Shareholder Sabotage

How anti-capitalists are hitting the soft targets

Milton Friedman once said: “The business of business is business.” The capitalist system is built on ensuring a safe, rational and reliable capital market (protected from corruption and irrational outside influences) so that business could thrive. When people invest (when they put their money to work) in markets, companies and ventures, they need to trust the markets are secure. When entrepreneurs develop new innovative technologies, they want certainty that regulators will respect facts and evidence in determining laws that could affect development.

Disruptions and irregularities undermine this trust. Governments with poor reputations on financial management and corruption controls (kleptocracies) rarely develop or utilize capital to develop and grow. Capital flows to safe havens. Regulators who pass laws based on special interests that neglect the best available evidence see an exodus of entrepreneurs, researchers and innovators to other (more stable) regulatory environments. This is perhaps best exemplified with the number of European biotech researchers who moved to the US in the 1990s and again in the late 2010s when EU regulations on GMOs and gene editing irrationally restricted any potential market for their innovative technologies.

Left-wing, anti-corporate activists attacking the capitalist system have turned to those investing capital – the shareholders – to try to sabotage the system from the bottom up. Creating shareholder uncertainty, destabilizing markets, promoting unfriendly market conditions, normalizing a degrowth mentality are all tacit attempts to dismantle the capitalist system. Entrepreneurs are increasingly frustrated with a regulatory mindset hiding behind the precautionary principle on issues where activists are applying more emotive policy pressure without evidence of risks.

These are examples of shareholder sabotage – an important part of the anti-capitalist, degrowth strategy that aims to undermine Western development, wealth accumulation and innovative technologies. Attempts to snuff out an essential part of this human spirit won’t make it disappear. Wealth, research and innovation will just migrate to more open markets … most likely to Asia. These activists, as part of the affluent elite minority, see their interventions as part of a higher calling and are totally fine with this.

Government Meddling in Financial Markets

During her first economic policy speech, US Democratic presidential candidate, Kamala Harris, revealed that she would take action against price-gouging companies. In an inflationary environment, defining “price-gouging” is rather difficult and could interfere with market evolutions and adaptations. Price controls would be an even greater distortion. Who will invest when markets can’t reward risk-taking? Harris named Tim Walz as her vice presidential running mate, a man who has never made a stock market investment … so we can imagine little sympathy from him for the entrepreneurs and risk takers.

Does Tim Walz understand investors?

The UK government’s aggressive taxation of windfall profits during the COVID-19 pandemic and oil-price shocks, could be seen as threatening shareholder distributions and disrupting market processes. While there are many factors, such moves (under a conservative British government) perhaps influenced a wave of company decisions to IPO or list outside of the London exchanges. Capital is fluid and follows markets where regulatory stability is strongest.

We have come a long way from Ronald Reagan’s and Margaret Thatcher’s attempts to promote an investor culture among their middle classes.

Moral Meddling in Corporate Decisions

“The business of business is business” implies that it is not a responsibility of corporate leaders to lead on social and moral debates. But for the last three decades, many companies have prioritized sustainability, social justice and climate measures over strong business management. In deference to activist campaigns, two leading fund managers (BlackRock’s Larry Fink and Goldman Sach’s David Soloman), with their ESG strategies, tried to promote an new investment philosophy: The business of business is social justice. Moral meddlers just assumed shareholders would be willing to take a hit on their investments.

But such noble moral causes hit a wall of shareholder and consumer resistance. Concepts like CSR, ESG and DEI are fast becoming taboo terms with many companies and investment funds recently walking back from their social justice commitments. It is not that these companies are becoming irresponsible or unethical (most have their own programs and regulations are well established to protect vulnerable populations and the environment). Rather, the moral demands of activist communities have been arbitrarily imposed and counter-productive.

For example, ESG standards ranked both coal and natural gas negatively (as fossil fuels) meaning banks seeking ESG rankings could not fund projects in developing countries that relied on natural gas. There is no science involved here. Likewise, should organic food and renewable energy be considered better for the environment from a moral perspective? The scientific data does not support their claims, but the moral meddling by activists have imposed these yolks on the shoulders of industry.

