Popularity of Trump Demonstrates the Failure of Business and Government to Deliver for Working Americans

Shareholder capitalism has failed working Americans of all ages and ethnicities, and many are angry. The practice of focusing on shareholders at the expense of stakeholder interests has created unprecedented inequities identified in a recent Oxfam study demonstrating that government and business leaders have failed to address the serious consequences for business and civil society. As a result, the subject of capitalism will be on the political agenda again this cycle, and Environmental, Social, Governance (ESG) and the related topic of stakeholder capitalism almost inevitably will become part of the political debate. Here's why capitalism is likely to be front and center in the coming campaign and why the Enterprise Engagement Alliance will not endorse candidates based on their support for or against ESG or stakeholder capitalism.

Key Points

• The Emerging Debate--Who Is to Blame for the Failure to Share Prosperity—Government or Business?
• The Perfect Strawman: Why Stakeholder Capitalism and ESG Will Probably Become a Campaign Issue
• The Battle for Stakeholder Capitalism Will Be Won in the Free Market, Not in Politics
• Why the Enterprise Engagement Alliance (EEA) Will Not Endorse Candidates Based on Their Stance on Stakeholder Capitalism or ESG.

Anyone surprised by the success of Donald Trump doesn’t get it: He has captured the hearts and minds of many lower-income white Americans, others of course, and now growing numbers of Hispanic and Black Americans. It’s simple. They feel he understands better than anyone else their plight and dissatisfaction with the current state-of-affairs and believe that, as a businessman, he can do something about it. In the view of many, the economy was good under Trump, and they want more of the same.

The anger uniting lower-income people is not just disrupting political norms but business. Organizations are experiencing historically low levels of employee and customer engagement and high levels of turnover, also reflected in growing levels of both employee and customer theft and in increased unionization efforts. Is this good for business or society?

Because of the frustrations with capitalism, how could it not become a political issue?

The Emerging Debate--Who Is to Blame for the Failure to Share Prosperity—Government or Business?

Since few capitalists argue that government should be involved with creating wealth for society, or that wealth should be taken disproportionately out of the pockets of those who create wealth to give to others, who else can accept blame for the current disaffection with capitalism than we capitalists? Many of us in business have received significant tax cuts and benefit from many special advantages, such as personal protection from corporate liabilities, preferential capital gains tax rates, depreciation and amortization deductions, tax-loss carryforwards, research and development write-offs, and other arcane benefits that do not reach most Americans. Compared with most countries in the western world, what other advantages do we capitalists need?

The problem is that shareholder capitalism simply hasn’t worked out for enough Americans of all ethnicities and ages to create the stability and prosperity most desire. In the view of many, both our government and big business have done little about it despite a lot of talk. It’s easy to think that simply making enormous investments in infrastructure or cutting taxes for the rich, freeing up businesspeople to drill for more oil, mine more coal or fish without restraint will translate into prosperity for the working class even though these policies together so far have not panned out.

Given these frustrations, why wouldn’t many wish to drain the swamp?? In many cases, workers feel the companies they work for don’t care; that they are disdained by the bi-coastal media imposing alien and social values upon them in their living rooms. Many believe that a lot of business people have committed the same transgressions as Trump. This vast majority of white and brown Americans left aside by shareholder capitalism is divided only by racial and social issues and long-standing political affiliations, which politicians on both sides have learned to stoke. Imagine if lower-paid people of all ethnicities realized their common interests in politics as they do when it comes to strikes or labor actions.

Ask people if they would prefer to invest, work for, or do business with a company that focuses on enhancing returns for investors only by creating value for their employees, customers, and other stakeholders, and most would say yes, according to JUST Capital surveys . But ask people if they believe business really cares, and most will agree with Robert Reich, former US Labor Secretary and Professor of Public Policy at the University of California at Berkeley, who recently wrote that the support of the World Economic Forum for “stakeholder capitalism is rank hypocrisy ," or with the book by New York Times correspondents Peter S. Goodman, Davos Man , making much the same accusation around the time of the Business Roundtable announcement.

Why would anyone trust big businesses to save the world through ESG and stakeholder capitalism? And since government hasn’t solved the prosperity problem, why wouldn’t many people instead turn to a businessman to fix it? Besides Trump’s well-crafted business persona developed on television, Americans still have a higher confidence in business leaders than they do in government or media, according to the latest 2024 Edelman Trust survey . From this vantage point, it’s easy to see why so many people can look beyond Trump’s flaws and criminal indictments as the only person who can stand up both to business and government.

The Perfect Strawman: Why Stakeholder Capitalism and ESG Will Become a Campaign Issue

Worried about the growing anger against capitalism, shareholder capitalists vigorously went to work conflating stakeholder capitalism and ESG with “woke” and “corporatism” in 2019 when the Business Roundtable , World Economic Forum , and Blackrock , actively promoted these principles in 2019 and 2020. With little pushback from its proponents, the opponents on the right and the left defined stakeholder capitalism as an attack on shareholder rights, corporatism, and greenwashing, completely ignoring the 50-year history of the movement. Their attack against what were little more than press releases was so effective that all three advocates have apparently walked back their stances , adding fuel to accusations that their statements amounted to little more than greenwashing.

