By Mark S. Nelson, J.D.
In his annual letter to shareholders, Blackrock’s Chairman and CEO Larry Fink sought to dispel the notion that stakeholder capitalism is “woke” or an “ideological agenda.” Fink has previously used his annual letter to speak about ESG investing and, in particular, about climate change, a topic he once again addressed in his latest letter. But this time, Fink sought to provide some additional context around the larger concept of stakeholder capitalism by beginning with an explanation of what he says stakeholder capitalism is and is not.
Said Fink: “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism” (emphasis in original).
According to Fink, stakeholder capitalism is more about a company having a clear purpose, consistent values, and engaging with and delivering for its key stakeholders. Fink added that the circumstance of the COVID-19 pandemic had brought about a more generalized reconsideration of the corporation and how people will work going forward. Specifically, Fink cited the “accelerating [of] how technology is reshaping life and business,” a trend also mirrored in an unrelated report on the legal profession published by Wolters Kluwer Incorporated titled “The 2021 Wolters Kluwer Future Ready Lawyer: Moving Beyond the Pandemic” (Securities Regulation Daily is a Wolters Kluwer Legal & Regulatory U.S. publication).
Fink also noted the twin trends of increasing political polarization and distrust of traditional institutions. “This polarization presents a host of new challenges for CEOs. Political activists, or the media, may politicize things your company does. They may hijack your brand to advance their own agendas,” said Fink. “In this environment, facts themselves are frequently in dispute, but businesses have an opportunity to lead.” According to Fink, this environment may cause employees to increasingly look to their employer for trustworthy information rather than to governments, media outlets, or nongovernmental organizations.
To further advance the public’s understanding of stakeholder capitalism, Fink announced that Blackrock would create the Center for Stakeholder Capitalism. Fink said the center would be “a forum for research, dialogue, and debate” that would allow for “explor[ing] the relationships between companies and their stakeholders and between stakeholder engagement and shareholder value.”
The case against “woke” corporations. Lawmakers at the federal level have introduced dozens of bills focused on environmental, social, and governance (ESG) investing during the last several sessions of Congress. Most of these bills would impose new securities disclosure requirements around climate change, diversity and inclusion, and other topics within the rubric of ESG investing.
But there also is a counter movement among lawmakers that seeks to limit the role of corporations with respect to ESG investing. For example, the Mind Your Own Business Act (S. 2829), sponsored by Sen. Marco Rubio (R-Fla), would potentially make it easier for shareholders to sue company boards for breach of fiduciary duty regarding a company’s adoption of “woke” social policies.
Upon introducing the bill, Senator Rubio said via press release: “Patriotic Americans who love their country and the opportunity it provides should be able to fight back against the growing tyranny of the woke elites running corporate America. These are often nationless corporations that amass fortunes divorced from the fate of our great country while pushing socially destructive, far left policies like boycotts and cancel crusades at home.”
Political stunts? Even among lawmakers and corporate leaders who may favor a more socially active corporation, there is some skepticism about whether companies will follow through with actual results regarding ESG initiatives and stakeholders. Following the January 6, 2021 U.S. Capitol insurrection and the adoption by some states of restrictive voting laws, many companies sought to pause or cease political donations to certain elected officials or candidates for public office. Within weeks an IBM executive had also proposed legislative reforms to curb corporate political influence. Companies that took a stand against voting rights limits faced pushback from some elected officials.
Former Delaware Supreme Court Chief Justice Leo Strine has described a statement published by the Business Roundtable on stakeholders as a “marker” while Sen. Elizabeth Warren has criticized the BRT statement as a publicity stunt. The BRT statement had suggested a broader opportunity for companies to address their numerous stakeholders. Senator Warren has previously introduced legislation that would require large companies to abide by a public benefit company-like federal charter.