30 May What is a Stakeholder?
The dual disasters of the Bud Light partnership with trans-influencer Dylan Mulvaney and Target’s aggressive Pride Month marketing of LGBT merchandise to children set us wondering anew about stakeholder theory and its ultimate ends.
As you well know, and as we have documented repeatedly in these pages, the original stakeholder theory grew out of the work of the Stanford Research Institute and was based in reality and practicality. How do successful businesses operate? What do they do? To whom do they cater their strategies? What enables managers to create and maintain successful relationships with the people who make success possible? Or, as we put it in The Dictatorship of Woke Capital:
The idea was to chart the course of the company, to plan strategically by analyzing input on strengths, weaknesses, opportunities, and threats from a variety of “stakeholder” groups, each of which would have a different interest in the company—shareholders, customers, employees, managers, unions, and so on. A logical and natural extension of the idea of strategic planning, stakeholder analysis was intended to force managers and executives to see how their decisions affected different groups and how best to handle an array of often conflicting and competing interests. The idea—which seems entirely commonsensical in retrospect—was that it would be difficult, if not impossible, to plan effectively for the future without knowing what customers, employees, and others might need and want in the future.
Stakeholder analysis: simple, relevant, productive.
All of this changed, however, over time and with various added “innovations,” the most dramatic of which came in 1984, with the publication of R. Edward Freeman’s Strategic Management: A Stakeholder Approach. With his introduction of the “normative” (i.e. moral or ethical) model of stakeholder theory, Freeman did two things. First, as we have noted before, he altered the moral foundations underpinning the practice of capitalism. Like countless Enlightenment and post-Enlightenment thinkers before him, he addressed the corruption of his era by throwing the proverbial baby out with the bathwater, starting fresh with a new moral code disconnected from millennia of history and experience.
The other thing he did – which is rarely discussed – is that he de-emphasized (albeit unwittingly) the practical nature of traditional stakeholder models. By emphasizing the grand, overarching, and ethical aspects of stakeholder considerations, Freeman and those who followed in his footsteps definitionally subordinated the real-world implications of corporate managerial behavior. If, for example, a corporation’s managers and directors are concerned principally with the impact that their operations have on the global environment, if they apply a normative stakeholder standard that emphasizes sustainability over reliability, then they have also, INARGUABLY, made customer satisfaction a secondary priority and have placed a distant, largely non-codifiable “value” over the satisfaction of their customers. They have, in other words, sacrificed the satisfaction of one set of stakeholders for another based on an evaluative judgment.
Enter Bud Light and Target.
In both of these cases, corporate managers made the decision – consciously and purposefully – to elevate the subjective values of “inclusiveness,” “diversity,” and “acceptance” (subjectively defined) over practical considerations related to their customer-stakeholders. They chose to adopt a normative model of stakeholder theory that elevated and accentuated the “marginalized” populations of gay and, especially, trans activists, with little or no consideration for the reaction that such a model might spark among the people they purportedly exist to serve, namely their customers.
We are fairly confident that the people who hatched these campaigns at Bud Light and Target believed that they could serve the normative stakeholders while also serving their practical stakeholders – that is, they thought their activism would be accepted by their customers or, at the very least, would earn them new customers to replace any “deplorables” who might be offended by their evaluative stakeholder decisions.
We are also fairly confident that these beliefs were merely that, “beliefs” – subjective judgments based on value calculations rather than real-world, empirical data. For all the Hollywood stereotypes about the managerial class being hard-nosed, fact-based, and grounded in reality, much the opposite is true. For roughly the last half-century, “applied” public and private management has stressed the application of subjective values in strategic decision-making. Indeed, that’s the whole point of normative stakeholder theory.
In any case, we are absolutely confident that whatever calculations were included the decision processes employed by managers at Bud Light and Target, the variable that carried the most weight was something called the “Corporate Equality Index,” which (again) we discussed in The Dictatorship:
Two other organizations play significant roles in the politicization of business. Both are fairly well known and are known by their acronyms. One of these is the SPLC—the Southern Poverty Law Center—which bills itself as an organization “dedicated to fighting hate and bigotry and to seeking justice for the most vulnerable members of our society.” The second is the HRC—the Human Rights Campaign—which is “the largest national lesbian, gay, bisexual, transgender and queer civil rights organization.”…
For an organization with roughly half the number of members of the National Rifle Association (NRA) and a significantly lower profile, HRC nonetheless commands an almost unimaginable amount of attention and deference from America’s CEOs….
HRC’s primary tool for wielding influence with business is its “Corporate Equality Index,” which rates companies for their acceptance and promotion of lesbian, gay, bisexual, transsexual, and queer (LGBTQ) men and women and the corporate and public policies that affect them directly. The Corporate Equality Index has become an enormous concern for companies that desperately want to avoid the label “homophobic” and thus do everything they can to appease and ally with HRC.
In 2019, HRC had more than $45 million in revenue,37 the overwhelming majority of which came from corporate and nonprofit donations. HRC’s corporate sponsor list is a veritable Who’s Who of American business, including: Accenture, Alaska Airlines, Amazon, American Airlines, Ameriprise Financial, Apple, Boston Scientific, BP, Capital One, Cargill, Carnival Cruise Lines, CenturyLink, Chevron, Citibank, Coca-Cola, Cox Cable, Danaher, Dell, Deloitte, Diageo, Ecolab, Ernst & Young, Goldman Sachs, Google, Guardian, Hershey, Hyatt, IBM, Intel, J. Crew, Lexus, Lincoln Financial, Lyft, Macy’s, Mastercard Microsoft, Mitchell Gold + Bob Williams, MGM Resorts, Morgan Stanley, Nationwide Insurance, Nike, Nordstrom, Northrop Grumman, Pepsi, Pfizer, PNC, Shell, Symantec, Target, West Elm (Williams Sonoma & Pottery Barn), UBS, UPS, US Bank, and Whirlpool. Household names, one and all.
In turn, a company’s rating by the HRC on its Corporate Equality Index almost certainly affects its scores on the “S” portion of its ESG ratings. Some ESG ratings services are more transparent than others and, among those, some openly admit to using the HRC’s index as a key measure for “social sustainability.”
In short, then, both ESG and contemporary stakeholder theory are actively and purposefully pushing corporations away from their actual stakeholders, namely their customers. This strikes us as a rather poor way to plan for the long-term future of the company, irrespective of the damage done to the relationship between managers and shareholders. As a result, contemporary stakeholder theory is, in some key ways, the opposite of the original reality-based stakeholder idea, designed to help companies succeed.