It’s also emerged on Wall Street and in corporate America’s executive suites. In his new book The Dictatorship of Woke Capital, Political Forum vice-president Stephen Soukup argues that “wokism” is poised to transform big business and even the ruthless bottom-line-oriented world of capital markets into a machine to promote progressive policy goals.

How this transformation happened and what it might mean for the future of American society and the economy are the central themes of Soukup’s short and useful, albeit incomplete, book. Unfortunately, because the rise of woke capital is rooted in social trends that have evolved over decades, trying to figure out how to reverse those trends is far more difficult than simply pointing them out. Indeed, if anything, the author underestimates the dangers associated with the rise of woke capital in society and its propensity to deepen social division and conflict.

Rise of woke capital / The first half of The Dictatorship of Woke Capital explains the intellectual and institutional background behind the woke capital movement. Soukup sees the rise of woke capital as the confluence of two different strands of history that have intertwined: the development of the woke ideology on one hand and the rise of an increasingly powerful and insulated American elite financial class on the other. He argues these elites are increasingly wielding other people’s money to circumvent the democratic process and impose their parochial vision of the good society on the rest of us.

Soukup provides an accessible history of the woke ideology, starting with the roots of the movement in Marxism and its evolution through the Frankfurt School of political theory into the modern ideas of critical studies, in which the class ideas of classical Marxism give way to modern forms of identity beyond class. He identifies German-American political theorist Herbert Marcuse (1898–1979) as a particularly influential figure in bringing about this intellectual transition to the modern age. When harnessed to the revisionist Marxist thought of Italian philosopher and politician Antonio Gramsci (1891–1937), critical studies focused on the value of capturing the elite institutions of society that play a pivotal role in shaping the intellectual superstructure of society. Gramsci’s strategy of producing social change by coopting the ruling institutions of society contrasted with traditional Marxism, which preached the importance of popular revolution to overturn the dominant ruling elite.

Aiding this was the growing skepticism of democratic government displayed by Woodrow Wilson and other admirers of the German administrative state. Wilson and other progressives sought to displace the unlearned amateurism of democracy with rule by trained and enlightened elites in government, business, and academia. From the beginning, Soukup argues, Wilson and his contemporaries foresaw a cooperative relationship between governmental and big business elites to reinforce each other’s activities. He points to the unusual structure of the Federal Reserve, which intertwines private bankers and government officials in a form of public–private elite decision making, as an early prototype of the progressive model of elite governance.

Beginning in the late 1960s and into the 1970s, these two streams of thought — woke ideology and elite governance — converged. Although manifested in multiple ways, most relevant for the current discussion is the idea of corporate “stakeholders,” a diffuse set of constituencies with whom the corporation has some relationship and supposedly owes some ill-defined duties. At least initially, the development of this stakeholder theory — that the corporation might take into account the interests of a local community or employees as part of ensuring the long-term success and viability of the company — was unobjectionable. As Soukup notes, even Milton Friedman acknowledged some room for corporate judgment to look beyond short-term profitability for long-term returns. But Friedman also noted that every dollar that a corporation spends to advance a purpose other than the long-tem profitability of the company is a dollar taken from the pockets of shareholders and given to someone else. And instead of spending that money on employees, customers, or some other beneficiary, the corporation could return that money to the shareholders and let them spend it on their preferred beneficiaries.

But Soukup suggests that while Friedman nevertheless recognized the propriety of spending some corporate money to promote “stakeholder” interests, by implication the spending should relate to some long-term enlightened interest of the company and its shareholders. It is hard to see how this would extend to becoming involved in inflammatory social issues such as transgender bathroom access or voting law changes in some distant state. (See “The Problem with Politicizing Corporations,” Summer 2021.)

As control over a greater and greater amount of financial wealth has been concentrated in the hands of a small group of financial firms, this has provided them with extraordinary leverage over corporations, society, and the political process. At the same time, there is growing support for the idea that these financial titans, along with corporate executives, should use ordinary people’s money to pursue political and social agendas. Financial elites rotate seamlessly between government and Wall Street — most notable, during Donald Trump’s administration, both the chairman of the Federal Reserve and the treasury secretary were former investment bankers. Nor was Trump’s administration unique in having ties to the world of finance. In fact, according to campaign finance records, Wall Street employees donated about four times more money to Joe Biden’s 2020 presidential campaign than to Trump’s. Soukup argues that the combination of these trends of growing elite dominance of government and increasing woke pressures has, in essence, given rise to a sort of unaccountable “super-government” run by a small handful of elites where vast amounts of money are directed toward the particular agendas and priorities favored by those individuals, with minimal input from most everyone else in society.

