Everybody is stuck in this left-versus-right traditional dynamic, but today, all over the world, it’s centrist versus extremist. Israeli Prime Minister Yair Lapid
The battle among investors and other stakeholders over ESG (Environment, Social, Governance) and ‘woke’ or ‘un-woke’ capitalism has escalated rapidly in recent months. Climate debates are now whipsawed by energy shortages and weaponization of energy by events like the war in Ukraine and leaders like Putin – resulting in higher prices and more reliance on less environmentally-friendly coal and dirtier oil. DEI (Diversity, Equity, Inclusion) initiatives are now being questioned as a distraction or as purposeful, strategic discrimination against certain groups. Work force issues just keep disrupting: WFH (Work from Home), the great resignation, ‘quiet quitting,’ growing unionization efforts while workers face record inflation eroding their earnings. The human resource challenges just keep growing.
For those keeping score at home, recent headlines reflect a Who’s Who of Culture Wars along with a rapidly changing battlefield, collateral damage and the usual fog that accompanies warfare:
- The Business Roundtable: Maximizing Shareholder Value Can No Longer be a Company’s Main Purpose, Fortune 8/19/19
- Chick-fil-a: Drops donations to Christian charities after LGBTQ protests CNBC 11/18/19
- Disney: CEO Tried to Avoid Politics, Now in Middle of Partisan Spat WSJ 3/11/22
- JPMorgan Chase: ‘I’m not woke’: JPMorgan CEO, Fortune, 6/2/22
- Cracker Barrel: Accused of going ‘woke’ for pushing plant-based sausage NYPost 8/4/22
- BlackRock: Facing Texas pushback, BlackRock backs fossil fuels. Reuters 2/17/22 NYC Comptroller urges BlackRock to drop fossil holdings IEEFA, 8/3/22
In each case, leaders were expected to take a stance on insanely difficult, ever-changing, divisive social issues – all the while delivering high-level results. It is no surprise that many leaders in corporations, churches and non-profits are exhausted, feel disempowered and war-weary. Ninety-five percent of surveyed C-suite executives report they have felt growing pressure to take positions on contentious issues over the past three years. Barna reports a record 42% of church pastors have considered leaving full-time ministry over the past year.
But these battles are not going to end anytime soon, and there is no safe place to hide from the fray. So the salient challenge for leaders is this: How to prepare their organization to be resilient in this highly charged, contentious environment.
Stakeholder Warfare: A Roadmap
It is hard to map a path forward without clarity on how we got where we are. Let me suggest a roadmap that outlines the evolution of 3 Phases of escalating Stakeholder Warfare that got us to where we are followed by a Leadership Pivot that can move us to Phase 4 – a more sustainable way forward.
4 Phases of Stakeholder Relationships: A Roadmap
Phase 1
Shareholder King
Buzz Terms: Shareholder Value
Priority: Shareholder profits/returns
Champion: Milton Friedman, Jack Welch
Culture: Unity with Camps
Trends: Stakeholder Inequity
Leader Focus: Financial performance
In Phase 1 the mantra was Shareholder Value driven by profits and returns. This Phase stretches back over several decades, was championed by economist Milton Friedman and GE CEO Jack Welch and became the gospel for top business schools. It took the complexity of business leadership and boiled it down to a very simple accountability: shareholder value. Culturally, there was considerable unity inside and outside organizations about this ultimate outcome even though there were different camps as to the best path to get those results – from hard-nosed to humanistic. However, this narrow and often short-term shareholder focus increasingly led to troublesome outcomes: the wage gap between workers and CEOs mushroomed; the investor class grew richer, the middle class shrunk; racial and gender equality progress did not keep up with expectations; the risk of climate change – especially man-made – became more urgent.
