Perhaps no political shift in recent years has had as significant an impact on our culture as major corporations wading into political activism. PayPal, Nike, and General Electric opposed a North Carolina law that required use of government bathrooms to correspond with biological sex. Eventually, the financial pressure grew so great, the state’s legislature chose to repeal the regulation.
Buoyed by that success, companies like Coca-Cola and Delta waded into public debates against a Georgia election bill, issuing statements to suggest that requiring voter identification and shortening the absentee ballot period were motivated by racism. Then, just last month, Disney prominently opposed a Florida law that bans public schools from discussing sexuality or gender identity with kids in kindergarten through third grade. (Disclosure: The Daily Wire has announced plans for children’s entertainment content.)
What these cases have in common is that in every single one, the public (that is, the majority of these businesses’ customers) stood on the opposite side of the issues.
Several polls showed a plurality of Americans believed public bathroom use should correspond to biology. Most Georgians back the common sense measures in the state’s newest election regulations. And, of course, voters (including Democrats) overwhelmingly support Florida’s Parental Rights in Education law.
The explanation for why companies are increasingly choosing to act against what would seem to be their own self-interest in order to become soldiers in the Left’s culture war often centers on activist employees. Certainly, that is a factor. But finance experts say another, much more pervasive issue is currently overlooked — the influence of major money managers and a growing trend in a specific and troubling approach to investing.
Stakeholders Vs. Shareholders
The top institutional shareholders at Disney are a trio of asset managers that control, on average, a 20 percent stake in every Fortune 500 company in the United States. Collectively, BlackRock, State Street and Vanguard manage over $21 trillion — a figure larger than the GDP of every country in the world, including the U.S. (in 2020) and China. These asset management firms are driven by an investment philosophy known as stakeholder capitalism.
As opposed to the old model of shareholder capitalism that centered on corporations striving to provide a good return for investors, stakeholder capitalism claims everyone in the “community” has a stake in how a company’s activities impact any number of issues from climate change to minority salaries. Therefore, it argues, for the sake of a greater social good, corporations have a responsibility to get involved in political and social causes that may have nothing to do with their businesses, whether it benefits their shareholders or not.
As Nathan Estruth, a former long-time Fortune 500 executive at Procter and Gamble told me, “Stakeholder capitalism really means whatever the Left defines it as on that particular day. So if you don’t give money to [Black Lives Matter], then you are not being responsive to your stakeholders.”
Environment, Social, and Governance
If stakeholder capitalism is the end goal, the means to get there is an investing approach known as ESG. It’s a system, rather like China’s social credit scores, except it applies to businesses not individuals. Asset managers like Blackrock, Vanguard, and State Street assign companies points based on their performance on three metrics — environment, social, and governance (ESG). While the G, governance, can be largely benign, centering on how executive power is distributed throughout an organization, the E and the S provide Left-wing activists the opportunity they need to advance their agendas through corporate policy.
Fund managers may choose not to partner with a company if it doesn’t have a high enough ESG score. One example investor and entrepreneur Vivek Ramaswamy offers is Goldman Sachs’ insistence that it won’t take a company public in the United States if its board isn’t sufficiently diverse in regard to race, sexual orientation, and gender. “That’s what ESG is about,” Ramaswamy says. “Doing what government couldn’t do through the front door.”
In essence, Sachs is forcing the race-based hiring mandate even voters in deep blue California rejected in 2020.
“The voters of California, the most liberal state, said no to legalized racial discrimination,” Ramaswamy says. “But that’s through the political process. What ESG does is say, forget the political process. Let’s just get this done through the market — where people work, where they bank, where they invest … If politics is going to stop, and the Constitution is going to stop us, and the checks and balances are going to stop us, then let’s just do it through the market instead. That’s really what this is all about.”
As investment manager and finance author Jerry Bowyer succinctly puts it, “ESG is a political philosophy pretending to be an investment philosophy.”
Because Blackrock, Vanguard, and State Street manage the retirement funds of so many Americans, they’re able to use their power to shape companies from the boardroom on down, and that is something they don’t particularly try to hide.
During a 2017 conference hosted by the New York Times, for instance, Blackrock CEO Larry Fink openly admitted that his aim is to change behaviors in corporate America. Speaking about making diversity quotas in management and hiring a part of Blackrock’s ESG scoring, Fink said, “At Blackrock we are forcing behaviors…We added four more points in terms of diverse employment this year. … You have to force behavior and if you don’t force behavior whether it’s gender or race or any way you want to say the composition of your team, you’re going to be impacted.”
In a stark show of its power last June, the asset manager combined forces with State Street and Vanguard to vote to place three environmental activists on Exxon Mobil’s 12 person board to push new climate policies.
Voting on Your Behalf
It is crucial to remember that the money that Blackrock, Vanguard, and State Street are employing to pressure companies to bend to their will isn’t actually their money. It’s shareholders’ money. It is the money of the average investor with a 401(k), Roth IRA, or pension fund, who may very well disagree with the agenda these giant financial stewards are pushing with it.
But whereas in elections people know if and how they are voting, when it comes to ESG, the vast majority of people don’t realize that investment managers are casting ballots on their behalf.They are using shareholder votes that force companies to enact policies against fossil fuels or for LGBT priorities, for example. Any shareholder who doesn’t attend meetings to actively cast a vote automatically votes with management.
“It’s a very aristocratic system,” says Bowyer, “because essentially, we’ve delegated something to the experts that gives them the power to shape our lives and we don’t even know we’ve delegated it.”
