Three Hypotheses About Republican Senior Executives And The Worrisome Problem Of Wokeness

Sustainability Three Hypotheses About Republican Senior Executives And The Worrisome Problem Of Wokeness Robert G. Eccles Contributor Opinions expressed by Forbes Contributors are their own. Tenured Harvard Business School professor, now at Oxford University.

New! Follow this author to stay notified about their latest stories. Got it! Aug 19, 2022, 05:55am EDT | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin Hypothesis 1: Republican senior executives have gone Woke. Hypothesis 2: Republican senior executives are pretending to be Woke.

Hypothesis 3: Republican senior executives are not Woke. Each will be examined very carefully but first some context to help us with the analysis. “ESG” has become a prime target in today’s political cultural war.

Noted ESG expert Glenn Beck has blamed ESG for the high price of gasoline (which has been falling ). A glowing article of Mr. Beck’s trenchant view in “DesertNews” helpfully explains that “ESG…represents the expansion of a company’s goals from making money and increasing its value to shareholders to accomplishing social goals that benefit ‘ stakeholders ,’ such as being climate friendly and having sustainable practices.

” His fellow ESG pundit Tucker Carlson has astutely observed that ESG is the cause for the collapse of Sri Lanka’s economy . “Now, ESG has no real definition, but in effect it requires companies and countries to shut down their most productive sectors in the name of climate change and equity. ” There is clearly no theoretical limit to the damage ESG can do.

Who knows? One day Mr. Beck could be telling us that ESG is the cause of climate change and Mr. Carlson may be saying that’s why we have an increasingly diversified workforce in America.

Wokeness is also getting more attention in the cultural war and being linked to ESG in various ways. The most articulate person warning of the woes Wokeness is bringing to America is the very prolific and media-ever-present Mr. Vivek Ramaswamy.

Chapter 5 (“The ESG Bubble”) of his best-selling book “Woke, Inc. : Inside Corporate America’s Social Justice Scam” deftly ties together two movements that are seen as threatening to every man, woman, and child in America. Orlando, Florida, August 18, 2017: Hogwart in the wizarding world of Harry Potter, Island of .

. . [+] adventure, Universal studios getty MORE FOR YOU Is Carbon Capture Another Fossil Fuel Industry Con? Sustainable Fashion Wants Brands To Redefine Business Growth Trouble With Predicting Future Of Transportation Is That Today Gets In The Way Although Mr.

Ramaswamy and his devoted followers like to rail against “the elite,” I must give at least some credit to his Harvard College and Yale Law School degrees for producing such a wonderfully written manuscript. It is a captivating and fantastical story worthy of J. K.

Rowling. This highly readable 300+ page-turner is full of imagination. In fact, it’s mostly imagination because there is virtually no empirical data to support his argument.

Rather, he makes a selective use of a small number of examples, with big tech companies (e. g. , Amazon, Facebook, Google, and Microsoft) being a prime target of his wrath, and then expansively makes sweeping generalizations that take your breath away! Teaser alert: While climate change gets very little attention, double Ivy Mr.

Ramaswamy is particularly exorcised about diversity, equity, and inclusion (DE&I) when it comes to gender and race. But what is his argument? It is nicely summarized in the Introduction, “The Woke-Industrial Complex,” where he concisely explains how Wokeness works: “pretend like you care about something other than profit and power, precisely to gain more of each. ” Mr.

Ramaswamy darkly warns that there is a conspiracy of business and government maliciously working together to take advantage of the better selves of consumers like you and me. Big asset managers like BlackRock (the author is particularly exorcised by this firm and its Chairman and CEO Larry Fink) and State Street are also complicit in this, perhaps abetting or perhaps forcing Wokeness onto the corporate community. (This part wasn’t clear to me.

) It is a conspiracy theory worthy of the master of conspiracy theories, Mr. Alex Jones. In Mr.

Ramaswamy’s telling, it gets worse. Wokeness is actually a threat to religious faiths of all kinds. To understand this, must reading is Chapter 10, “Wokeness Is Like a Religion” and Chapter 11, “Actually, Wokeness is Literally a Religion.

” As an MIT pure math grad my writing is rather pedestrian compared to Mr. Ramaswamy’s. But I am old (literally) school when it comes to having data to support an argument.

So while no doubt tedious to those who are gleefully exulting over the current attacks on ESG and Wokeness, let me introduce some empirical analysis to help us evaluate the three hypotheses. I hope this will also be helpful to Mr. Ramaswamy and his colleagues who are attempting to eliminate Wokeness from the American business community.

