyse changes in business leaders’ average political views over time. The study showed that over the last 20 years, business leaders have moved dramatically Leftward. It further broke the results down into CEOs, C-suiters, board members, and upper-level managers, and found three things: that higher-ranking managers were more conservative than lower-ranking ones, that all four groups had moved Leftward, and that lower-ranking managers had moved Leftward at the fastest pace. Between 2002 and 2022, board members and senior managers had both moved from being Right-of-centre to Left-of-centre.

Burn-Murdoch describes this study as a “strong indication that the shift in corporate culture and behaviour is more accurately viewed as a sincere step, reflecting the demands or desires of key stakeholders, than as a cynical strategic play”. But this is the wrong lesson to take away from the research.

Why? Because the only “key stakeholders” who have shown a clear desire for businesses to move in a Leftward direction are the upper-level managers this study represented. Embedded in Burn-Murdoch’s analysis is an assumption that if the average views of managers change, that must reflect a change in what the market — mediated through manifold “stakeholders” — is demanding. That if businesses are hiring Left-leaning managers, they must be responding to market forces in doing so.

But for this to be true, we would need to see another piece of evidence: namely, that over the last two decades businesses that have moved to the political Left have done better financially than those which haven’t. We have been presented with no such evidence. Rather, we have seen leading businesses across many industries move Leftward as cartels, even as the larger economy has stagnated. The corporate progressive turn has provided no measurable business advantage at all, and the only benefit it has provided has been social — to the managers themselves.

What’s really going on here? A persuasive theory would be that the “woke capitalism” thesis remains mostly correct, but that it’s no longer the whole story. For decades, on-average politically conservative and ambivalent CEOs and managers paid lip service to Leftist goals to score points with regulators, media, and a small but highly vocal subset of customers. In the process of pretending, they had to make some new hires — the lower-ranking managers in the Columbia study. As they sought to demonstrate through those hires their commitment to the fashionable causes of the day, the corporate waters became warmer for the young ideologues who elite universities and business schools were only too happy to turn out.

And so the ruse gradually morphed into reality. And when today’s CEOs retire, they will find that they are leaving in their place a generation of leaders who have replaced their cynical pragmatism with ideological purity. That purity will lead their businesses, which will continue to compete against a decidedly non-woke global economy, to the point of ruin.


John Masko is a journalist based in Boston, specialising in business and international politics.