The war on ‘woke’ capitalism

This is an audio transcript of the FT News Briefing podcast episode: The war on ‘woke’ capitalism

Marc Filippino
Good morning from the Financial Times. Today is Monday, June 6th, and this is your FT News Briefing.

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US investors are still trying to rein in executive pay, while others are rebelling against corporate activism on environment and social issues.

Andrew Edgecliffe-Johnson
ESG has simply become so huge now. And I think that’s also created a space for the contrarians to say, well, hang on a minute, is it everything that it claims to be?

Marc Filippino
But we’ll start the show in Europe, where central bank officials are still struggling to find the right way to tackle inflation. I’m Marc Filippino, and here’s the news you need to start your day.

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The European Central Bank is set to raise rates this summer for the first time since 2011 because central bankers are under pressure to address inflation. But a lot of them accept that they’ll need to provide more support for bond markets before any rate hike goes into effect. The FT has learned that when ECB officials meet in Amsterdam this week, most governing council officials are probably going to support a new bond-buying programme. It would prop up member states with vulnerable debt markets like Italy if their borrowing costs start to spiral after central bankers raise rates. Officials are also likely to clash over when they’ll stop buying bonds under the existing bond-buying programme. But almost everyone on the ECB’s governing council accepts that the ultra loose monetary policy they’ve had for more than a decade needs to end.

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In the US, the struggle to find and keep top executives means companies have to dole out big pay packages. And coming out of the pandemic, that meant big bonuses. But investors don’t like this.

Patrick Temple-West
Because you’re using shareholder money to issue shares to executives without shareholder approval.

Marc Filippino
That’s the FT’s Patrick Temple-West. He says data for 2022 so far shows declining investor support for executive pay packages. But these pay proposals are non-binding. And even though more investors are voting no, they’re largely still passing. So it’s unclear if frustrated investors are having any influence.

Patrick Temple-West
Next level up when you’re thinking about ramping up pressure is to go after board directors specifically. Most companies have a compensation committee, which thinks about how do we pay the executives. If investors are really upset for a couple of years in a row, they’re now going to go after the board directors. And that is a much bigger problem because you’re actually going after individual people, not just voting against pay and that’s non-binding. It raises a number of complications for companies. It’s not a pretty scene when individual board directors are getting voted down or receiving low vote support themselves. And that’s where this is headed.

Marc Filippino
So let me see if I understand this correctly, Patrick. Since CEO pay keeps passing even at a smaller margin, the idea then is to target board members because then they’ll feel the heat and eventually try and lower CEO pay because they want the target off their back.

Patrick Temple-West
Yes. So that they rein it in and they can ease off the pressure on themselves.

Marc Filippino
Patrick Temple-West is our corporate governance reporter and he also writes our Moral Money newsletter.

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US investors aren’t just becoming more vocal about executive pay. For years, socially minded shareholders have been putting pressure on companies to reduce harm to the environment and to address social issues like racial injustice, labour rights and, more recently, abortion. Now there’s a backlash against what some people call “woke capitalism”. To find out more, I’m joined by the FT’s US business editor, Andrew Edgecliffe-Johnson. Hey, Edge.

Andrew Edgecliffe-Johnson
Hi, Marc.

Marc Filippino
So, first off Edge, define woke capitalism for me. What exactly is it?

Andrew Edgecliffe-Johnson
Frankly, woke capitalism is in the eye of the beholder, but it’s essentially a notion that we’re starting to hear about more and more from people on the right of US politics in particular, which conflates two huge trends in the business world over the last few years. The rise of stakeholder capitalism, which is the idea that you ought to treat all of your different constituencies equally, not just putting shareholders at the front of the line. And ESG, which is a form of investing, which purports to concentrate on companies that are doing good environmentally, socially and in terms of how they’re governed.

Marc Filippino
But who are the critics here and what do they take issue with?

Andrew Edgecliffe-Johnson
What interests me is that this criticism is now coming from several different directions, and they’re not necessarily co-ordinated. We’re seeing populist politicians on the right of US politics in particular. We’re seeing conservative activists who are using the tools of shareholder activism by showing up at company annual meetings and lodging proposals. And we’re seeing contrarians in the finance industry, including some people who’ve worked for very large banks and asset managers who have large ESG investing practices. All coming up with pretty much the same critique, which is that ESG investing stakeholder capitalism is not everything it says on the tin, is not living up to all of its promises. And the political aspect of that, I would say, adds another layer, which is that somehow these companies, which claim to be socially active for the good, are actually doing harm in society through the positions they’re taking and are discriminating against conservative views in particular.

Marc Filippino
Why is there all this pushback right now? Because for a long time, ESG investing was fashionable. It was popular. What’s happened?

Andrew Edgecliffe-Johnson
I think companies have been pushed into speaking out on a lot of social issues that traditionally they used to stay silent about. And that has triggered a lot of political attention, frankly. But I think it is also the fact that ESG has simply become so huge now. And I think that’s also created a space for contrarians to say, well, hang on a minute, is it everything that it claims to be?

Marc Filippino
So Edge, where do we go from here? Are there, I don’t know, lessons from the past that we can apply to the situation here to kind of determine what might happen next?

Andrew Edgecliffe-Johnson
In the short term, I think the politics are only gonna get more heated. The midterms are coming up in the US in November. This line of attack against what many Republicans perceive as kind of elite, out-of-touch corporations that are not aligned with the more populist drift of the Republican Party at the moment, these attacks seem to be working for conservatives. So I think they’re gonna redouble them. I think we’re gonna see the individual companies called out for their stances on issues like abortion over the coming months. These fights seem to be working for politicians such as Ron DeSantis in Florida, who’s picked a fight with Disney, for example. But I think there’s a longer term question now hanging over ESG. You know, we’ve seen the terminology change over several decades about how companies described, you know, their wider purpose in society. We were talking about corporate social responsibility back in the nineties. We may look back on this period and decide that ESG was a fashion. I think there are more and more voices now looking at those three little letters. I’m wondering if they’re trying to do too much.

Marc Filippino
Andrew Edgecliffe-Johnson is the FT’s US business editor. Thanks, Edge.

Andrew Edgecliffe-Johnson
Thank you, Marc.

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Marc Filippino
Before we go, radio stations in Nigeria are warning they may have to go off the air because they can’t afford the cost of diesel fuel for their generators. And it’s not just radio stations, of course. High energy prices are battering drivers in Africa and airlines, too. The turmoil in global energy markets has hit the continent especially hard. Despite producing 8 per cent of the world’s crude, Africa lacks refining capacity, so it has to import almost all of its fuel.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.