The release of the new World Economic Forum Stakeholder Capitalist metrics and a report by the Institute for Real Growth on the economics of stakeholder capitalism received almost no attention at the recent Davos conference in Switzerland.

Campaigning against stakeholder capitalism and ESG is a no-brainer, because it’s a straw man argument fighting against organizations such as World Economic Forum, Business Roundtable, and BlackRock, none of them likely to inspire confidence in working people. Wait until ESG opponents hear about the new EU Corporate Sustainability Reporting Directive : it will be seen by some as an attack on US sovereignty.

Other than advocating for climate issues and for allowing ESG-oriented investments, and perhaps supporting human capital disclosures for large companies that have been proposed in the past by some Democrats, what more is there for politicians to say on the subject or in defense of stakeholder capitalism? The Biden administration appears focused on the power of government to address social inequity through national health care, labor rights (note his involvement in the automotive strike), environmental regulations, and the bipartisan infrastructure bill. Because there is no government action required to foster stakeholder capitalism, and because the term has already been sufficiently tarnished by opponents and greenwashing, and retreated from by its advocates, it’s difficult to see how the Biden administration or anyone could turn stakeholder capitalism into a meaningful political campaign message other than to highlight stakeholder capitalists as they do great entertainers and sports stars.

The Battle for Stakeholder Capitalism Will Be Won in the Free Market, Not Politics

Few I know in business have started their enterprises to solve a social problem, and none in my view should be obligated to when there are many commercial and related problems to address. However, most organizations fall into one of two camps, either because of the founder’s mindset and values or because of long-standing traditions in an established organization: 1) shareholder capitalists—people eager to make money generally as quickly as possible in favor of short-term shareholder interests, often characterized by focusing more on making promises than on keeping them to customers, employees, and other stakeholders, or 2) stakeholder capitalists—people who wish to make money not by squeezing stakeholders but by engaging customers, employees, supply chain partners, communities in their purpose, goals, and objectives and protecting the environment, with the purpose of achieving greater harmony between shareholders and stakeholders and reducing risks by not offloading costs on to society. Both approaches are lawful in most democracies. Let the free market decide.

The real battle will not be in the realm of politics but rather in the free market between stakeholder and shareholder capitalists. The winners will be determined not at the ballot box but by investors, customers, employees, distribution and supply chain partners, and communities. The effect on society will only be gradual, as more organizations shift to a stakeholder management approach with lower costs to society and more positive publicity is shed on the innovators.

The good news is that no matter who wins the presidency or local offices, the market forces propelling stakeholder capitalism will continue no matter what the political debate. It’s driven by the growing number of investors, customers, employees, distribution partners and communities who prefer to invest in, work for or otherwise do business with companies whose business model focuses on creating value rather than on cutting corners and offloading costs on to society. Add to these forces the growing pressure for meaningful, public disclosures by large companies that will make it easier for people to vote with their money or labor.?

Why the EEA Will Not Endorse Candidates Based on Their Stance on Stakeholder Capitalism or ESG?

With ESG under attack in Congress and state legislators, some friends have asked me if the EEA is going to take a political stance. The answer is no.?

1. Stakeholder management is a practical framework for strategic management going back at least 50 years that has nothing to do with politics. Our focus is on the practical implementation of a process not unlike total quality management in manufacturing, not on taking sides on issues outside our focus.

2. Founded in 2009, the EEA never expected its practical business principles to get tangled up in politics and does not believe anyone should care about our recommendations for candidates anyway.

3. We do not believe stakeholder capitalism to be a political issue. Stakeholder capitalists will have a competitive advantage in the marketplace under any administration. There’s even an argument that a shareholder capitalist president will in fact help the cause in the long run by further exposing the fundamental failure of shareholder capitalism economics—the discredited notion that returns for shareholders can be optimized at the expense of the people whose labor and dollars create the value in which they have invested. How can the enormous waste in people management, marketing, labor management relations, and customer service be justified to investors when it will become increasingly easy to measure it ?

4. The right- and left-wings have raised legitimate criticisms of ESG and stakeholder capitalism, as they have been used in many cases for greenwashing purposes or to lure investors rather than as a proper focus on transparent value creation. While some states in the US have chosen to try to outlaw ESG, the European Union decided instead to outlaw greenwashing with the CSRD disclosure law. The failure of many of the US anti-ESG laws suggests that this isn't a popular stance either and may violate free speech laws.

5. While the EEA would welcome political leaders who draw attention to great stakeholder capitalists, such as Joe Hinrichs of CSX recently featured by me on Linkedin, and would not oppose tax advantages for public benefits corporations or other companies committed to value creation through people, there are too many other important issues for Americans to consider in their votes than for support of an issue that doesn’t require government involvement anyway. People will vote with their wallets and their labor.

6. Because stakeholder management is simply a more sustainable path to profits and prosperity that is good for society, the EEA welcomes all people of good faith no matter their political choices, ethnicity, or country of origin to begin their journey to a practical, more sustainable path to value creation.

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