“Wake up, go broke” is real. It’s time for American companies to get back to basics

The horror author Stephen King once wrote: “Sooner or later everything old is new again.” Since the re-election of Donald Trump, the US stock markets and investor confidence have plummeted. The reason is simple. After a decade of companies apologizing for not being progressive enough on issues ranging from the environment to diversity initiatives to support for Palestine, investors know that companies can once again focus on creating value for their shareholders without apology.

The horrors of stakeholder capitalism are finally over.

In 1970, the famous economist Milton Friedman wrote: “There is one and only one social responsibility of corporations – to use their resources and engage in activities designed to increase their profits, as long as they play by the rules of the game, that is, conducts open and free competition without deception or fraud.”

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For the next 44 years, American business focused on shareholders. Their European counterparts did not. Across the pond, Europeans embraced stakeholder capitalism – which is somewhat misleading since it is not capitalism at all. It’s a theory promoted by Klaus Schwab and the World Economic Forum that states that the purpose of a business is to maximize value for all stakeholders – community members, activist groups, nonprofits, government agencies, etc. – and not just shareholders .

Stakeholder capitalism, which is not capitalism at all, was promoted by the World Economic Forum (WEF) and its founder and CEO Klaus Schwab. (REUTERS/Arnd Wiegmann)

American capitalism produced superior stock market returns and broad-based social gains. US GDP has grown 16-fold since 1975; Europe has only grown eleven times. The situation is similar when it comes to per capita income: per capita income in the USA exceeds Europe by a ratio of almost 2:1.

However, for many progressive institutions, improving people’s fortunes was not enough. After the Great Recession, European sovereign wealth funds, Ivy League foundations, blue state pension funds and ESG-promoting asset managers like BlackRock demanded that American companies earn their social “license” by using corporate power to shape society Designing the way these elitist, left-leaning institutions seemed wise to me.

The stakeholder camp was particularly emboldened when Trump first took office and withdrew from international agreements such as the Paris Climate Agreement and the UN Human Rights Council. Business was now expected to do the work that the state was not supposed to do. In response, the Business Roundtable, a group of 200 US company CEOs, radically changed the purpose of a company in 2019. Now companies have a “fundamental obligation to all of our stakeholders,” not just shareholders alone.

The effect was immediate. American corporations were at the mercy of progressive stakeholder activists who were much louder than the average shareholder.

Oil and gas companies could no longer focus on providing affordable, reliable, and abundant energy sources to the American public. Instead, they had to apologize to activist groups for their carbon emissions and set net zero targets without taking future energy needs into account.

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Internet companies could no longer link people’s social graphs online and provide a public space for discussing ideas. Now they have been forced to apologize for “misinformation” and “hate speech” on their platform, the definition of which varied depending on the current political issue.

Consumer companies, from beer companies to entertainment conglomerates to retailers, could no longer easily advertise their wares. Instead, they had to apologize for not being diverse, equal, or inclusive (DEI) and bow to organizations like the Human Rights Campaign that called for more LGBTQ+ marketing campaigns and gender transition policies.

Companies could no longer support the military or police. Instead, companies began apologizing for their role in perpetuating systemic racism and donating hundreds of millions of dollars to tithing organizations like Black Lives Matter.

American capitalism produced superior stock market returns and broad-based social gains. US GDP has grown 16-fold since 1975; Europe has only grown eleven times. The situation is similar when it comes to per capita income: per capita income in the USA exceeds Europe by a ratio of almost 2:1.

But the tide has turned. The goals of stakeholder capitalism to achieve maximum returns with maximum social benefit were fantasy. The result was more like horror. Companies wasted billions of dollars on stakeholder-favored ESG and DEI programs that failed to deliver and in many cases destroyed shareholder value. Society wasn’t doing any better either. Inflation was high, wage growth was low and consumer confidence was subdued. Before the election, society was more polarized than ever.

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But freedom is in sight. Looking to the future, companies are beginning to free themselves from the burden of stakeholders. Unpopular programs like ESG and DEI were already alive before Trump was elected. Now the plug is pulled. Trump signaled that he would eliminate ESG considerations in retirement plans and discourage ESG shareholder proposals. Companies like Tractor Supply, Harley-Davidson and Miller-Coors have already eliminated their ESG and DEI programs. And they did so without apology.

The markets react positively. American capitalism is on the rise again. The old ways of doing business are new again. Hopefully more companies will follow this example. The last thing the stakeholder capitalism horror series needs is a sequel.

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