The ugly truth about stakeholder capitalism is that it isn’t capitalism at all. It is an effort to destroy and replace free market capitalism with a collectivist ideology empowering a small group of financial elites—who run the largest investment firms in the world—so they can force corporate America to collectively adopt a radical cultural agenda.
Why would Disney, Anheuser-Busch or Target be promoting a transgender agenda? Why would Exxon or Chevron adopt net zero carbon emissions policies when their business is selling oil and gas?
A Tyranny for the Good of Its Victims shows who these people are and how they’re using stakeholder capitalism and ESG investing to force leftist social and political objectives on America’s CEOs and, by proxy, on all of us—all in the name of protecting us.
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If there ever were any doubt that the ESG agenda is an attack on free-market capitalism, Larry Fink’s 2021 CEO letter eliminated it by admitting that ESG’s radical net-zero environmental policies demanded “a transformation of the entire economy.” While the frankness of Fink’s admission was surprising, his transformative goal was not.
In fact, it had been obvious since Fink’s infamous 2018 letter directing CEOs to “serve a social purpose.” His ambition was, and al-ways had been, to transform free-market capitalism, with its focus on profits and shareholder returns, into “stakeholder capitalism,” where companies would prioritize the goals of the world’s financial elites under the guise of benefiting non-investor stakeholders.
Just look at the title of Fink’s 2019 CEO letter—“Purpose and Profit,” with profit notably in second place. That juxtaposition reflects the essential difference between free-market capitalism—the system that built the American economy into the greatest the world has ever known—and so-called stakeholder capitalism—a euphemism for transforming the American economy into a collectivist servant of the financial elites.
The profit motive is the notion, unique to free-market capitalism, that you can improve your life—you can profit—through your own efforts.
Contrary to Fink’s effort to separate them, in an actual capitalist economy, profit and purpose are synonymous. Profit is the purpose for which businesses exist. It is a direct byproduct of a free people’s voluntary interactions to improve their lives and the incentive that motivates people to take the risks inherent in starting a business and then to dedicate the time and treasure required to make it succeed.
The profit motive is the notion, unique to free-market capitalism, that you can improve your life—you can profit—through your own efforts. And you improve not only your life but also the lives of other voluntary participants, such as your customers, employees, suppliers, and communities. Corporations expand that notion to groups of individuals working together to improve their lives and, incidentally, the lives of others. The profit motive is extremely powerful and has been the basis for the incredible historical success of free-market capitalism.
Because collectivist/socialist economic systems lack or have a much-diminished profit motive, they consistently fail to create wealth—other than for the society’s controlling elites.
The greater the potential for profit, the greater the risks people are willing to take, the greater the investments they are willing to make, and the greater the resulting economic benefits. Diminishing the profit motive has the opposite effect—it reduces risk tolerance, stifles investment incentives, reduces or eliminates any financial benefits, and wipes out the real value that businesses create for all of society. Because collectivist/socialist economic systems lack or have a much-diminished profit motive, they consistently fail to create wealth—other than for the society’s controlling elites.
So, it was puzzling that Larry Fink, the CEO of an asset manager duty bound to prioritize its clients’ financial interests, would so obviously attempt to separate purpose and profit—even putting the “purpose” cart before the “profits” horse. What is a business’s purpose, if not to make a profit? Well, according to Fink, a business’s purpose is to prioritize the needs of a group of non-investor so-called “stakeholders” by pursuing ESG’s social and political agenda—a collectivist agenda financial elites would set. He would put aside the benefits of free people interacting voluntarily to improve their lives and substitute involuntary interactions to achieve mandated social and political outcomes grounded in the knowledge of those who know better.
As I noted above, Fink clearly does not believe our democratic institutions can effectively accomplish that agenda. His 2019 CEO letter tellingly began by complaining that “some of the world’s leading democracies have descended into wrenching political dysfunction,” exacerbating “public frustration” with the current state of world affairs. Luckily for that frustrated and incapable public, Fink had a solution.
Where else could the public find salvation from a world failing to implement ESG’s utopian social and political policies—such as net-zero and DEI—which Fink knew were in society’s best interest?
So, in 2019 he reiterated the theme of his 2018 letter, declaring that “[u]nnerved by fundamental economic changes and the failure of government to provide lasting solutions, society is increasingly looking to companies, both public and private, to address pressing social and economic issues.” Of course, the issues “society” was supposedly demanding businesses address ranged “from protecting the environment to retirement to gender and racial in-equality, among others.”
Simply, ESG.
While Fink coyly claimed his focus on “purpose” in general was not an attempt to tell “companies what their purpose should be,” his actions, and those of his allies, told a different story. Logically, collectively setting “purpose” for every company in an index also sets “purpose” for each of those companies—despite Fink’s protestations to the contrary.
Fink and the Big Three troika were openly threatening to fire the directors and management teams of each and every company that failed to prioritize a diverse board, implement hiring policies based on discriminatory DEI principles, and both report and demonstrate progress on a net-zero climate change goal that—as Fink would admit in his 2021 letter—“demands a transformation of the entire economy.”
[P]rofitable businesses do benefit a broad range of individuals and entities. Unprofitable businesses benefit no one.
