What is stakeholder capitalism? Report The Economist

“ When did Walmart develop a conscience? The question, posed with approval in a Boston Globe title last year, would have turned Milton Friedman into his grave. In an essay in the New York Times Magazine, whose 50th anniversary fell on September 13, the Nobel laureate economist tried from the very first paragraph to tear to shreds the idea that businesses must have social responsibilities. The occupation? Discrimination? Pollution? Mere "passwords", he declared. Only business people can have responsibilities. And their only responsibility as manager, according to him, was towards the owners of a company, whose wishes "in general will be to make as much money as possible, while respecting the basic rules of the company" – writes The Economist.

It's also hard to find a better example of their incarnation than Walmart. Listed on the stock market the year Friedman's article was published, it has transformed from Sam Walton's hometown grocery store into the "beast of Bentonville," with a reputation for low prices, growling at suppliers and to command personnel. Its shareholders behaved like bandits; since the early 1970s, its share price has risen by a factor of more than 2,000, compared with 31 in the s & p 500 index of large companies. Yet the company has softened in recent years. Now she is championing green energy and gay rights. The Globe tribute appeared shortly after Doug McMillon, its CEO, reacted to the wild shootings in Walmart stores by ending the sale of some ammunition and lobbying the government for more gun control. This year, he became president of the Business Roundtable, a coven of American entrepreneurs who say they want to abandon Friedman's doctrine of shareholder primacy in favor of customers, employees, and others.

In partisan America, torn apart by gender, race and income inequality, this “stakeholderism” is all the rage. But there is the pushback. To celebrate the half-centennial of Friedman's essay, the University of Chicago, his alma mater, held an online forum at his Booth School of Business in which proponents of his creed argued that giving leaders too much freedom to d action can make things worse for stakeholders, not improve. The crux of the problem, they pointed out, was the near impossibility of balancing the conflicting interests of stakeholders in any way that does not give divine powers to executives (what Friedman called the all in one "legislator, executive and jurist").

Let's start with Walmart's ammunition bans. The retailer described them as simple security measures, but the National Rifle Association, the lobby, said it had pampered the "anti-rifle elite" and predicted that customers would boycott Walmart. In fact, some have. Marcus Painter of the University of Saint Louis analyzed smartphone data to measure foot traffic before and after restrictions. He found that on average monthly visits to Walmart stores in heavily Republican districts fell by up to 10% compared to rival stores; in highly democratic areas, they increased to 3.4%. Furthermore, the apparent Republican boycott continued for months. (Walmart did not respond to requests for comment).

It is possible that the retailer's position has helped win new (perhaps richer) consumers. It may also have benefited Walmart's profits and shareholders. But it also showed that, in the midst of increasingly polarized politics, what is good for one stakeholder group can be anathema to another. Whether it's Hobby Lobby, a Christian chain of Oklahoma craft stores, which denies staff birth insurance for religious reasons, or Nike which supports a football player's decision to protest police brutality , some stakeholders will always oppose what is done on behalf of others. There are more daily compromises. A General Motors shareholder who is also an employee may want higher salaries rather than higher profits; a dollar spent on pollution control may be a dollar less spent on retraining workers. But weighing the costs and benefits for different groups is very difficult.

Some leaders claim they can, eager to win public praise and placate politicians. But they are insincere administrators, according to Lucian Bebchuk, Kobi Kastiel and Roberto Tallarita, of Harvard Law School. Their analysis of so-called constituency statutes in more than 30 states, which give leaders the right to consider stakeholder interests when considering the sale of their company, is sober. It found that between 2000 and 2019 the bosses did not negotiate any restrictions on the buyer's freedom to fire employees in 95% of public company sales to private equity groups.

Such hypocrisy is widespread. Aneesh Raghunandan of the London School of Economics and Shiva Rajgopal of the Columbia Business School argued earlier this year that many of the 183 companies that signed the Business Roundtable's statement on business purposes failed to "go from words to facts ”in the previous four years. They had more environmental and labor compliance violations than their peers and spent more on lobbying, for example. Bebchuk and others argue that stakeholderism's "illusory hope" could make matters worse for stakeholders by hindering policies, such as tax reform, antitrust regulation, and carbon taxes, if it encourages the government to give executives the freedom to regulate own activities.

To be sure, trade-offs are also an inevitable part of equity capitalism: between short and long-term investors, for example. But shareholders are more numerous than shareholders, which makes the interests to be balanced more disparate. Additionally, by investing in corporate value funds, or by directly influencing boards of directors, shareholders can demonstrate that their goals increasingly go beyond profit maximization and extend to the broader well-being of the company. Shareholders hold the lead, as they should, but are free to push for different compromises if they prefer.

(Extract from the foreign press review by Epr Comunicazione )