Milton Friedman’s profit-centric view of capitalism is being challenged in the 21st century. Sustainability practices focused on ESG (Environmental, Social and Governance) factors are politicizing organizational behavior. AT&T was recently confronted by an activist shareholder group with demands to explain how giving money to Republican politicians is consistent with the company’s values. Such proposals were unheard of not long ago, but do they drive shareholder value or are they unnecessarily politicizing corporate America?
Today we are told profit doesn’t drive value, rather values drive value. BlackRock CEO Larry Fink’s pitch for “stakeholder capitalism” echoes this notion of businesses emphasizing “consistent values” and striving to be more than mere profit producers. Stakeholder capitalism raises public expectations that businesses profess their support for causes such as fighting climate change, racism and human rights abuses. In her book Reimagining Capitalism in a World on Fire, Harvard professor Rebecca Henderson writes that the primary cause of our problems is the belief that a company’s sole duty is to maximize shareholder value. Fink and Henderson’s attempt to redefine capitalism may explain why corporate America’s boardrooms have become increasingly opinionated.
As You Sow is the left-wing nonprofit that attempted to force AT&T to offer further explanation about its bipartisan political giving. It alleged that AT&T was not adequately managing shareholder risk because it donated money to Republican politicians who voted not to certify the 2020 election, and supported the Texas voting rights bill and Gov. Greg Abbott’s pro-life legislation restricting abortion access. The As You Sow proposal was voted down after receiving 44% support. The group issued a statement afterward hailing the vote as a “firm rebuke” of AT&T’s political involvement while simultaneously affirming AT&T’s belief that it needs to be involved in politics. The translation: Donating to Democrats is OK.
Ideological crusades are a danger zone for business. Ask Disney CEO Bob Chapek how his company being stripped of its special self-governing tax status helped shareholders. Chapek publicly opposed Florida Republican Gov. Ron DeSantis’ decision to sign a bill that banned classroom instruction on gender identity and sexual orientation in kindergarten through the third grade. The result: a massive self-inflicted wound amounting to an estimated $50 billion in stock value.
I’m unaware of any data demonstrating that giving to one political party, as opposed to another, better maximizes shareholder value. As You Sow’s inquiry asserted that Republican contributions invite risk. However, one could surmise that contributing to Democrats similarly invites risk because only 21% of Americans support defunding the police and President Joe Biden’s job approval currently sits at 39%. Congressional Democrats also trail Republicans on the generic ballot by a whopping 8 points in battleground districts, according to the Democrats’ own polling. So, what’s best for shareholders to whom corporate boards owe a fiduciary duty?
In 2021, 46% of Americans identified as Democrats and 43% as Republicans. Corporations 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 preclude them from donating money to non-incumbent politicians, regardless of party affiliation. Think about it as not putting all of your eggs into one basket. That strategy protects shareholders.
I spent nearly a decade on Capitol Hill serving in senior staff positions in the Senate and House. The political pendulum has been swinging wildly back and forth for several years. Now, novel concepts of capitalism redefining shareholder value are being weaponized in part to politicize companies. Activists have calculated that they can circumvent Congress to achieve policy goals by seizing on the market power of corporate America. AT&T didn’t acquiesce, but corporations that do are making political gambles that do little to protect shareholders.
Chuck Flint is an attorney and a former chief of staff to a U.S. senator. He wrote this column for The Dallas Morning News.