June 26, 2022

VIRGINIA POSTREL: Stakeholder Capitalism Isn’t Working As Planned.

The great value of the Friedman doctrine is that it establishes a coherent standard for making tradeoffs. Maximizing economic value tells you to “spend an additional dollar on any constituency provided the long-term value added to the firm from such expenditure is a dollar or more,” as Harvard Business School economist Michael Jensen put it in a 2010 article.

Stakeholder theory, by contrast, tells you nothing. It assumes you just make everybody happy. And, as Jensen wrote, “Without the clarity of mission provided by a single-valued objective function, companies embracing stakeholder theory will experience managerial confusion, conflict, inefficiency, and perhaps even competitive failure.” Jensen’s article is the best articulation of why what he calls “enlightened value maximization” is indispensable.

But neither he nor Friedman fully imagined the chaos that could ensue without it.

Look at the backlash when Walt Disney Co. tried to placate vocal employees by opposing Florida legislation to ban discussing sexual orientation with younger children in schools. The political pushback — like the original protests — reflected a sense of betrayal by a beloved company whose fans see their dreams and values reflected in its characters and stories.

Appeasing one group of stakeholders alienated others. It wasn’t hard for conservatives to find opposing voices within the company. Disney has nearly 200,000 employees and countless customers. All are stakeholders, and they represent every conceivable viewpoint.

By focusing on business goals, by contrast, Netflix, despite other challenges, has more successfully weathered its own controversies, from conservative uproar over the French film “Cuties” to more recent protests about Dave Chappelle’s jokes about trans women. To make expectations clear, the company revised its cultural guidelines for employees to explicitly say, “As employees we support the principle that Netflix offers a diversity of stories, even if we find some titles counter to our own personal values.”

Stakeholder capitalism implicitly assumes a cultural consensus identical to whatever its advocates believe. It harks back to the mid-20th century, when big US companies enjoyed little competition, mass media marginalized all but a narrow range of political, religious and social views, and hierarchy and security dominated worker expectations. It pretends social media, Slack channels and “bringing your whole self to work” don’t exist.

It’s really not working out well for Disney: Disney’s Stock Price Has Lost 50% Of Its Value After Year Of Leftwing Political Electioneering And Badly-Received Woke Programming.

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