“Stakeholder capitalism poisons democracy, partisan politics poisons capitalism, and in the end we are left with neither capitalism nor democracy.” — Vivek Ramaswamy, Woke, Inc.

As predicted, I have another lengthy quote for you from GOP primary candidate Vivek Ramaswamy, specifically citing his book Woke, Inc.. In this section from early in the book, Ramaswamy is discussing things like social responsibility and ethical obligations that businesses owe (or don’t owe) to society, the world, etc. It can be tricky to understand, let along find common ground with, those promoting woke/stakeholder capitalism. But, Ramaswamy does his best to make fair observations and distinctions, even if sincere woke activists reflexively deny them.

And then there are the corporate con artists who manipulate public perception, flying the “woke” flag in order to gain power and wealth…

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“Think of a tobacco company that might face a choice about whether to include an ingredient that makes its product more addictive, in a way that leaves both consumers and society worse off. If a company knows that its product will harm people but there’s no technical legal prohibition on selling it, the ‘negative-externality’ folks argue that the company should still exercise restraint even though the profit-maximizing course of action is to sell as much of the product as possible.

I acknowledge that’s a hard case. In theory, it raises a dilemma for my argument. But in actuality this kind of case rarely arises in the real world: most corporate actions that are known to harm people are either illegal or likely to hurt the company’s reputation — and profits — in the long run. During my seven years as a biopharmaceutical CEO, I never once had to make that kind of choice: our company’s commitment to long-term value meant that it was never in our interest to harm people. We made medicines, not cigarettes.

Regardless of where you land on those hard cases, my point is this: a tobacco company’s decision to include ingredients that are less addictive in its cigarettes is fundamentally different from that same company writing a check to BLM or mandating anti-racist employee training about how ‘to be less white.’ The ordinary duty not to hurt people doesn’t require corporations to reshape the world into their vision of utopia.

Many sincere woke activists resist that distinction — and that’s the root of our disagreement. According to their view, capitalism itself systematically rewards, say, white people over black people. That inequity is a negative externality of the very capitalist system that makes corporations possible, according to them. So any company that benefits from America’s capitalist system is therefore contributing to systemic racism — and is obligated to fix it. According to this view, Marlboro should write a check to BLM for the exact same reason that it’s obligated to include less addictive ingredients in its cigarettes.

The sometimes-blurry line between actively doing good and merely avoiding doing harm is one of those iconic debates in moral philosophy, and it reveals an important point about my disagreement with sincere woke capitalists. One dispute comes down to this: they think they’re morally obliged to minimize the harm that they already do just by ‘being capitalists,’ whereas I think they’re overstepping their authority by trying to affirmatively enact their own conception of the good by using their market power. I think they’re trying too hard to save the world; they think they’re just trying not to make it worse.

But they are making it worse. Even if they’re right that the American system harms some groups, the burden of remedying that harm falls on the American people, and the American people should decide what to do about it democratically. It is not the CEO’s duty to shoulder America’s responsibilities; in reality, that just causes new problems. I believe even honest woke capitalists fail to see how much additional harm they do to American democracy when business elites tell ordinary Americans what causes they’re supposed to prioritize. In my view, this represents a new negative externality that must be weighed by any corporate leader who actually wants to do the right thing.

So that’s my disagreement with sincere woke capitalists. But my bigger beef is with the insincere woke capitalists. Here’s what the sincere guys miss: when they create a system in which business leaders decide moral questions, they open the floodgates for all their unscrupulous colleagues to abuse that newfound power. And there are far more CEOs who are eager to grab money and power in the name of justice than there are CEOs who are agnostic to money and power and care only about justice.

Under the guise of doing good, the corporate con artists hide all of the bad things that they do every day. Coca-Cola fuels an epidemic of diabetes and obesity among black Americans through the products it sells. The hard business decision for the company to debate is whether to change the ingredients in a bottle of Coke. But instead of grappling with that question, Coca-Cola executives implement anti-racism training that teaches their employees ‘to be less white,’ and they pay a small fortune to well-heeled diversity consultants who peddle that nonsense. That’s the Goldman playbook. It’s not by accident; it’s by design.

So the “I’m just trying not to hurt anyone” version of stakeholder capitalism inadvertently provides intellectual cover for the real poison at the heart of modern Wokenomics. In the real world, very few American companies are able to harm people over the long run while still making sustainable profits — because the public holds them accountable over time, through both market mechanisms and democratic accountability. But now the rise of woke capitalism creates a decoy that prevents those corrective mechanisms from working as they should. It’s the equivalent of tampering with a smoke detector in the airplane lavatory — which is a federal crime because it risks hurting people.