As a result, stakeholders – employees, customers, local communities, citizens of the planet – began to resist. In 2017 the Edelman Trust Barometer warned: “CEO Credibility at Lowest Level Ever,” droping12 points globally. That along with low employee engagement set off alarms. By 2020 47% in the U.S. (56% globally) said capitalism did more harm than good. Something had to give – and it did. Phase 2:
Phase 2
Stakeholder Revolt
Buzz Terms: Stakeholder Capitalism
Priority: Stakeholder value/returns
Champion: The Business Roundtable, BlackRock, Dimon
Culture: Stakeholder Tribes vs. Leadership
Trends: ESG
Leader Focus: Cancel Culture
Those “troublesome outcomes” from Phase 1 led to the Phase 2 Stakeholder Revolt feeding a new activism and coining a new term: Stakeholder Capitalism. Leaders faced stakeholder pressure to respond to major stories like these from an increasingly activist media:
- Death of George Floyd: Walmart pledged $100MM over 5 years for a Center for Racial Equality CNBC 2/1/21
- Florida’s “Gay” bill: Disney workers walked out NYT 3/22/21
- Georgia Voting Rights law: Delta and Coca-Cola reversed their position NYT 4/5/21 Major League Baseball moves All-Star game out of Atlanta NPR 4/6/21
- Climate change and battle over fossil fuels: Exxon’s Board Defeat Signals the Rise of Social-Good Activists NYT 6/9/21
- Covid, WFH,the great resignation, quiet quitting: Goldman Sachs Demands Return to office 5 days a week. Fortune 3/10/22
- Roe vs. Wade abortion decision repealed: Dick’s Sporting Goods promises reimbursement to employees seeking abortions. CBS 6/24/22
Led by The Business Roundtable and its Chairman Jamie Dimon, Phase 2 proclaimed that Shareholder Value could no longer be a company’s main purpose. It must deliver value to all its stakeholders – customers, employees, communities. Championed and at times coerced by mega-investment firms like BlackRock, ESG fund assets mushroomed from $1.28 trillion in 2019 to $2.74 trillion in 2021 and were touted by leaders like Morningstar to outperform traditional investments. Axios ran this headline: “The CEO job now includes activism.”
What were formerly camps of manageable differences devolved into tribes devoted to canceling organizations and especially their leaders who did not toe the line as advocates for anointed social causes. Those inclined to pushback were often labeled racist, misogynist or climate deniers. Hence the unfolding of Phase 3:
Phase 3
Stakeholder Warfare
Buzz Terms: ‘Woke’/’Un-Woke’ Capitalism
Priority: Stakeholder Power/Purity
Champion: Ackman/Ramaswamy-Strive
Culture: Armies/Armies/Leaders
Trends: Anti-ESG/Splits/Gridlock
Leader Focus: Mitigate sides/warfare (WOES)
Phase 3 reflected a new push back that became more visible in early 2022 as the battle-lines between ‘Woke’ and emerging ‘Un-Woke’ stakeholder groups became more pronounced. Warring stakeholder armies continued to fight leadership and now each other, to gain and exercise power for their side while purging and often cancelling their own who did not meet ever-rising purity requirements. Leaders attempting to unify and keep their organizations productive, faced highly fractured and even combative stakeholder groups on all sides of various causes. Mouthing the words of Rodney King, “can’t we all just get along?” many stakeholders wanted no part of either warring extreme but became collateral damage caught in the cross-fire: There was no safe space.
Seen by many as a noble crusade, ESG had initially steamrolled and cowed non-believers into silence. Now it became controversial, eliciting a revolt against the revolt (think French Revolution). Bloomberg reported ESG-related losses: “BlackRock Inc. ($10+T AUM) known for pushing woke activism in investing, has lost $1.7 trillion of its clients’ money in the last sixth months,” as ESG funds underperformed the broader market in the first half of 2022. Nineteen state Attorneys General wrote a letter to the SEC stating, “BlackRock appears to use the hard-earned money of our states’ citizens to circumvent the best possible return on investment, as well as their vote.” As Charlie Munger, Warren Buffett’s partner, quipped about the powerful role BlackRock CEO Larry Fink played in the growth of ESG : “I think the world of Larry Fink, but I’m not sure I want him to be my emperor.” An ‘anti-ESG’ movement emerged and leaders like Jamie Dimon and Larry Fink disavowed accusations of being ‘woke’.
Billionaire hedge fund founder Bill Ackman, formerly an ESG supporter, and billionaire venture capitalist Peter Thiel – backed startup Strive Asset Management founded by Vivek Ramaswarmy to go head-to-head vs. large money managers like Blackrock who promote “stakeholder capitalism and political agendas.” In the first few months they reported having raised over $300 million.
Meanwhile, the SEC cracked-down on ‘greenwashing’ by firms that made unrealistic clams regarding their environmental impact. As Eric Hoffer famously said, “Every great cause begins as a movement, becomes a business, and eventually degenerates into a racket” – which undermines the cause.
What started out as revolt against a narrow focus on shareholder value, morphed into a revolt by stakeholders against business leadership and has now devolved into a fight among stakeholder groups about acceptable levels of ‘wokeness’ on matters often seen as unrelated to the mission of their organization. Leadership is often consumed by trying to find common ground for the warring sides while trying to hold their organizations together. We might call it leadership WOES – Walking On Egg Shells – and it is increasingly a consequential, un-named and unmanaged risk.
(These Phases with slightly different language also apply to non-profits organizations.)
