Fighting The Fatigue

Until recently, the objective for economic actors was designed as simply as Picasso’s dog: maximizing profit. However, since the Great Financial Crisis, new goals have been introduced right, left, and center as part of a reenergized ‘stakeholderism’ approach to capitalism.

Stakeholderism is an honorable guiding principle, yet it is profoundly impractical. It creates confusion for leadership teams: which stakeholders must be considered, and how should they be prioritized? It is an overly complex instrument promoted without a user manual.

Some scholars argue that the shift from a single corporate purpose to a set of multipolar objectives represents a danger to humanity. In a Harvard Law School paper entitled The Illusory Promise of Stakeholder Governance (2021), the authors contend that ‘by raising illusory hopes that corporate leaders would on their own protect stakeholders, acceptance of stakeholderism [will] impede or delay reforms that could bring real, meaningful protection to stakeholders.’ Stakeholderism is a self-defeating concept.

The issue has become clear to economic participants attempting to navigate the new ESG jungle. The rules of the economic game have become more opaque than ever. Competitive dynamics are blurred. Since the ESG risk, and by extension stakeholder value, cannot be quantified, accountability is drowned in a sea of soft, unstructured ideas and ideals. And, damagingly, some ESG fatigue is settling in.

Jean-Jacques Rousseau, a philosopher born in my home city-state of Geneva in 1712, noted that human beings living in a society are instinctively led to the maximization of ‘amour propre’ (vanity), a constant search for relative success and recognition from others. Conveniently, humankind found a simple way to measure themselves: profit and its accumulation, namely wealth.

On that basis, the best way to tackle the climate and latent social crises could consist in harnessing and channeling proven basic human instincts to achieve better societal outcomes. Gordon Gekko famously stated ‘Greed is good’ in ‘Wall Street(1987). Why not seek to make greed and good old-fashioned shareholderism actually good?

The plan would be to double down on profit maximization – but only after changing the rules of economic engagement to financially internalize externalities through state intervention. In his recent essay ‘The Secret Diary of a Sustainable Investor(2021), Tariq Fancy, a former Blackrock executive, suggests precisely that:‘[We need] to change the rules in order to change the behavior of the participants in the system.’ Similarly, the authors of The Illusory Promise of Stakeholder Governance refer to ‘the critical need for external interventions to protect stakeholders via legislation, regulation, and policy design.’

Unfortunately, this is where the otherwise appealing logic of the ‘anti-stakeholderistas’ hits a wall. The reliance on governments’ ability and willingness to implement ESG-friendly policies is misplaced. Governments are not only woefully inefficient and ineffective (see The Big Lure’), but they are also inherently opposed to policies increasing voters’ cost of living. If people seek to maximize profit, a majority of them will not elect governments promoting its dilution.

The world has gotten itself in a real pickle: Neither stakeholderism nor shareholderism represents a viable solution to today’s challenges.

In 1915, Virginia Woolf wrote in her journal: The future is dark, which is the best thing the future can be, I think.’ Nights can be scary, but it is in the dark that the improbable tends to happen. A dogma-busting solution will eventually emerge.

Until then, the onus is on everyone not to succumb to ESG fatigue.

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