Corporate activism traditionally meant businesses lobbying for policies favorable to their economic interests—such as lower corporate taxes, favorable regulations, or profitable trade policies. Today, however, it increasingly signifies something more divisive and economically damaging. Recent controversies involving Disney, Anheuser-Busch, and Target illustrate a troubling trend: corporations pursuing political activism at the cost of billions in shareholder value. This phenomenon isn’t mere managerial opportunism. Rather, it represents a deeper, systemic shift we term Second Wave corporate opportunism.
The First Wave of corporate opportunism arose immediately with the advent of corporations, when ownership and management in firms were first separated, as famously chronicled by Berle and Means (1932). During the conglomerate craze of the 1960s and 1970s, managers exploited their positions to build enormous corporate empires of unrelated businesses and milked their shareholders for lavish personal perks, (e.g., private jets) and compensation packages. This lasted until institutional checks, such as performance-based compensation, better shareholder oversight, and aggressive takeover tactics curtailed the worst abuses.
Today’s problem is different—and worse. It emerges from a “double separation” where institutional investors, like pension and index funds, control corporate governance, further distancing corporate policies from the actual owners whose capital they manage. By 2017, institutions held around 80% of S&P 500 market capitalization. This represents immense power concentrated in a few hands.
At first glance, one might think that powerful institutional investors would curb managerial abuses, given their resources and incentives to maximize returns. Yet, paradoxically, we've seen a rise in corporate decisions that actively harm shareholder value—decisions driven by ideological rather than financial motivations. How can this be?
The answer lies in the convergence of structural power and ideological transformation. Institutional investors wield vast control, yet increasingly adopt what philosophers refer to as a “folk-critical” worldview—a disjoint, culturally pervasive perspective that emphasizes identity politics, environmentalism, and social justice. Institutional elites, often insulated from market accountability due to captive investments (like employee 401(k)s), have ample room to indulge ideological activism through corporate policies.
The results have been costly. Companies engaging in politically charged initiatives—marketing campaigns, DEI quotas, or radical sustainability commitments—often alienate large customer segments, causing severe financial losses. Institutional investors push these policies, leveraging their voting power, coordinating proxy campaigns, and influencing board composition. Resistance from corporate executives can trigger institutional retaliation, forcing even shareholder-focused managers to comply with value-destructive activism to avoid worse repercussions.
This dynamic creates a self-reinforcing institutional landscape. As more firms adopt activist stances under pressure, resistance becomes riskier, incentivizing preemptive compliance. Consulting firms, academia, and regulatory bodies further entrench this dynamic, codifying activist demands into business norms and even regulatory mandates.
Critically, this activist infrastructure isn't just economically harmful—it threatens the very foundations of market capitalism by aligning corporations with mechanisms typical of state capitalism. Today’s ESG reporting mandates, executive compensation tied to ideological goals, and internal compliance departments resemble systems used by authoritarian states like China, where firms serve state-defined objectives.
The danger is that this infrastructure can easily transition from enforcing activist goals to imposing direct state control over corporate behavior (e.g., Taibbi and Shellenberger’s revelation of the “Twitter Files” in 2022). Once corporations embrace the notion that their purpose transcends shareholder value, little prevents the substitution of activist goals with explicit government directives.
Fortunately, recent market reactions suggest some self-corrective forces are emerging. Firms like Walmart and Apple have retreated from divisive stances, which may indicate there are limits to this form of shareholder value destruction. Even so, lasting change requires deeper reform to institutional investment practices and corporate governance structures.
Addressing Second Wave corporate activism demands fresh, independent academic inquiry and practical reforms. Solutions might include clearer transparency standards for institutional investors, greater direct control for shareholders over institutional voting, and incentives aligning managerial actions strictly with long-term financial returns.
Without meaningful action, however, the ideological pressures shaping corporate governance today will inevitably lead not just to sustained economic harm but potentially usher in a troubling new era of state capitalism, diminishing the freedoms and market dynamism that underpin our economy. Recognizing this risk is the critical first step toward safeguarding the future of capitalism itself.