The Leadership Pivot: Phase 4 – From Warring Sides to Stakeholder ‘Optimization’
The NBA is focusing on promoting nonpartisan civic engagement and encouraging fans to make a plan to vote during midterm elections…no NBA games on election day. DMN 8/16/22
Leaders and stakeholders facing this growing risk must address the question: How do we pivot from destructive warfare to productive relationships to get meaningful things done? It is a question not unlike the one Abraham Lincoln faced at the end of the Civil War.
Sherman inquired of Lincoln: “What was to be done with the rebel armies? With political leaders, such as Jeff. Davis, etc.?”
Lincoln: “Get the men composing the Confederate armies back to their homes, at work on their farms and in their shops. Let them have their horses to plow with, and, if you like, their guns to shoot crows with. I want no one punished; treat them liberally all around. We want those people to return to their allegiance to the Union and submit to the laws.” Kearns Goodwin, Team of Rivals: The Political Genius of Abraham Lincoln
A number of the CEOs I work with are attempting a similar pivot with their stakeholders, turning them from warring soldiers to productive citizens. Yet, just like after the civil war, damaged relationships serve as a major source of resistance or friction to restoring unity and productivity. Let me provide a metaphor for this leadership challenge and opportunity:
Today, more than 25,000 flights will take-off and land at the Dallas-Ft. Worth airport. Each of those flights will take-off (or land) going into the wind. Why will they purposefully encounter such friction (air) – a force that opposes their motion? No matter how strong the thrust from their engine, it will not lift the plane. Each flight will seek the friction that converts thrust into lift – to fly. Too much friction means no movement. Too little friction means no lift.
That is leadership’s big challenge and opportunity: turn today’s stakeholder friction into lift. I have named it Phase 4: Stakeholder Optimization.
Phase 4
Stakeholder Optimization
Buzz Terms: Purposeful Capitalism
Priority: Productive Stakeholder Relationships
Champion: All of Us
Culture: Relationally Resilient Stakeholders
Trends: Strategic Lane Management
Leader Focus: Relational Leadership
Like pilots who deal with thrust, friction, drag, gravity and lift – leaders today are challenged to optimize these stakeholder forces to get the organization to fly; to land and take-off in a sustainable, repeatable way with weather, weight, and a number of other variables constantly in flux. CEO Tom Monahan has aptly named the goal of enabling these counter-veiling forces: Constructive Dissatisfaction.
Look, I’ve got three groups of stakeholders — shareholders, customers, employees. If I were to fully satisfy any one of the three, we would be bankrupt. My job is to keep them all constructively dissatisfied – making the enterprise successful so that the enterprise can deliver to them all.
The term “Stakeholder Optimization,” does not mean every stakeholder has equal value or power. In fact, optimizing means constantly adjusting to internal and external forces – the need to raise capital, retain and grow customers, attract and retain top talent – much like a pilot flying an airplane. Optimization means finding the sweet spot where shareholder and other stakeholders value is maximized. How to do that? It’s complicated, but let’s look at six keys:
It begins with the glue that holds these disparate forces together, Purposeful Capitalism: purpose big and high enough to overcome differences. Causes, no matter how noble, tend to divide while true purpose has great potential to unite – it is higher than sides. Differences of an opinions can drive useful innovation but differences of purpose breed dysfunction.
So much of today’s warfare is about who or what you are against. Purposeful Capitalism seeks to answer the higher question especially related to social issues: What are you for?
· Against fossil fuel or for affordable, climate-friendly energy
· Against narrow voting reforms or for equitable voting laws
· Against racial quotas or for equal opportunity
· Take back the country or move the country forward
· De-fund the police or make policing more effective
The first question I ask when working with organization conflict? Do we have a ‘purpose’ problem? Is our purpose not big enough, not a priority, too ME focused? Purpose is bigger than profit and higher than winning an election.
Notice how purposeful and unifying the above NBA statement about “promoting nonpartisan civic engagement.” It avoids accusations or grievances by stating what it is for. No matter how “right” our cause, we have learned that contempt – disdain + superiority – toward other stakeholders does not change minds and is a relationship killer. According to Populace.org, only 14% of Americans privately agree CEOs should take political stances while twice as many people publicly claim they support it. While often feeling pressured to support certain political positions, mostly our citizens do not want our democracy to get its values from corporate CEOs. As former NBA superstar and Nike promoter, Michael Jordan famously said, when pressed to be more partisan in support of progressive (Democrat) causes: “Republicans buy sneakers too.”
The role of leadership is to convert this purpose into Productive Stakeholder Relationships. It requires addressing competing stakeholder friction in a way that optimizes and transforms thrust into constructive lift – not destruction that crashes the plane. Migrating to Phase 4 Stakeholder Optimization will require leaders, stakeholders, citizens, all of us to – to champion purpose over cause.
