Shifting standards of evidence will doom woke CEOs
By Scott Shepard
ESG, stakeholder capitalism, sustainability, equity – whatever the label, in each case, the fact on the ground is a corporation taking a left-wing political or social position and claiming that the move will be good for the corporation's bottom line.
That second part is crucial because if a company were to take a partisan position that hurt the bottom line, the responsible directors and executives would have violated their fiduciary duty, which could bring shareholder lawsuits that might result in personal losses for the executives – or at very least distinctly compromise their continued tenure at the company.
As I have considered in these pages, some executives already face such lawsuits and the actions that potentially lead to further suits have already begun, while more must reasonably be expected at similar companies. The most recent example is Target, which is being challenged for making public commitments and spending shareholder assets to support, among other things, pressuring school teachers to keep knowledge of children's gender dysphoria from parents while fostering educational behaviors likely to exacerbate the social pressure on young people, especially girls, to embrace fringe and potentially damaging behavioral styles.
When faced with massive revenue and share-price losses resulting from public outrage at Target's position, CEO Brian Cornell claimed that he had stuck to his fiduciary duty. "I think those are just good business decisions, and it's the right thing for society, and it's the great thing for our brand," Cornell said.
Since that statement, Target has continued to claim that its hard-left partisanship is good for its bottom line. In order to do that, it has asserted that it just can't tell what has caused the downturn in stock price since the start of the controversy, which despite some recent recovery still represents a more than 10 percent decline.
The thing is, though, in order to make the claim that such provocative and partisan moves are "the great thing for the brand," Target has to assert that it does know that taking these political positions now is going to have significant medium- to long-term benefits for the brand.
It's very difficult to see how both of these claims could possibly be true at the same time. If Target executives don't really know what causes significant shifts in the current and recent share price, that might be a reason to consider replacing them or for them to consider replacing some members of their staff. But it makes it nearly impossible to believe that they can know with any degree of certainly what's going to happen years and decades from now, so as not only to justify but necessitate their taking significant risks and spending great piles of shareholder money to take highly controversial positions today.
First, if Target doesn't know what's causing huge losses now, it can't by its own admission know that it's going to make up those losses in the future – because it doesn't know to what causes to allocate those current losses.
Second, in order to have an objective, competent and reasonable belief that the future will make up for the present, Target has to "know" all sorts of things that from here look highly unlikely. It has to "know" that this kids-and-trans thing is a fixed new development, and not something that will be looked back on in a few years with astonishment and horror by just about everyone. It further has to "know" that this fixed development will quickly be accepted by the vast majority of its once, current and potential customers, a fact nowhere in evidence. It has to "know" that the current generation, unlike every other generation in known history, won't get more staid, thoughtful and conservative as it gets older, or shed the fads of its youth, but will continue on its current course forever.
It has to "know" an awful lot of things. It does not know those things. It certainly does not know all of those things, while not being able to figure out that massive public objections and customer abandonment have negative effects on revenue and share price. Its claims that these partisan-political moves are "the great thing for the brand," then, should face significant scrutiny should its executives' decision-making processes be reviewed by a court.
This toggle switch for corporate standards of evidence bedevils many of the claims that partisan ESG moves are "doing well by doing good." Most of the "E" efforts in recent years boil down to trying to force companies to abandon affordable and dependable energy for the expensive and unreliable (and still dirty) kind. When claiming that this facially ridiculous move is good for corporate value, the proponents point to "stranded asset" theory – the claim that the world's governments are going to force companies to make this shift anyway, so better not to sink any more assets into plans to use the affordable and dependable energy.
The problem with this claim is that it doesn't seem very true. Just this past weekend the climate alarmists were fretting that European electorates seem disinterested in shivering in the dark, as will be required of them if they keep to political-schedule decarbonization plans. Some African countries that have experimented with going the expensive- and unreliable-energy route, have suffered accordingly, and now other African countries show a growing intent to steer clear. In the United States, unlawful federal regulatory mandates are being and will be challenged, and will be swept away entirely the next time the White House changes parties.
In other words, all of these current indicators suggest that "stranded asset" theory is based on an entirely false premise. And that's beside the fact that China and India give every indication that they will not decarbonize, making the whole exercise pointless.
But somehow, Larry Fink and the others "forcing" decarbonization "behaviors" just can't figure out what to make of this crush of current facts, while continuing to "know" that the whole world really is going to go forward with decarbonization on an arbitrary, politically devised schedule.
Again, of course, they can't "know" that. More to the point, they can't be baffled by or dismissive of what's happening on the ground right now, but so certain of how things are going to play out in the future – in ways resolutely contraindicated by current events and historical precedent – that they just have to make facially terrible and profoundly partisan business decisions.
Rejecting replete current evidence to believe something about the future contravened by that mounting pile of real, on the ground evidence is not objective analysis. It's faith – or it's deliberate falsehood.
The courts may not be able to establish which of those two options apply (though they may well be able to), but they should have no problem concluding that there is a legally fit way to run a railroad – or a retail chain or investment house.