Soukup argues that the combination of growing elite dominance and woke pressures has given rise to unaccountable “super-government.”

What makes this possible? According to Soukup, many of the relevant financial markets that leverage woke capital are controlled by a very small number of firms. This includes asset managers (especially of passive investment firms), proxy adviser services, and large pension funds (especially government pension funds). In turn, the development of well-organized activist groups that push left-wing shareholder proposals on various social issues has provided corporate managers and investment firms with an excuse to pursue these social goals largely removed from the concerns of the particular company. In short, the small number of players at these key junctures of the financial system allows them to implicitly collude with one another and use their leverage to drive social change.

The influence of these private actors is reinforced by the political biases at the Securities and Exchange Commission. Although this book was written before Biden assumed the presidency, it foreshadows the aggressive positions that have been taken by the Federal Reserve and SEC to push for more aggressive environmental, social, and corporate governance (ESG) reporting, especially of so-called climate risks, and to expand the scope of such reporting to include novel concepts such as racial equity and the like. Less known is the ability of SEC staffers to tilt the shareholder proposal process in favor of left-leaning shareholders and to disadvantage conservatives. For example, Soukup notes that under the SEC’s rules, shareholders have the right to submit proposals and have them voted on by the rest of the shareholders. But the company is permitted to exclude certain shareholder proposals if they first request permission from the SEC. As an example, Soukup notes that in 2019 Apple petitioned the SEC to block consideration of two virtually identical proposals related to racial diversity on one hand and intellectual diversity on the other. The SEC allowed the racial diversity proposal to appear on the shareholder ballot and approved the blocking of the intellectual diversity proposal.

Soukup argues that by leveraging corporate treasuries and reputations, corporate CEOs and other wealthy and powerful elites spend shareholders’ — that is, other people’s — money to advance political goals they are unable to persuade the public to adopt through democratic processes. The woke capital industry operates in economically concentrated sectors of the economy where they are insulated from serious competition from rivals. This combination of power and insulation enables them to impose their elite policy preferences on society without ever having to win public approval, even though virtually all of those costs will be borne by others — often the least well-off in society.

Perhaps most relevant with respect to most of these hot-button issues, corporations and their leaders have no particular expertise in understanding the most pressing social problems or the best solutions. Instead, this is a dynamic of wealthy amateurs spending other people’s money to advance their pet projects, instead of arguably more important or well-designed social policies.

Overall, Soukup identifies an asymmetry in the battle over woke capital between right and left. Unfortunately, this more traditional role for corporations — that of simply producing high-value products and services for their consumers, employees, and shareholders — no longer appears to be a sufficiently grandiose vision for corporate leaders.

Consequences / Part II of the book discusses the consequences of woke capital. Here Soukup turns more polemical as he documents wokeism in the modern marketplace and some of the actions taken by corporations in pursuing this agenda. Notably, the book was written before some of the headline-grabbing examples of 2021, such as Coca-Cola’s instructions to employees on how to act “less white” or the swarm of corporations that denounced Georgia’s voting law changes even while those same CEOs admitted that they had not read the law and that it had nothing to do with the operation of their companies.

Soukup describes this shift to the left as the predictable consequence of imbalances in the structure of the marketplace around woke capital. Financial firms push woke policies and corporate CEOs put up minimal resistance when nudged by left-wing activist groups or socially conscious investment firms such as BlackRock to endorse woke positions.

The left-wing orientation is reflected in the selection of issues that these groups tend to highlight and public corporations focus on today, such as climate change, questions about personal sexuality, and, more recently, claims of voter suppression. In many of these instances, such as forcing the adoption of carbon reduction policies that will increase the cost of energy, the policies in question are darlings of powerful elites that impose costs on lower-income Americans.

Although Soukup does not speculate on why conservatives historically have eschewed using corporate pressure to advance their own political goals, one suspects they did not do so because of their belief that this isn’t the proper role of a corporation and shareholders. It remains to be seen whether that restraint will continue. In fact, some conservatives have begun advancing shareholder proposals of their own. Needless to say, extending the culture wars deeper into private employment and economic relations is not likely to reduce political divisiveness in the country.

The future / What is to be done about the dominance of woke capital over the American economic system? Soukup says little about this in the book beyond a call to depoliticize corporations. I have some further ideas.

