Kerby Anderson

A reoccurring topic on my radio program is what is called “stakeholder capitalism.” The phrase was promoted by the founder of the World Economic Forum and is used by many business leaders as well as by progressive politicians like Bernie Sanders and Elizabeth Warren.

Former Senator Phil Gramm argues in a recent op-ed that “stakeholder capitalism is a war on the Enlightenment.” Proponents argue that big businesses get more than they deserve. But he reminds us that nearly three-fourths (72%) of the value of publicly traded companies in America is owned by pensions, 401(k)s, IRAs, charitable organizations, and insurance companies funding life insurance policies and annuities. The beneficiaries of most of these are average American workers and retirees.

“The mantra that private wealth must serve the public interest has been boosted by one of capitalism’s great innovations, the index fund.” But what investors gained in efficiency with index funds, they have lost in terms of voting power. This latest trend in investing mandates that businesses and corporations must work toward social goals have been defined as ESG, which stands for Environmental, Social, and Governance.

This new agenda affects both politics and prosperity. Stakeholders demand businesses and corporations serve interests never enacted by Congress into law. These demands also can affect the profits and bottom line of these companies. And I also noticed that Tesla was removed from the S&P 500 ESG Index, when it used to have the fourth largest weighting in the index. Could it be that it was dropped because of recent comments and actions by the Tesla founder?

Stakeholder capitalism may sound like a good idea until you get into the details.