For weeks now, Disney has been embroiled in a culture-war battle over a Florida law forbidding teachers from discussing sexual orientation and gender identity with primary school students. Disney World, based in Orlando, has vocally opposed this law and vowed to fight it due to its supposed anti-LGBTQ implications.
However, this law is immaterial for Disney’s financial performance. Disney’s shareholders are the real losers of this controversy. Since this bill passed Florida’s legislature, Disney’s stock is down about 10 percent as investors worry that the company will face political and consumer backlash for its woke stance. Florida Gov. Ron DeSantis has already threatened Disney World’s special self-governance exemptions in the state due to its criticisms.
The broader lesson here for corporate America: Stay out of culture wars. Hundreds of major American companies have taken a stand on public policy issues in recent years. For instance, Coca-Cola, Delta Airlines, Starbucks, Netflix, and General Motors, have opposed state laws over the past year to enhance ballot integrity. These positions threaten to alienate customers and harm shareholder value. Companies can’t just dip their toe into these issues. Once they’ve waded in, activists will expect them to take a stance on every forthcoming topic. The only solution is to stay out altogether unless the policy proposal directly affects their bottom lines.
When I was McDonald’s USA CEO, we achieved remarkable growth and substantially rewarded our shareholders by focusing solely on delivering a great product at a great price. Our philosophy was direct: We wanted everyone to be a customer for life. We neither had the time, nor the inclination to discuss social issues that we knew would alienate roughly half of our customers and threaten this strong performance.
By focusing solely on performance, we routinely hired and promoted women and minorities of all backgrounds. We empowered franchise spouses because it made good business sense, not for political reasons. Countless minorities and women became millionaires due to our merit-based approach. I’m retired now, but I’m actively working to convince companies to focus on company performance and ignore heated political debates as part of a project I’m heading up called the Boardroom Initiative.
Our coalition has submitted a shareholder proposal to Bank of America that will be voted on at its annual board meeting next week. It asks the company to commission a civil rights audit of its diversity policies, so shareholders can see if it is incorporating woke hiring and employee training methods that could threaten financial performance. Divisive training methods, such as those based on Critical Race Theory, discriminate based on race in the name of “anti-racism.” They sow employee discord and increase financial risk, about which shareholders deserve to know. Many other American companies, including American Express, Verizon, Pfizer, and CVS, already incorporate discriminatory employee training programs.
Another example of woke capitalism is Environmental, Social, and Governance (ESG) investing, in which massive investment funds like BlackRock use their power to force companies to pursue politically-correct goals that can conflict with shareholder interests. ESG index funds, aggressively marketed to savers and retirees, invest in a basket of companies that prioritize ESG over profit. No wonder ESG funds have badly underperformed the broader market lately, hurting ordinary investors and pensioners.
Consider CalPERS, one of the world’s largest pension funds, which manages roughly $500 billion in pensions for California public employees. It has committed to ESG investing and promised its fund will be carbon-neutral by 2050. This woke focus threatens the retirement security for millions of Americans who are already facing a cost of living crunch due to historic inflation and pain at the pump. ESG also violates investment managers’ fiduciary responsibility to maximize retirees’ returns. Under federal law, former U.S. Labor Secretary Eugene Scalia explains, “one ‘social’ goal trumps all others—retirement security for American workers.”
Nobel-prize-winning economist Milton Friedman argued, “The social responsibility of business is to increase its profit.” Shareholders can then use these profits to pursue the social goals they choose. Yet when companies or investment funds put their woke agenda ahead of profits, they rob shareholders of this opportunity. Corporations have no right to make these decisions for them. Woke corporate actions can also prevent value-creation that can be reinvested in businesses to create long-term value for all “stakeholders,” including customers, employees, suppliers, and communities.
It’s time for corporate America to rediscover Friedman’s logic and stay out of the culture wars. “The way to get started,” to borrow a phrase from Walt Disney, “is to quit talking and begin doing.”
Ed Rensi is executive advisor of the Boardroom Initiative, a project of Job Creators Network Foundation.