But embracing purpose, while crucial, is not enough. The cultures in our organizations, like those in our society, have become increasingly more adversarial and sometimes toxic. To paraphrase the former Sec. of Defense, Donald Rumsfeld: “You go to war with the stakeholders you have, not the ones you might want.” Same applies for going to productive peace.
Making the shift from warring armies to productive stakeholders requires a second quality: Relationally Resilient Stakeholders or what I call R2. R2 is the capability of organizations to rebound and recover from ever-present but potentially useful friction-inducing differences and conflict. It means spending less time being offended by the culture wars – and more time becoming what Social Psychologist Jon Haidt refers to as anti-fragile by developing the skills and grit to benefit from them. To fly, even in stormy weather. As pilot, leaders must enable their organization to engage in what author Rachel Held Evans calls this “holy-give-and-take,” with humility. The challenge is to deal with it wisely, proactively and productively.
It means being very intentional in creating a shared “togetherness vision” powerful enough to overcome the “apart” forces that are driven by tribalism, social media and well-intentioned “smaller causes.” We can weather differences; it is disrespect that is so toxic. The good news is a number of organizations have worked on Ted Lasso-esq values – listen-it-out, argue-to-agree, win-win, ‘no-jerks,’ – that are crucial to healing relationship carnage. The key is operationalizing those values in today’s new Optimization mindset.
Leading a “togetherness vision” does not mean remaining silent or avoiding difficult issues as Disney CEO Bob Chapek, learned when he tried to avoid taking sides on Florida’s controversial law. It is standing for something higher than political sides. I chuckled at a recent headline that read: “Britons Back New King Charles, So Long as He Keeps Quiet.” Queen Elizabeth has been much praised for her ability to listen and be non-controversial but I think the bigger attribute was her ability to rise above differences in the interest of unity and the Monarchy. She knew what lane she was in and where her stakeholders wanted her to be.
Accordingly Strategic Lane Management is one of the most important and challenging leadership responsibilities: deciding what lane you are in, what lane you want to be and then owning that decision. As one CEO put it: We have stakeholders in six lanes but at least they are all headed in the same direction. Some organizations exist in an industry or lane that elicits greater controversy. Energy, pharmaceuticals, high technology, education are all crucial but they also attract more “cause” focused friction.
There are a number of brands with deep roots in the culture wars who have successfully staked out controversial lanes that appeal to their stakeholders: Nike/woke, Chick-fil-a/conservative Christian, Patagonia/climate. The CEO of Patagonia and his family recently announced they are transferring their company ownership into a trust and 501(c) (4) nonprofit to fight climate change, stating: “Earth is now our only shareholder.” That is a breath-takingly powerful statement of clarity and purpose. Yet, if their climate-saving efforts reduce food or fossil energy production, resulting in impoverished stakeholders who starve or freeze this winter – those stakeholders might vigorously disagree about the goodness of this purpose. Lane management is hard.
Organizations will continue to make lane corrections to address changing externalities like the ban on the sale of gas-powered cars by 2035 in California (and proposed in New York). Big media brands have recently announced such lane corrections: CNN’s new CEO reports a shift from “alarming to informing.” Politico’s new owner indicates a move to more ‘non-partisan’ journalism. DirecTV drops One America News the conservative channel criticized for spreading misinformation.
These turbulent times call for and favor a specific kind of leadership, what I call Relational Leadership that is responsible and accountable for making productive relationships a strategic priority that maximize stakeholder — and yes, shareholder — returns. There is no friction-less lane, so Relational Leaders, like pilots, are dedicated to navigating both the tailwinds and headwinds of diverse stakeholder relationships to turn warfare into constructive dissatisfaction – and maybe even satisfaction.
How do we get out of this destructive war? We jettison the language and arguments of the previous three Phases and pivot to Phase 4: Stakeholder Optimization.
This essay is based on Robert’s opening keynote, “Facing Today’s New Strategic Risk: Stakeholder Warfare,” to the 20th Annual Conference on Corporate Governance, the Institute for Excellence in Corporate Governance, the University of Texas at Dallas, September 21, 2022
This article is included with the kind permission of Robert Hall. Original article can be found here: The ESG Wars: How We Got Here, How We Get Out (linkedin.com)
Robert’s latest book, “This Land of Strangers: The Relationship Crisis That Imperils Home, Work, Politics and Faith,” is now in paperback. A “recovering CEO,” he has authored 200 published articles and his work has appeared in The New York Times, Forbes, The Huffington Post, The CEO Magazine. His website: www.robertehall.com