First, his argument rests on the assumption that a handful of firms dominate discrete and important submarkets in the economy, but he doesn’t explain how these industries became so concentrated and why that continues. For example, he highlights the role played by obscure intermediaries such as the small group of large proxy fund advisers or the small group of firms that dominate the misleadingly named “passive” asset managers (especially BlackRock). Soukup argues that it is the cartel-like structure of these markets that enables these firms to use their clout to pursue their managers’ personal political preferences. He offers no history or background for how these markets came to be so concentrated or why they have not been attacked through antitrust lawsuits or some other steps that would open them to greater competition. It would be useful to know if these concentrated industries arose and are preserved by regulatory privileges that erect barriers to competition.

Extending the culture wars deeper into private employment and economic relations is not likely to reduce political divisiveness in this country.

Because these large firms dominate the markets in which they operate, it is difficult for ordinary investors to avoid them even if they wanted to. Few Americans directly invest in the stock market and pick individual stocks. The overwhelming majority of American investors do so indirectly through their retirement savings, either through defined-benefit pension plans or 401(k) plans. With respect to the former, the employees have no say as to how their employer invests “their” money or who is hired to manage the funds for them. If your employer hires BlackRock to manage the firm’s pension plan, then you are stuck implicitly endorsing BlackRock’s policies and the companies they influence. The 401(k) plans are not much better. Most plans offer only a modest selection of mutual funds and fund providers in which to invest — typically the dominant providers that Soukup identifies. Few 401(k) plans offer the option of investing directly in individual stocks. Thus, even if an individual wanted to avoid supporting woke investment causes, the average investor has little choice but to play ball with BlackRock, Vanguard, or the handful of other mutual fund providers offered by their employer’s plan.

The challenge of large firms imposing politically biased policies runs the gamut across many different thorny issues today. For example, it has been argued that major social media platforms discriminate against conservative organizations and individuals on their platforms and do not apply their stated “Terms and Conditions” in an even-handed manner to all content. If this is indeed true, it is unclear that there is any good regulatory solution to address the problem or any proposed corrections that would make matters better overall. Moreover, as Soukup notes in the book, most of the relevant federal regulatory apparatus is staffed by progressive ideologues, including the SEC. Large and powerful corporations are likely to be effective rent-seekers as well, and increasing government power will also increase the potential for powerful interests to manipulate the regulatory state to their advantage. Even well-intentioned laws and regulations designed to address these problems are unlikely to have their intended effects and may simply exacerbate existing problems or create new ones.

Second, a fundamental ambiguity in Soukup’s argument is whether corporations and their leaders that embrace wokeism are best understood as unwilling victims of the woke capital industry or whether they are using the corporation’s till and prestige to do what they want to do. Soukup discusses case studies of Apple, Disney, and Amazon and their eager embrace of woke policies. In the few months since the book was published, many more corporations have jumped on the woke bandwagon, from major banks to Major League Baseball.

Traditionally, corporations avoided taking sides in controversial political disputes and did so only reluctantly if at all. For example, the symbiotic relationship between corporations on one hand and activist–entrepreneurs such as Al Sharpton and Jesse Jackson or environmental activist groups was understood as a sort of shake-down racket or tollbooth where these individuals and groups could bring public and political pressure to bear on a corporation. Corporations simply had to pay them off with donations to their organizations and the corporations would get their indulgence. This was seen as especially the case in heavily regulated markets such as banking and real estate development, where these organizations could block or delay approval of a merger or commercial development.

Today’s corporate CEOs defend their political posturing and diversion of corporate resources to political ends by citing the Business Judgment Rule, claiming their advocacy is necessary to appease important “stakeholders,” whether employees, media, regulatory authorities, or “younger consumers.” Yet, as Soukup notes and as subsequent studies confirm, serious empirical studies fail to show any tangible benefit to shareholders from corporations’ political activities, and many studies identify a loss.

While a CEO’s political activity is often rationalized as being valuable to the company, that activity is better understood as agency costs by the CEO.

For example, consider a CEO who decides that millennial consumers would think the company was “cool” if he diverted corporate funds to buy himself an extravagant wardrobe, gigantic corporate jet, palatial personal home with a large staff, and lush CEO office space. Or he could decide that going to a strip club and “making it rain” with corporate funds would give the company an “edgy” appeal that would attract millennials or some other group. Such expenditures on personal consumption traditionally have been seen as the exemplar of diversion of corporate funds for private self-aggrandizement that violate the Business Judgment Rule. But is use of corporate resources to promote the CEO’s personal political hobbyhorses — whether through direct financial expenditures or indirectly by lending the corporation’s brand and prestige to controversial social movements — different from building a palatial home?