For this I turn to a recent Working Paper, “ The Political Polarization of Corporate America ” by Professors Vyacheslav Fos of Boston College, Elisabeth Kempf of Harvard Business School, and Margarita Tsoutsoura of Washington University in St. Louis. (You can get a quick summary of the paper in a recent interview Professor Kempf did with The Harvard Gazette.

) In the Introduction to their paper they cite a voluminous academic literature that shows a “a large increase in polarization across political parties in the U. S. ,” that “Party identification is now a more significant predictor of Americans’ fundamental political values than any other social or demographic divide,” and that “Partisan animosity has increased substantially over the last 20 years.

” This increasing partisan animosity is unfortunate, and especially unfortunate when talented people like Mr. Ramaswamy are contributing to it. But that is not relevant to assessing the merits of each hypothesis.

The paper is an apolitical and sophisticated empirical study that involves massive and careful gathering of data from multiple sources about the top highest-paid executives in the S&P 1500, regression analysis, computing abnormal returns of “misaligned departures” according to a four-factor model, and Monte Carlo Simulations. It is real research. Here are the key findings of the paper relevant to the three hypotheses: · The average share of Republican executives is 69.

0 percent, and it is 31. 0 percent for Democratic ones; this has been relatively constant for the past 12 years · For Republicans this percentage has been a low of 63 percent in 2008, peaked at 75 percent in 2016, and was 68 percent in 2020 Percentage of Democrat and Republican Senior Executives Vyacheslav Fox, Elisabeth Kempf, and Margarita Tsoutsoura · The average share of Republican, Democratic, and Unaffiliated executives has been fairly constant over the past 12 years Percentage of Democratic, Republican, Unaffiliated, and Other Senior Executives Vyacheslav Fox, Elisabeth Kempf, and Margarita Tsoutsoura · Executive teams have become increasingly polarized (i. e.

, more likely to be mostly Republican or mostly Democratic) and more so than the general population · 88. 9 percent of executives are white, and 10. 4 percent are women · Executive teams are not becoming more homogeneous in terms of race and are becoming less homogenous in terms of gender · Woman and minority executives are more likely to be Democrats, so controlling for diversity means even greater political polarization · Departures for misaligned executives (those not sharing the same political affiliation as their colleagues) trigger substantially more losses for shareholders than for aligned ones, around $238 million for the misaligned ones · Departures of misaligned executives are more likely to be involuntary · Registered Democrats make a relatively larger contribution to the Republican party than vice versa.

Political Contributions by Registered Democrats Vyacheslav Fox, Elisabeth Kempf, and Margarita Tsoutsoura Political Contributions by Registered Republicans Vyacheslav Fox, Elisabeth Kempf, and Margarita Tsoutsoura In their conclusion the authors point out that their results “raise the question of whether policymakers should be concerned about political discrimination in the workplace—even in the absence of any consequences for firm value. ” This is an interesting and important question since “Traditionally, discussions about discrimination in the workplace have focused on gender, race, sexual orientation, and age. ” Rather, “By contrast, the U.

S. federal law and many state laws do not prohibit private employers from discriminating against employees on the basis of political beliefs. ” Note to Mr.

Ramaswamy: Please think about the implications of this given your concerns about DE&I and the crowd you’re hanging out with. So how does this study help us to evaluate the three hypotheses? As I will show, it confirms how most people would evaluate the veracity of each hypothesis. But the paper also raises some troubling questions for those crying , “Out, damned Woke! out, I say!—One: two: why, then, ’tis time to do’t.

—Hell is murky!” circa 1900: English actress Ellen Terry (1847 – 1928) as Lady Macbeth. (Photo by Hulton . .

. [+] Archive/Getty Images) Getty Images Hypothesis 1: Republican senior executives have gone Woke. There is some support for this hypothesis given that Republican executives outnumber their Democratic counterparts by a factor of over two to one.

This has been true for at least 12 years, and it is during this period of time that the presumed phenomenon of Wokeness has emerged. It has happened on a Republican Watch in Corporate America. However, those trained in statistical analysis and who care about the integrity of interpreting such results would point out that correlation is not causation.

Given the conviction with which values are held in both parties, I think it is highly unlikely that Republican senior executives have gone Woke en masse. Even more, to claim they have without more data would be irresponsible—at least for those who care about data and facts. It would also be a disservice to Republican values.

