A Luxury Nobody Can Afford

From Boeing to Starbucks and BP to Budweiser, the landscape of Wall Street is increasingly strewn with failed executive boards that adopted ideological policies that have been bad for business. In recent years, C-Suites have been populated with executives who accepted being told what to think by activists and a few powerful asset managers, while forgetting how to think. Filled with acolytes from some of America’s most prestigious business schools, executive boards have been persuaded by promises of increased executive compensation -- lots more money -- to not question, not challenge and not fight the adoption of transient faddish standards into boardroom decisions, even in direct violation of their fiduciary obligations to shareholders.

Now, four years after the most socially charged period since the anti-war protests of the Vietnam era, shareholders are finally demanding that the ideologically strident environmental, social and governance nonsense known as "ESG," economic foolishness underpinned by narratives of "climate catastrophe" and the make-work, economically suicidal foolishness of "diversity equity and inclusion" (DEI), be scrapped. Here's the Wall Street Journal on the subject:

White-collar companies that once championed programs to recruit diverse employees are now tiptoeing away from them... Companies have made the changes quietly, often by playing down terminology such as “DEI” and opening up programs once reserved for diverse applicants to everyone. Many stopped referencing their DEI programs in annual reports altogether, The Wall Street Journal has reported. Minority students are concerned about what the cutback means for their future in an already tight job market.

All have won, and all must have prizes.

By the close of Starbuck’s annual shareholder meeting back in March this year, investors had voted on a slew of initiatives, including an executive pay packages that omitted diversity and sustainability goals from bonus considerations for top leadership at the company. Though non-binding, it sent a clear message to company leadership that shareholders separate their political ideology from their beverage-selling, and that they expect corporate executives to do the same. The initiative passed with a 90 percent approval. Shareholders made it clear that the days of focusing on the immutable traits of employees or the recyclability of the tables and chairs is simply not important to those who actually fund the company.

The idea of bonuses for promoting products is not new. For decades pharmaceutical companies have incentivized prescribing habits of physicians. Even as recently as 2021 pharmacies were paid to inject as many people as possible with the Pfizer and AstraZeneca vaccines for COVID-19, even in the face of limited efficacy data and, later, provable harm, so as to maximize their incomes via pay incentives. For at least five decades now, the corporate media has rewarded editors who aggressively hired and promoted "underrepresented" minorities and rabid ideologues in a business that once required speed, accuracy, and commitment to the First Amendment.

Corporate leaders are no different. In recent years they have become evangelizers for ideological policies masquerading as corporate initiatives. The idea of politicizing corporate America was first introduced by the malevolent activist organization, World Economic Forum (WEF) beginning in 2000. A proponent of a single global government, the WEF recognized that corporate leaders would do almost anything for the right price. They began methodically engaging executives of asset management firms to begin the process of reorienting the capital markets toward industries, technologies and companies in which they had personal financial interest and those that helped shape the New World Order they envisioned even if broader market acceptance was fleeting.

By 2020 non-profit organizations were part of the WEF program to integrate ideological initiatives into corporate decision making, even in defiance of the sole interest rule. Organizations like Human Rights Campaign and Black Lives Matter were shaking down large swaths of corporate America for billions in the wake of destructive protests. Starbucks was an early follower of these extortion efforts and introduced a company-wide program that same year.

By 2023, 7.5 percent of Starbucks' executive bonus variables were tied to "diversity," while another 7.5 percent was based on “sustainability” goals. But by March 2024, with emotion waning and shareholders irritated by activism, the proposed outline included 75 percent of executive bonus variables being tied to overall financial performance and 25 percent be based on individual performance. In addition, the company was to replace the word "representation” with “talent" in its performance-related restricted stock unit grant (PRSU). But needing shareholders to convince a board that the word “talent” should be reintegrated into company vernacular testifies to the fact that fads that are still influencing corporate executives in 2024.

Well, that didn't pan out.

The rolling back of these ESG and DEI policies are largely occurring as a result of threatened legal action. As recently as six months ago, six large U.S. corporations, including JPMorgan Chase, began rolling back their DEI and ESG policies not because corporate leadership had a change of heart but because of threatened lawsuits. According to reports, 25 large U.S. corporations have received letters since 2021. JPMorgan Chase changed modified programs that were exclusively open to Hispanic and black applicants, now to include all students, “regardless of background.” Even the most strident evangelizer of ESG and DEI programming, BlackRock, has rolled back a DEI program. 

Common sense has made a return but never underestimate the power of government intervention to achieve social  outcomes the markets and the law reject. The Biden administration, infamous for its use of regulatory edicts, seems poised to force ESG and DEI onto businesses through regulation. But with the Chevron Doctrine likely to be overturned soon by the Supreme Court in two pending decisions – Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce -- perhaps only then will reason return to corporate America and focus shift from ESG activism to boardroom merit once again.