Some of my fellow CEOs make thoughtful arguments in response. I recently caught up with Nick Green, a former college classmate of mine, who leads Thrive Market, a very successful healthy lifestyle company in California. We’re good friends (we even invested in each other’s companies), but we disagree about stakeholder capitalism. Nick argues that stakeholder capitalism ‘works’ because consumers are demanding more of companies. Consumers want to buy things from companies who share their values. And that often means supporting social causes that their consumers care about. What’s wrong if companies just do what consumers want them do do? Isn’t that what capitalism is all about?

Nick is a great CEO. He built a thriving enterprise from scratch. Each dollar that I invested in his company a few years ago is now worth nearly a hundred. So if he has something to say about building great companies, then he has my attention.

After reflecting on Nick’s comments, I realized that practitioners of stakeholder capitalism come in a few different forms, each of which raises unique issues. First, there are woke executives, who use their positions as corporate managers to advance a particular social agenda. This is fraught with principal-agent conflicts. An agent is supposed to represent a principal. For example, a lawyer is an agent, and his client is the principal. A principal-agent conflict arises when the agent has different interests from the principal — for example, if the lawyer stands to make more money if the client loses her case. In the case of a company, the principal is the company’s shareholder base, and the CEO is the agent. Often, the CEO has an interest in using the company to maintain his personal brand, often at the expense of the company’s shareholders. Here, the main victims are the company’s shareholders.

That’s distinct from the phenomenon of woke investors, who demand that otherwise humdrum CEOs use their companies to advance certain pet social causes favored by the investors themselves. This isn’t the agent betraying the interests of the principal, but the principal (a shareholder) demanding exactly what the agent (the CEO) should do. Effectively, this is what ESG investing is all about. But it’s not just ESG investors who play this game. Sometimes these activist investors include sovereign nations and autocratic dictatorships like China who have their own ideas about what causes to advance.

Woke executives and woke investors raise distinct problems that I address later in the book, but at core they’re both examples of this form of paternalism. In both cases, it’s about business elites telling ordinary Americans what they’re supposed to do and how they’re supposed to think. Each presents an equal affront to American democracy. My critique is mostly directed at this top-down elitism.

But my friend Nick is talking about a third, distinct phenomenon in which woke consumers are the ones who demand that companies drive social change. That’s what I call ‘woke consumerism.’ That isn’t a top-down phenomenon. It’s a grassroots, bottom-up demand that consumers make upon companies. For example, in 2020 many consumers boycotted Goya Foods following its CEO’s praise of President Trump. This isn’t a new trend; back in 2012, consumers turned on Chick-fil-A after its CEO made anti-same-sex marriage comments. That’s different from top-down elitism, and it raises unique issues of its own. Woke consumerism is real. It divides us as a people and weaponizes buying power to stifle authentic debate. And there’s no easy fix, since we live in a free country and people still get to do what they want.

Fundamentally, it’s a cultural problem that demands a cultural solution, one that neither business nor law can provide. But woke consumerism is not nearly as big of a phenomenon as CEOs and investors claim. The idea that ‘consumers are demanding it and we’re just giving them what they want’ is often just a hollow excuse to justify top-down power-grabbing by influential executives and investors. Very few retail ‘mom-and-pop’ investors in the stock market choose a BlackRock mutual fund over one from Fidelity based on the social values it adopts. They make their choices on the basis of investment performance, fees, or the warm smile of a financial broker.

In reality, companies like BlackRock, and in particular their leaders, are using social causes as a way of assuming their place in a moral pantheon. And in the process, they’re quietly dropping hints to consumers to take the bait and make purchasing decisions on the basis of moral qualia rather product attributes alone. And many consumers then do it, especially when they’re feeling lost and hungry for a purpose, as so many Americans do today. It’s like the equivalent of Virginia Slims targeting insecure teenagers with catchy cigarette ads in the 1990s. Woke consumerism is born when woke companies prey on the insecurities and vulnerabilities of their customers by deflecting our focus away from the price and quality of their products. As it turns out, morality makes for a great marketing tactic.”

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Doesn’t it tick you off, knowing how some elitists use “wokeness” for their own personal and socio-political gain? :<

P.S. Here is the previous, related post: “The Woke Industrial Leviathan”.

Tags: anti-ESG, anti-woke, corporate con artists, corporate wokeness, elitists taking power, fake woke, GOP presidential candidate, loss of democracy, moral obligation, social responsibility, stakeholder capitalism, stay woke, Vivek Ramaswamy, wealth and power, woke capitalism

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