But what about the secondary part of his letter’s title—“profits”—as an important “purpose” for starting and operating a business? Fink acknowledged that profits were “essential if a company is to effectively serve all of its stakeholders over time—not only shareholders, but also employees, customers, and communities.” It was an admission of the patently obvious—profitable businesses do benefit a broad range of individuals and entities. Unprofitable businesses benefit no one. But he also wrote that “[p]urpose is not the sole pursuit of profits but the animating force for achieving them.”
That was not a particularly cogent statement. I suspect that most people who have ever run a profitable business questioned whether Fink’s vision of purpose—addressing “pressing social and economic issues” to benefit some unidentified non-investor stakeholders—was actually “the animating force” behind turning a profit? I did.
As I noted earlier, it is obvious that companies focused on profits will be more profitable than those that are not. When a group of elites (whether financial, government, or the two working together) reorient CEOs from focusing on success to advancing a collectivist social or political agenda, succeeding becomes difficult—if not impossible. This is why there are and have been no economically successful socialist economies. None.
There are (failed) economies across the globe that put social and political purpose over profit...
But, as Fink noted, profitable businesses do benefit more than just their investors. In fact, profitable businesses benefit everyone on Fink’s stakeholder list: customers, employees, suppliers, communities—and shareholders. However, businesses that are compelled to put collectivist social and political goals ahead of profitability, as Fink advocates, underperform, fail, and benefit no one.
So why make the patently absurd claim that addressing social/non-profit-related goals is somehow the “animating force” behind making a profit? If Fink’s goal was to put advancing the ESG agenda above achieving financial success, why not just say so? There are (failed) economies across the globe that put social and political purpose over profit, and the title of Fink’s 2019 letter certainly indicated which of the two he considered most important.
BlackRock had the power to compel CEOs to prioritize ESG goals, particularly if doing so was a Big Three effort. In fact, the Big Three were already threatening to terminate board members and management teams that failed to toe the ESG line. Given what they were already doing, why even try to link advancing an ESG agenda with a business’s profitability? Why not just admit that you have subjugated and subordinated profits to social activism and elitist-mandated outcomes?
Profit and Fiduciary Responsibility
The answer is that Fink had to link them. As BlackRock has acknowledged, its sole fiduciary duty is to prioritize its clients’ financial interests—which are, of course, dependent on the performance and profitability of the companies in which it invests on their behalf. How could BlackRock satisfy its fiduciary duty to prioritize its clients’ financial returns while simultaneously and actively directing the CEOs of the companies in which it “passively” invested to prioritize addressing ESG’s “social and economic issues” over, above, and instead of profits?
Despite his effort to transform BlackRock’s fiduciary duties in his 2018 CEO letter, Fink knew he needed a stronger explanation for why this transformation would benefit BlackRock’s clients.
So, with characteristic confidence supported by circular logic, in his 2019 CEO letter he simply asserted that addressing “social and economic issues”—or “purpose”—is actually “the animating force” that drives profits. In other words, businesses will maximize profits not by focusing on maximizing profits but by prioritizing ESG’s social and political goals. So, given Fink’s logic, BlackRock would satisfy its fiduciary duty to investors by compelling the businesses in which it invested their money to pursue ESG goals—which is, of course, what it was already doing.
On a roll, so to speak, Fink went even further, claiming that “purpose”—that is, addressing “social and economic issues” to benefit non-investor stakeholders (his proxy for society)—was a business’s “fundamental reason for being—what it does every day to create value for its stakeholders.” Note that he was talking about value for “stakeholders,” the majority of whom were neither shareholders nor BlackRock’s clients.
Stepping back for a moment—as Fink surely knows, the fundamental reason businesses exist is to make money. BlackRock invests its clients’ monies in for-profit companies whose “fundamental reason for being” really is to make a profit and generate returns for investors—such as BlackRock’s clients. In fact, BlackRock itself is in business to make money and sell its shares publicly to individuals who expect it to make money.
Telling CEOs that addressing “social and economic issues” to benefit non-investor stakeholders would animate companies’ profits and was their “fundamental reason for being” was a puerile effort to confuse social and political activism with profits—which is and was nonsense.
BlackRock’s clients certainly do not expect it to invest their monies in charitable institutions or social-activist companies. BlackRock is and was primarily a low-fee/passive index manager tasked with prioritizing its clients’ financial returns. Telling CEOs that addressing “social and economic issues” to benefit non-investor stakeholders would animate companies’ profits and was their “fundamental reason for being” was a puerile effort to confuse social and political activism with profits—which is and was nonsense.
It is a sign of the bubble in which Fink operates that he evidently expected his clients and the public servants who protect them to accept his rationalizations quietly while he and the Big Three ignored or, at the very least “transformed,” their fiduciary duties to their investors.
But to the surprise of no one outside that bubble, over the next couple of years Fink’s effort to advance his ESG social and political goals by replacing free-market capitalism with stakeholder capitalism (which is not capitalism at all) came under increasing scrutiny and skepticism. Individuals, states, and other entities that had actually hired BlackRock to maximize the returns on their in-vestments objected, wrote letters, passed legislation, and withdrew funds from BlackRock.
So, in his 2022 CEO letter, Fink again found it necessary to defend “stakeholder capitalism.”
Read more in A Tyranny for the Good of its Victims
