According to some people, large corporations must take a stance in abortion debates (“Wall Street Gets Forced Into the Abortion Debate,” Wall Street Journal, June 3, 2022):
Shareholders have placed abortion-rights proposals on the proxies at three big retailers this spring: Walmart Inc. …; Lowe’s …; and TJX …, the owner of off-price chains including TJ Maxx. Many more could follow next year.
Despite the present perfect in the first sentence, two of the three proposals, put forward in December, have already been rejected by a large majority of shareholders (at Walmart and Lowe’s) over the past week or so. But we can expect more pressure from activists together with large assets managers “focused on environmental, social and corporate-governance” (and not necessarily known for their deep knowledge of economics and political philosophy). To be pessimistic, only catastrophic events such as a deep recession, a nuclear war, or a sudden nine-foot rise in the oceans’ level could stop the movement.
Abortion is a very complex issue because it rests on fundamental questions about which we know little and which may never be totally answerable, at least in our current universe: When does human life start? When does human life ends? What is special about human life, or are humans just animals or plants or biological slime? When is it morally justifiable to end a human life? Should abortion be forbidden to Black women because Black lives matter? This last question shows how slippery the issue is and how absurd the run-of-the mill activist’s conventional wisdom.
But my question here is: What do Walmart, Lowe’s, TJX, or your heating oil delivery man have to do with all that? Why would they have a corporate opinion on these questions and advertise it to their customers? One reason that has been invoked is that their (greedy) interest in promoting political causes that will reduce their labor costs:
Activist investors submitted the shareholder proposals in December. Broadly, they ask each company to compile a report evaluating the risks and costs of restricted reproductive rights, including on employee hiring and retention.
(For once, apparently, greed is good. But many would not extend it any farther.)
Strange idea that, instead of higher wages and benefits, companies should attract and retain employees by echoing the latter’s opinions or prejudices. But what about employees who have other opinions? Should young social activists be encouraged to think that their opinions, often irrational and identity-mob tainted, are important enough to be brandished like a scepter in the face of customers who don’t share them?
Perhaps all producers, from Walmart to your oil delivery company, should be nationalized to make sure that they promote the government’s official opinions only? Would racial discrimination in the Old South have been more or less widespread if all private companies had been obliged, like the railroads, to follow local majority opinion? (Besides “Jim Crow: More Racist than the Railroads,” see my post “Markets Against the Mob’s Purpose.”) Asking these questions helps see why the separation of political power and market exchange favors prosperity and prevents tyranny.
READER COMMENTS
Dylan
Jun 6 2022 at 3:35pm
Question for you. Are ESG employees at large companies paid on their marginal product? If so, how is that measured?
Pierre Lemieux
Jun 6 2022 at 7:22pm
Dylan: Microeconomic theory shows that, in perfect competition, every employee is paid the value of his marginal product. The reason, to summarize, is that each category of employees has a market wage; and the employer, if he wants to maximize his profits, will employ these workers and continue employing them until (by the law of diminishing productivity) one more would bring less in revenues (productivity) than he costs in wages. If he doesn’t, another greedy employer will. “Wage” here means actual wages, salaries, and benefits. The employer is indifferent as to whether wages are paid in money or in (equal after-tax) benefits. If all his employees prefer part of their wages in feel-good fashionable statements, the ESG employer will make the statements, which cost him nothing, that is, as long as he does not lose more by turning customers away than he gains by paying his employees in feel-good declarations. Professions of faith by businesses would only be costless if they corresponded to what all their customers think. If this is not the case and professions of faith multiply, we have an interesting problem in the economics of culture or mob’s beliefs. (Marginal productivity is not directly observable except indeed in market wages. Alternatively, an econometrician might want to estimate the demand curve for labor.)
Mark Brady
Jun 6 2022 at 5:28pm
Two thoughts.
1. Given that large (and small) corporations feel obliged to take a stance on a number of issues of public interest that might seem to be outside of their legitimate concerns, it is not surprising that abortion rights (and other) campaigners behave in this way.
2. Pierre writes, “To be pessimistic, only catastrophic events such as a deep recession, a nuclear war, or a sudden nine-foot rise in the oceans’ level could stop the movement.”
Why should that stop the movement? 🙂
Pierre Lemieux
Jun 6 2022 at 7:57pm
Mark: (1) You are right, and hat is the problem. Imagine a dystopia where the producer is sovereign. (They tried that in the Soviet Union.)
(2) I suspect you know the answer to your iconoclastic question, but let me propose my formulation. If everybody became poor, hungry producers would certainly stop taunting and insulting their customers who have different opinions than the majoritarian or activist orthodoxy.
Jose Pablo
Jun 8 2022 at 7:36pm
I think Pierre that your point (2) is extremely relevant.
I have noticed that some corporate leaders do have, in private, very different opinions on topics like climate change risks, equity or inclusiveness, of what they say in public. The reason, obviously, is that if they speak their minds they woud be fired.
So, this course of events is forcing them to lead their organizations “as if” they believe in what they don’t believe. That could not be good for efficiency or for having the best intuitions of the best people driving businesses practices (which is the whole purpose of having the best business oriented minds leading companies)
The recent example of Stuart Kirk or of Tesla being removed from the S&P 500 ESG Index would point in that direction.
The resemblance to the behavior of James Taggart in Atlas Shrugged is very scaring!! … are we in the proccess of making impossible for the Dagny Taggarts of the world to lead US (and even more European) Corporations?
MarkW
Jun 7 2022 at 9:43am
I can’t resist posting a like to this classic Seinfeld scene.
Thomas Lee Hutcheson
Jun 8 2022 at 10:31am
Depends on the issue. I’d very much like corporations in which I indirectly have money invested (as well as the others) take cost account of the harm done by the net CO2 emissions that their activities entail and made cost effective adjustments in their activities accordingly, even if this reduced my returns a bit. Of course I’d rather that there were just an explicit tax on net emissions and corporations could just maximize profits — much more their comparative advantage — but in the meantime, “Little drops of water, little grains of sand …”
Jose Pablo
Jun 8 2022 at 5:37pm
Some previous, maybe relevant, questions:
a) Whose opinion is a “Corporation’s opinion”? The CEO’s? The majority of the Board’s? The Head of Investor’s Relations’?
b) Why/how is that opinion interesting or relevant on this debate? Why/how the individual singled out in the answer to question a) is suddenly an expert in such a very complex matter? Just because he/she/they know a lot about P&Ls, supply chains and/or negotiating contracts? How can his/her/their knowledge help to find the right answer to this debate?
c) Should the President take a look at the CEO’s (or at the Heads of Investor’s Relations) pool of talent to choose the next nominee to the SCOTUS? or should Lowe’s CEO became the new head of University of Boulder Colorado’s Department of Philosophy ?
I am confused.
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