Recent months suggest the Right is beginning to wake up to the danger. In just the last year, red states have begun to pull state pension plans out of the Big Three firms because they push ESG. West Virginia, for example, pulled out of Blackrock in January. So did the Arkansas Teacher Retirement System Funds. As reported in the Wall Street Journal on April 6, conservative legal groups are helping states rewrite their laws so that asset managers are required to put financial returns ahead of partisan social goals when it comes to public investments.
Estruth, who ran as a Republican for Lieutenant Governor of Ohio in 2018, says the threat posed by this kind of corporatist rule stems not just from the fact that it’s bad politics, but also bad finance. ESG funds don’t tend to perform as well as those based on more traditional funds. “What’s happening,” he says, “is Blackrock is driving down their return rate while advancing the woke agenda using Red State public pension funds.”
Yet every financial expert The Daily Wire spoke with admitted that the Right is just beginning to get organized to resist the ESG movement. Even now, as the Big Three investors seem to force companies like Disney and Target to adopt policies they don’t like, conservatives’ first instinct is to turn to boycotts, a form of pressure Ramaswamy, Bowyer, and Estruth say isn’t likely to have a significant impact.
Boycotts Vs. Shareholder Revolts
The main problem with boycotts, Estruth says, is that conservatives are less likely to devote their lives to political activism the way the Left is, so the tail of such efforts tends to be short.
“I think boycotts can be ineffective from the conservative side because conservatives go back to running their business, helping their church, and loving their family,” he says. “What’s much more effective is to engage in a principled way with corporate executives and try to get them to actually understand and explain their own actions. You have to start by showing up in shareholder meetings. You show up with resolutions. You show up as stockholders in allied form.”
That’s a strategy Bowyer echoes. He likens boycotts to elections and points out that when you don’t like the outcome of an election, you don’t respond by tearing up your voter registration card. Instead, you organize to get more voters to the polls.
While he agrees there’s nothing wrong with by-passing the Coca-Cola aisle at the grocery store as a response to the company’s statement on the Georgia election law, Bowyer suggests calling portfolio managers and asking them to voice their clients’ displeasure to Coca-Cola about such political activities is more effective.
“Once people understand that they can have a voice in this, they want to use it,” he says.
Along with moving portfolios out of investment companies that promote ESG and speaking to financial advisors about not using retirement funds to support corporate agendas that conflict with their values, conservatives who own full shares in a company can attend shareholders meetings themselves.
Bowyer says the most important thing for any shareholder to do is to log into shareholders meetings and voice their opinion. “Rather than boycott because you suspect a company gives money to Planned Parenthood, wouldn’t it be better to support a ballot resolution that requires the company to disclose all the charities it has giving money to?” he asks. “Then make a resolution that bars them from giving to Planned Parenthood.”
Bowyer and Estruth say if conservatives did this they might be surprised to discover how many senior executives in Fortune 500 companies, who are often conservative themselves, would welcome the excuse to push back against the Left’s demands.
High-level employees at Disney, speaking on the condition of anonymity, confirmed for The Daily Wire that not all the executives at the company are happy about the extreme LGBT activism the company has engaged in lately. They believe it is damaging the brand and are internally calling for CEO Bob Chapek to return to his better, initial instincts to stay out of politics. They feel it might pull Disney out of the tailspin of negative PR it is in thanks to leaked audios which revealed one executive producer admitting that she inserted her “not-at-all-secret gay agenda” into the Disney children’s show she worked on.
Bowyer says that dovetails with his experience of other large corporations facing an activist onslaught.
“It’s like when Target was hit with the 2016 transgender bathroom thing [where they capitulated to allowing men into women’s restrooms and vice versa],” he explains. “The CEO is an evangelical Christian, and he told a friend of mine, ‘I didn’t want to do this. Nobody showed up to help me. I was completely alone.’”
Now, Bowyer says, Target has been ideologically captured. But he believes that might not have happened had CEO Brian Cornell received support from conservative shareholders that would have given him cover to resist noisy activists. “You can say [Cornell] ought to be brave. And you can say Chapek shouldn’t have cared what the activists were demanding. Maybe that’s true. But it’s also true they both might be out of jobs in that case, and that wouldn’t have been helpful either.”
Denethor Thinking
As for those who warn that Blackrock, Vanguard, State Street and the rest of the woke big-business and investor class have so much power they can’t be overcome, Bowyer has little patience for that.
Too often, he says conservatives sound like the Israelites in the Old Testament, complaining that the enemy is so big, we’re mere grasshoppers by comparison.
“I’m tired of Denethor thinking,” he says, referencing the cowardly, defeatist steward and acting ruler of Gondor in the Lord of the Rings who chooses suicide because he believes the cause is lost. “You know, somebody first show up at an annual meeting and try before you tell me we’re destined for failure.”
Bowyer points out that at one point, the tactic of influencing business through buying shares was small on the Left too. “It didn’t start with Blackrock,” he says. “It started with some hippie who bought a share. They did this one person at a time and then they steered the Blackrocks into it.”
Conservatives spend too much time on outrage, he feels and not enough on action.
“A conservative cable TV host will tell a million people how bad woke capitalism is. And that’s great—we do need to be educated about that,” he argues. “But if that million people could translate into 100 people at an annual shareholder’s meeting, that would be an earthquake. If 100 people from our point of view had been at that Disney [shareholder] meeting, that would have been a different meeting. And we’re going into shareholder season now for a lot of these companies. Really, this is a situation where we are so M.I.A., that 10 or 15 or 20 people would be a dramatic shift in the power balance.”
The views expressed in this opinion piece are the author’s own and do not necessarily represent those of The Daily Wire.