by Mitch Kokai
Senior Political Analyst, John Locke Foundation
There was a time — not so long ago — when it was widely accepted that the primary purpose of a corporation was to generate return for its shareholders. In recent years, however, there has been a wide-ranging effort to promote the idea that U.S. corporations should become environmental activists and social workers as well. Whatever you may think about such standards of capitalist conduct — whether they’re “responsible,” “stakeholder,” or “environmental, social, and governance” (ESG)-based — they have at least been voluntary. Something, in theory, that companies decided for themselves. Now the question is becoming whether such standards should continue as voluntary or become a matter of government mandate. Anyone concerned about ethics should seriously prefer the former, ensuring that people’s decisions are determined by individual conscience. Recent developments at the Securities and Exchange Commission (SEC), however, could undermine that goal.
While current SEC chair Gary Gensler awaited Senate confirmation, then–acting chair and current commissioner Allison Herren Lee announced a series of high-profile initiatives to substantially change the agency’s policy on nonfinancial corporate behavior. At Lee’s direction, the SEC staff is currently evaluating the agency’s climate-disclosure rules, for example, and the public has until June 11 to file on that effort.
But such new plans are not just related to climate. In a March speech, Lee claimed that “the perceived barrier between social value and market value is breaking down.” That statement signals a dramatic shift away from the SEC’s traditional focus. Lee’s analysis suggests that many “social” issues now fall under the SEC’s mandate. To take a more cynical view, such issues merely amount to those that are in line with the administration’s attitudes and/or make headlines and thus could be something about which corporations are, in this new era, expected to take a stand.