Like earning profits in a responsible way. A value I share. This leaves us struggling to understand how Wokeness has taken over.

Or maybe it hasn’t but saying it has sure makes for good copy? But if I’m wrong about this hypothesis and Republicans are indeed the primal cause for Wokeness, the good news for Mr. Ramaswamy is that he’s moving in exactly the circles where this problem can be addressed. He just needs to point out he thinks it’s their fault.

Hypothesis 2: Republican senior executives are pretending to be Woke. Supporting this hypothesis is a bit of a stretch but in the interest of giving fair consideration to each one, let me try. Fos, Kempf, and Tsoutsoura clearly point out that polarization in the executive suite, and its increasing extent, applies to both parties.

So let’s assume that these big tech firms with so much market cap are polarized on the Democratic side. I don’t have data to support this speculation, but this could be verified one way or the other. The argument would be that a small number of high tech and other especially Woke firms, like the big banks and a few large asset managers (also presumably under Democratic control in the executive suite), have so intimidated the much larger number of Republican-controlled companies that they have cowed them into talking Woke, while trying hard not to be walking it.

Generalizing from the Republican friends I have (yes, I do have a few), I think they are made of sterner stuff than that so this argument seems pretty thin to me. But let’s continue to give this hypothesis a fair chance. A recent G&A Institute study provides some, also admittedly flimsy, support for it.

Their report shows the percentage of S&P 500 companies publishing a sustainability report has increased from 90 percent 2019 to 92 percent in 2020. There’s not much more room for sustainability reporting to go in these large companies. And since they’re big, they can afford a little pretend Woke by publishing these reports.

What about the smaller companies with less resources for Woke Washing? Here the percentages are lower but show the same trend. In the Russell 1000, 70 percent published a sustainability report in 2020 compared to 65 percent in 2019. The concomitant numbers for the bottom half of this group by market cap are 49 percent and 39 percent.

The other way to interpret these data are that even Republicans think there is merit in paying attention to material risk factors regarding environmental, social, and governance factors (not gonna use the acronym!) that affect enterprise valuation. This sounds like a Republican value to me. Another one I share.

We also have relevant data from the academic study to address this hypothesis. If Republicans were pretending to be Woke, wouldn’t they be giving a substantial chunk of cash to Democrats in order to make them look at least a little Wokey? But, in fact (and here’s those damn facts again), Republicans actually give a smaller percentage to the other party than vice versa. If anything, Democratic executives are hoping to establish some non-Woke credentials.

Hypothesis 3: Republican senior executives are not Woke. Yes, the obvious answer is the correct one. Thus, Mr.

Ramaswamy can continue to be comfortable in the circles he’s moving in. But the real issue is that Woke, Inc. is not a reality.

It is a State of Mind. In Mr. Ramaswamy’s, for sure, and I have to admire his adroitness in implanting this fantasy into the minds of many others.

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. [+] idea. getty As do the professors, let me conclude with a reflection on diversity.

Mr. Ramaswamy emphasizes the importance of diversity of thought, skills, and experience. I am in complete agreement with him on this point.

As I have pointed out before, that is exactly what Engine No. 1 did for ExxonMobil in placing, for the first time, three directors on its board with substantial experience in the energy industry. At the same time, he argues that categories such as gender and race are being used as crude proxies and are part of a Woke social agenda.

Mr. Ramaswamy should be comforted by the low number of women and minority senior executives, along with the fact that racial homogeneity is at least hangin’ in there. He suggests three principles “for achieving true diversity of thought in any organization: (1) Define what types of diversity of thought are important to an organization, (2) Measure diversity throughout an organization, and (3) Select for diversity of thought when hiring leaders to scale an organization.

” These all seem very sensible to me as well. It also looks to me that we could use more diversity in the executive suite in both camps when it comes to political views. It would be naïve beyond belief to argue that political views don’t shape company strategy, capital allocation decisions, and culture.

The market is speaking when it punishes companies that lose a politically diverse board member. The big bad wolf is trying to open the door of granny’s home. Digital illustration of Little Red .

. . [+] Riding Hood tale.

getty Finally, wouldn’t it be more constructive to be having a thoughtful discussion about developing Mr. Ramaswamy’s good suggestions for how to achieve true diversity rather than running around hollering that “The Woke are at your door!”? Follow me on Twitter or LinkedIn . Check out my website .

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