Stakeholder capitalism has become both a flashy buzzword and a lightning rod for political division.
Despite these headwinds, many business leaders believe it is an important framework for navigating our current moment. They argue that businesses exist to serve a range of stakeholders, including consumers, employees, and the planet, rather than just growing their stock prices and the bottom line. In recent years, however, this approach has become increasingly politicized, creating new challenges for CEOs.
Dan Schulman, PayPal’s CEO, for instance, has been advocating for companies to embrace moral leadership, but he understands it is fraught. “We live in an extremely divisive country right now,” Schulman told the crowd at Fast Company‘s Innovation Festival in New York on Tuesday. “There is no way that any of us who have major consumer brands can avoid the cultural wars.”
Wading into the Culture Wars
For Schulman, this truth crystallized in 2016. That year, PayPal scrapped a major expansion in North Carolina—where it was building a global operations center that would’ve employed 400 people—after the state passed a law that would cripple local government efforts for anti-discrimination legislation to protect LGBTQ communities. It was widely seen as an attack on LGBTQ civil rights, and according to Schulman, that fell into territory where PayPal had a duty to oppose. “Our mission as a company is to have financial services to be as inclusive as possible,” he said. “Therefore, our values predominantly center around the fight against any kind of discrimination.”
PayPal’s move made the front page of the New York Times—and at the time, it seemed to be out on a limb. “It was very lonely for a while,” Schulman said. At speaking engagements, he fielded chilly receptions from deep-red audiences, including gold star family members of the armed forces. But far more troublingly, hours after the news broke, he started receiving death threats: “I couldn’t even go into a bathroom without security searching in there [first] . . . I had to talk to my kids, that if something ever happened to me, they should know the things I wanted [for when I’m gone].”
Schulman doesn’t think about that much, except to recall how stark the rift in our country had grown. He concludes that it’s as inevitable as gravity: “You’re always gonna take a stand and people are going to be upset, and we get hit both from the left and the right all the time.” But to him, he says, “[That] tells me we’re probably doing something right.”
He’s still going. Last week, after racist and misogynist comments from the majority owner of the Phoenix Suns NBA team surfaced, PayPal—who bankrolls the Suns and whose logo is branded on the players’ jerseys—threatened to nix its sponsorship if the owner was not ousted. And these days, the company puts a lot of thought into how to police its network so that PayPal and its subsidiary, Venmo, aren’t being used to raise money for hatred or violence (which is often coded, Schulman says—it could be as obscure as paying $16.88: 16 for the number of words in the white manifesto, and 88 for the eighth letter of the alphabet twice, HH, for “Heil Hitler”).
The Political Backlash
But there’s also growing backlash against stakeholder capitalism, or what some Republicans deride as “woke capitalism.” In Florida last month, a law was passed directing the state’s fund managers to prioritize the highest returns on investment for its taxpayers and retirees, “without considering the ideological agenda of the environmental, social, and corporate governance (ESG) movement.” And in Arizona, the state attorney general sought to investigate whether wealth manager BlackRock adhered to a fiduciary duty to maximize returns for clients, rather than drifting away to the climate cause.
Lynn Forester de Rothschild, founder of investing firm Inclusive Capital Partners, acknowledges that some backlash stems from fair skepticism that ESG initiatives have the impact companies advertise—or if they’re even trying. “There’s virtue signaling, greenwashing, companies that put out glossies but don’t do the right thing . . . then there’s Wall Street hijacking ESG as a marketing tool, slapping a label on it, and charging a bit more,” she said at the Innovation Festival. Earlier this year, Deutsche Bank in Germany and Goldman Sachs in the U.S. were both probed by regulators for allegedly making false claims about ESG investments. In May, Gary Gensler, Securities and Exchange Commission chairman, suggested he would pursue requirements for funds that make ESG claims to disclose the specific actions they’re taking to achieve those goals.
But the controversy, de Rothschild says, “turned behavior that tries to make our society better into a political act.” And she argues that shouldn’t be the case—because at the end of the day, ESG and profit incentives are dovetailed. “Issues around how people treat their workers and how they treat their planet are not yet financial, but they will be,” she said. “Because if you lose your customers, your employees, or your community, you’re not going to exist.”
For Schulman, stakeholder capitalism is economics 2.0. “I think capitalism is a great system, but it clearly needs an upgrade,” he said. “To many people who are left out of the system, who struggle to make ends meet and don’t believe in the American dream anymore, they tend to radicalize to the far left or far right. So how do we strengthen our democracy by thinking more broadly?”