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Wednesday, June 8, 2022

GOP Attacks Smart Corporate Behavior

Demanding An End to Environmental and Social Policies


Source: Anevis

The formerly corporate-friendly GOP has found itself at odds with big companies that take an interest in ESG, an acronym that stands for policies concerned with environmental, social, and governance issues.

The party’s beef is with the first two parts of ESG. It’s trying to bring pressure, for assumed political advantage, from as many directions as possible to attack these activities.

The pattern and intent has been unusually clear of late. It indicates a polar swap in the relationship between Republican politicians and business. The traditional image of Armani-dressed executives handing over their wish lists, along with campaign contributions, is being twisted into a U-turn. In today’s politics, pragmatism takes a back seat to rigid ideology and vengeance can come to those who refuse to kneel to Republican demands.

Smart Business

Big corporations and savvy investors take ESG seriously because it’s smart business. Companies that recognize climate risk and adapt their operations and strategies are going to be better at managing risk than competitors. That also means they are likely to be more profitable than companies that ignore ESG.

Those that see changes in society, and look at their customers both now and where they’re headed, will take better market positions and shares.

Disinterest in governance is a particularly befuddling aspect of Republican moves to cow companies, as that pertains to how companies manage themselves and their relationships to investors.

These are business realities that traditional fiscal conservatives understand. But such people are no longer in control of the Republican party. Instead, the now dominant, and crazy, wing of the GOP wants companies to keep sending the campaign contribution checks, but to keep quiet on topics that the fanatics find inconvenient or unacceptable.

Toe the Line Or Else

GOP leaders aren’t shy about telling business what lines to toe, either, a contradiction to the Republican promise of less government interference in the economy and individual lives.

“We live in a political world and I think businesses do best when they really focus, at least on their relationship with us, on these key issues of the economy,” Texas Republican U.S. Rep. Kevin Brady told Yahoo Finance. “I think the new paradigm today is that if businesses are engaged in social issues, they are entering a part of politics fairly new to them and I think there will be pushback from parties, depending on where the businesses stand.”

Being attuned to changing social values is nothing new for business. Whether its building cars that go three times more on a mile of gas than in the Fifties, adopting new colors in clothes and appliances or embracing blended, same-sex and extended families, smart corporations prosper be catering to society as it is, not as people like Brady wish it would be.

Push back from companies that look to their own interests instead of bowing down to what Brady and his confreres want can result in swiftly negative responses delivered with rancor.

An example came with Florida’s “don’t say gay” law. Ostensibly it’s designed to prevent classroom “discussion” or “instruction” about “sexual orientation or gender identity” in kindergarten through third. But legal critics told NBC News that the framing was so vague that it  chill speech in schools more broadly.

The Walt Disney Company, an economic powerhouse in Florida, was outspoken in its opposition — an example of the “S” in ESG. Disney spoke up at the behest of many of its employees and management’s sense of its own interests as a company serving a global market.

Gov. Ron DeSantis led Florida’s GOP establishment in punishing Disney by rescinding a special arrangement under which the company ran its own government district and paid for what it wanted in infrastructure. Undoing the Reedy Creek Improvement District may mean big property tax increases for area homeowners, litigation from bondholders, or heaven knows what, but none of it likely good.

Senator Josh Hawley doubled down in the Republican attacks on Disney.  “No more handouts for woke corporations,” the junior senator from Missouri tweeted.

Copyright Gambit

Hawley filed legislation to “strip Disney of its special copyright protections.” He likely did this as a stunt as the copyright protections extend to all corporations. Big changes in the law in the U.S. could well put the country at odds with major international copyright treaties, but that’s an issue of governance, which is not Hawley’s long suit or even his interest.

Given that the chance of such a bill passing in the Senate is virtually zero, the point isn’t what business should do so much as it is to twist arms, bring in money and try to make companies kneel before the GOP.

As the Kansas City Star reported, “Josh Hawley is fundraising off his bill targeting Disney’s copyright protections.” Call it payback and payoff.

The New York Times DealBook wrote, “Calls to rein in investing based on environmental and social principles are growing louder.”

ALEC’s role

The influencer group the American Legislative Exchange Council (ALEC) is part of this drive even though its funded largely by businesses, notably the Koch fossil fuels and consumer proucts empire.

ALEC has successfully pushed model state legislation written by its corporate and political sponsors, that would lighten regulations on fossil fuels.

Lately, ALEC has been touting a bill that would undermine ESG. It would require state employee union pension funds to make investments “based solely on pecuniary factors that have a material effect on the return and risk of an investment.” In other words, ALEC would outlaw ESG as a strategic factor in investment decisions no matter how economically sound it is.

Former Vice President Mike Pence took up the exact same theme in a speech that came after ALEC began pushing the new bill. Pence urged states to prevent state pension funds from using environmental, social, or governance principles in their investments.

Pence said that ESG considerations only served “left-wing” concerns rather than business interests, which simply isn’t true, but pleases the ears of authoritarians in the GOP.

All this resonates in the GOP echo chamber. The point isn’t to make things work in a better way, but to create so much noise that opponents get distracted and cover their ears while supporters head to the polls and contribute to Republican political campaigns.

Erik Sherman is an independent journalist and author who primarily covers business, economics, finance, technology, politics, and legal/regulatory, elegantly expressing the complex and often incorporating data analysis.