If there is no evident benefit to the corporation from the virtue signaling behavior of the CEO or company, what might explain the willingness of the CEO to insert the company into divisive culture war issues? An alternative hypothesis is that this political activity does not actually benefit the company but does benefit the CEO personally — a form of agency cost in which the CEO dissipates or misuses the corporation’s assets for his personal benefit. If that is the actual explanation for the CEO’s behavior, then that would not be protected by the Business Judgment Rule.

Analogous research from related areas of economics and finance lends credence to the agency costs explanation for corporate wokeism. Research on corporate political activity by Harvard Law School dean John Coates found that political activity by CEOs correlates negatively with measures of shareholder power (such as concentration and shareholder rights), negatively with shareholder value, and positively with signs of managerial agency costs (such as corporate jet use by CEOs). Thus, while a CEO’s political activity is often rationalized as being valuable to the company, it seems that in fact that activity is better understood as agency costs by the CEO and, indeed, is correlated with higher levels of agency costs.

As University of Virginia law professors Julia and Paul Mahoney have shown, investors whose funds are managed by huge management companies such as BlackRock, Vanguard, and State Street are like ordinary investors in public companies, having little incentive or ability to monitor and control those who manage and vote their shares. (See p. 10.) For example, an employee’s choice of providers for his 401(k) plan might be limited to a small group of providers, leaving him little ability to influence the behavior of fund managers. Leaders of government employee pension plans similarly have little incentive to monitor and even less ability to influence or constrain the politically motivated decision making of those who invest their funds, such as the giant CalPERS pension fund, and often have conflicting interests between maximizing the pension fund’s returns versus using their leverage to accomplish political goals.

The distinct tilt of corporate activism toward elite issues and fads further indicates that woke corporate activism reflects agency costs by CEOs and fund managers. Consider Soukup’s paradigm example of investor and corporate activism around alternative energy and climate change, spearheaded by BlackRock’s Larry Fink. According to World Health Organization estimates, about 1.4 million people globally — about half of whom are children — die every year from indoor smoke inhalation caused by using resources such as wood, crop residue, coal, and animal dung for heat and cooking. Greater access to less expensive and more reliable energy production would save many of those lives. Moreover, demand for energy is well-understood to be inelastic in nature, meaning that the costs of higher energy prices fall proportionally more heavily on lower-income households. And what of the well-known reality that many of the precious metals that are used in the production of renewable energy (such as windmills or batteries) are found in illiberal and corrupt political regimes with horrible human rights records? Or, as Soukup repeatedly stresses, why do woke investors treat companies such as Exxon — which provide inexpensive energy that powers improvements in lives all over the world — like pariahs while they rush to invest in China, which is well-known to have interned, tortured, and abused religious and ethnic minorities and whose environmental policies are appalling? To be sure, public posturing ensures Fink a better seat at Davos every year, but is it really making the world a better place?

Perhaps even more relevant: is there any reason why these individuals think they know better than you or I what are society’s pressing social problems or how to address them? Fink is not a climatologist and airline CEOs are not experts on election law. As Soukup repeatedly points out, these are fabulously wealthy individuals, yet in many instances they give just a trivial percentage of their personal wealth to charitable activities. So why does a corporate CEO or asset manager feel entitled to direct corporate money — your money — to fund vanity projects rather than giving that money back to you? Perhaps you agree that the most valuable use of your money is to try to reduce carbon emissions by miniscule levels even if that means poor Americans pay more for energy. But perhaps you are more concerned about fighting hunger, disease, or domestic abuse. Or maybe you just prefer to save more money for your child’s college education so she doesn’t have to take on as much student loan debt.

One avenue for restraining CEOs from misusing corporate resources to promote themselves and their pet political agendas might be derivative suits by shareholders for misuse of corporate resources. The National Center for Public Policy Research (NCPPR), for example, has threatened a shareholder activism lawsuit against Coca-Cola in response to its announcement that it will require all law firms that work with the company to promise that 30% of their billed hours be accumulated by minorities, LGBTQ persons, women, and people with disabilities, with an additional quota of half of that time going to black lawyers specifically. According to the NCPPR, the stated policy exposes the company to a substantial risk of liability for violating the Civil Rights Act, Americans with Disabilities Act, and various state laws. It is likely that even if that situation does not become a lawsuit, future lawsuits on similar grounds are inevitable.