Tighter economic issues, higher inflation and better information have made it acceptable for companies to find the courage to stand up to the hard left and prioritize business-friendly decisions over ideological dreams.

The best example is how American automakers recently pulled back on their commitments to electric vehicle production. The demands or incentives from regulators, the ESG points and the moral pronouncements of these virtue vehicles could not compensate for the fact that consumers largely did not want to buy EVs, did not see the environmental urgency and, with horrible re-sale values for EVs, were not drinking the Kool-Aid. Ultimately, important decisions like buying a car come down to simple economics, and the activist moral pronouncements could not seal the deal.

Post-capitalist, degrowth socialism is a nice luxury ideology to banter about when times are good and wealth can be torched. But if there are economic needs, capitalism has proven to be the best tool to deliver the necessary growth. Most of the developing world understands this.

Detonating Capitalism to Save the World

The climate conundrum has been a deceptive tool used and abused by the far left to try to (urgently) dismantle capitalism in order to save the planet. Naomi Klein wrote a book that basically argued you cannot fight climate change and at the same time support capitalism. Given that it is a moral imperative to protect the planet from climate change, then we must immediately abandon the capitalist system. Some gentle souls in the World Economic Forum nodded and assumed this moral posture (developing a degrowth strategy that would certainly further impoverish more than half of the world’s more vulnerable populations).

If anyone objects to the extreme actions against corporations, wealth, innovators…, activists can simply justify their actions as necessary in the war against climate change. Shut down the factories, penalize successful investors, remove the means for industry to compete, and only then can the planet survive. Sweet. And also terribly silly. Klein’s “save the world” argument reveals no understanding of the history of humanity’s innovative spirit. For centuries, Malthusians prognosticating on the end of days from over-population were silenced by innovations in agricultural technologies. These die-hards though will argue such innovations gave us today’s climate change “crisis” … so to save the planet we need to abandon fertilizers, plant breeding and crop protection tools.

That so many are buying into this nonsense is frightening.

Greedy Meddling in the Right to Market

The Firebreak has shown how activists like Naomi Oreskes have gotten into bed with greedy tort lawyers to use extortionary practices to interrupt corporate business strategy. In what has been called the La Jolla Playbook, law firms sue companies via class action suits or multidistrict litigations, bombarding them with hundreds of thousands of plaintiffs (mass assembled via relentless late-night TV ad campaigns). They work together with NGOs, media and academics to create public outrage, drive companies out of markets and send many into bankruptcy. This tobacconization strategy has been used against companies like Bayer-Monsanto on glyphosate, J&J on talc, ExxonMobil on climate change, 3M on most of their products, Syngenta on atrazine and paraquat … the list goes on.

Most lawsuits are based on poor evidence and manufactured claims. The key strategy is to create an existential threat to a company to terrify its shareholders who then force the company’s management to settle. Most of this money does not go to the supposed victims but to the tort ecosystem which is getting larger and more powerful (using useful idiots like … Naomi Oreskes). Activists are holding their noses and working with these manipulative lawyers (who will say and do anything to keep their Gulfstreams in the air) on the premise that they are hurting big corporations.

Beyond the money, this strategy forces companies to consider abandoning markets to avoid further lawsuits (or go bankrupt). The activists pushing this strategy do not see this as a bad thing. So while the regulatory process sees no need to put restrictions on products like glyphosate or talcum powder, a decade of litigations have forced companies out of business or out of markets. An iconic American company, Avon, recently declared bankruptcy, citing the costs of the talc litigations.

Sabotage

Shareholders are getting squeezed … not by markets, regulations or competition, but by left-wing, anti-capitalist activists who have identified them as the soft targets in their war against industry. A large portion of the population, like the Democratic Party’s vice-presidential candidate, do not understand markets or capitalism.

• They see stock market profits for the top 10% and wonder how they can stop them

• They cheer when tort lawyers secure huge settlements

• They celebrate regulations that choke industry

• They hold the door for entrepreneurs to leave markets that have become too irrational and interest-laden

• And Kamala Harris thinks she can win an election by attacking food industry profits.

This is shareholder sabotage – a cancer that destroys wealth, innovation and development. And it’s spreading out of control.