Political ideology is now a significant risk factor in corporate governance. This is no more apparent than when the term “woke capitalism” is invoked. The term is used by the political right as a rallying cry to make the public aware that a leftist political ideology has come to taint a business decision of a prominent company and is therefore to be condemned and the company punished. For example, in April of this year, the Georgia legislature passed a new voting law, the Election Integrity Act of 2021, that arguably restricts the voting rights of its citizens. In response, Coca Cola and other well-known companies, in a show of support for our political democracy, publicly condemned the new law and Major League Baseball even went so far as to relocate this year’s All-Star game from Atlanta to Denver. These actions were roundly criticized by the political right as being examples of “woke capitalism.”
Not only does the term represent a new risk factor in managing a company, especially a publicly traded company, it also corrupts our basic understanding of capitalism, what it is to be “woke,” and corporate governance. While we cannot stop people from using the term, we hope to at least try to discourage its use by making people aware of its significant shortcomings. We begin our discussion by noting how the term corrupts our understanding of both capitalism and the word “woke.”
‘Woke Capitalism’ is not a Form of Capitalism
The term “woke” originated in the 1920s as a call for the Black Community to become more socially and politically conscious. It has evolved over time to become a general expression of enlightenment, especially in terms of becoming aware of racial and social injustice. Over the past year people have become enlightened not just in terms of Black Lives Matter, but also in terms of how fragile our democracy is and how easily it can be pushed in the direction of autocracy.
Yet, while “woke” is a great word, its use as an adjective for capitalism is nonsensical. According to the Merriam-Webster dictionary, capitalism is defined as “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.” Where is the connection to woke? From our perspective, it is hard to see how the word “woke” helps enhance our understanding of capitalism as an economic system.
How the Term ‘Woke Capitalism’ Inaccurately Defines “Woke”When one uses the term "woke capitalism" to describe a company’s business decisions, the only point is to be critical of those decisions. That is to say, the decisions are tainted with wokeness. This taint is nonsensical if woke is properly defined to mean becoming aware of racial and social injustice. However, the word “woke” takes on an entirely different definition when it is used in the term “woke capitalism.” Here, it is being redefined to represent the entire spectrum of left-wing ideology. That is simply an inaccurate use of the word. The word as properly defined has nothing to do with left-wing, right-wing, or centrist ideology. Instead, it represents a form of enlightenment, something all ideologies can share and benefit from.
‘Woke Capitalism’ and Corporate Governance
When we use the term “woke capitalism” as a means to enhance our understanding of corporate governance, we find that it adds no value. We see this when we try and incorporate the term into the traditional corporate governance framework provided by Milton Friedman, i.e., a framework that views corporate governance primarily through the lens of shareholder wealth maximization and the one that arguably still dominates the thinking of corporate management.
Milton Friedman, in his famous 1970 article, “A Friedman doctrine‐- The Social Responsibility Of Business Is to Increase Its Profits,” stated: “In a free‐enterprise, private‐property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”
As applied to public companies, Friedman’s framework requires corporate management to focus their decisions and actions on making as much money as possible for their shareholders. If political ideology is incorporated into corporate decision-making, then it can only be justified if it enhances shareholder value. For example, John Tamny argues that incorporating left-wing ideology into corporate decision-making may be necessary if a company wants to attract young employees who are the most gifted and are perceived by management as generally identifying with such an ideology. Or, when a controlled company like Snap, Inc. publicly announces its initiatives in significantly reducing emissions from its operations. No doubt, a powerful reason for doing so is to maintain and expand its young user base. Therefore, such decision-making does apply right or left political ideology based on the personal preferences of management, but as a means to achieve the objective of shareholder wealth maximization. This renders “woke capitalism” an inadequate term for discussing how political ideology can be used in corporate governance.
Moreover, corporate decision-making as a means to enhance shareholder wealth is also constrained by the basic rules of society. Management cannot make decisions that violate the law or “ethical custom.” In mathematical terms, these are both constraints on the shareholder wealth maximization equation. Both constraints evolve over time, but the latter is an ever evolving moral code that may be perceived differently at different companies, allowing actors to take certain stands, whether on the left or right of the political spectrum, which may not purely be directed toward enhancing shareholder wealth. When made in good faith and in the best interests of the company, decisions that take into consideration ethical custom are arguably protected by corporate law’s business judgment rule. Therefore, the use of the term “woke capitalism,” by being biased against one side of the political spectrum is again an inadequate term for discussing how ethical custom impacts corporate decision-making.
In sum, words matter. The use of the term “woke capitalism” corrupts our understanding of capitalism, being “woke,” and corporate governance. “Woke capitalism,” we hardly knew you, but it is definitely time for you to go.