The diversion of corporate resources to promote CEOs’ personal agendas is seen as a virtue — so long as the CEOs support the “right” political ideas.

These pressures for corporations to promote woke causes seem destined to accelerate in coming years, as the Biden administration has already announced that it will be imposing new ESG disclosure requirements on public companies. Notably, these disclosures advance left-wing causes such as environmentalism and race, sex, and sexuality “diversity” initiatives, not issues such as the rule of law, economic development, or affordable energy policy. NASDAQ has announced requirements for diversity quotas for companies listed on its exchange. The Biden administration also has announced that it will withdraw the “Fair Access” rule that had been finalized by the Office of the Comptroller of the Currency, which would prohibit banks from “de-banking” individuals who advocate certain political views or industries that operate in non-woke industries such as firearms, payday loans, or others. One anticipates that these initiatives are only the tip of the iceberg and there are more to come.

The modern age of corporate governance was launched by the 1932 publication of Adolf Berle and Gardiner Means’s The Modern Corporation and Private Property, which railed against corporate officers for acting for their own benefit instead of shareholders. This was seen as a progressive concern. Today’s progressives ironically have turned Berle and Means on their heads: the diversion of corporate resources to promote CEOs’ personal agendas is seen as a virtue — so long as the CEOs support the “right” political ideas.

Conclusion / In his concluding chapter, Soukup calls for depoliticizing business and markets and returning to less-politicized corporate governance. Realistically, it is hard to see how this will happen nor does he provide a clear path forward. The new alliance of business, political, and intellectual elites around a common set of social values appears to have entrenched the current regime, seemingly leaving reform in the realm of wishful thinking.

Soukup’s concerns about the threats to the American economy and democratic governance are far from exaggerated. In my opinion, these issues are becoming an existential threat to the American system of democratic capitalism. Democracy and capitalism can be mutually reinforcing in terms of supporting a free society, but their combination can also be destructive to individual freedom. The flourishing of democratic capitalism depends on keeping the two separate systems distinct: on one hand, individuals must feel free to participate in the process of democratic governance without worrying that doing so will ruin their business or career; on the other, individual shareholders and employees should be able to go about their economic lives without being forced to bow to political pressures.

Friedman once observed that part of the genius of capitalism is that you do not care about the race, sex, or religion of the farmer who grows your grain or the autoworker who screws the bolt into your car chassis, just whether it is done at high quality for a fair cost. Today, however, every aspect of economic activity is becoming politicized and political activists wield growing economic power to further political ends. Employees increasingly are forced to undergo compulsory racial sensitivity training or endorse views of sexuality or speech that may offend their religious principles under threat of losing their jobs. In an incident that previewed what has come since, in 2014 Brendan Eich was driven from his job as CEO of Mozilla because he was discovered to have financially supported California’s 2008 ballot initiative to restore the state’s traditional definition of marriage as being between one man and one woman. Forcing him out because he donated money to support a cause endorsed by a majority of California residents is not a stable equilibrium. If Eich acting as a private citizen could not donate money consistent with his religious and political principles, it follows that he could not speak in favor of the initiative or vote for it. Indeed, he apparently was expected to publicly oppose the initiative and donate money to stop it. As CEOs increasingly voluntarily thrust themselves and their firms into divisive public disputes, the line between the two halves of democratic capitalism will become increasingly dim.

There is also no limiting principle that suggests that this compulsion should be limited to corporate CEOs. In light of the pressures that have increasingly been brought on CEOs to support or oppose particular political causes, the requirement that ordinary employees be required to publicly endorse and support political causes is far from a far-fetched scenario. To be sure, these are private companies and private employment policies. But anti-communist blacklists were also the result of private employment policies, just as a person’s decision to boycott stores owned by Jews, blacks, or Muslims is protected under law. But that it’s your right to do so doesn’t make it good for society. Further entangling people’s right to make a living with compliance with certain political dictates is unlikely to be beneficial to the maintenance of a free society over time.

Most Americans are largely unaware of these woke capital developments. And, as noted, even if they are, there is little they can do about it: they invest through their company retirement plans and have little or no ability to avoid these dominant market players. On the other hand, conservatives are beginning to make shareholder ballot proposals of their own.

Does anybody really think that further extending the ideological wars into the workplace and private markets is going to make our economy — or democracy — stronger? Is this the country we really want to “awaken” to?