A kinder, gentler capitalism? These lawmakers think it can work

Phillips, Houlahan roll out caucus devoted to stakeholder capitalism

Reps. Dean Phillips and Chrissy Houlahan teamed up to form a new congressional caucus this month. (Tom Williams/CQ Roll Call file photos)
Reps. Dean Phillips and Chrissy Houlahan teamed up to form a new congressional caucus this month. (Tom Williams/CQ Roll Call file photos)
Posted June 14, 2021 at 11:00am

A pair of House Democrats with C-suite experience launched a Stakeholder Capitalism Caucus this month, embracing an economic concept that Republicans have increasingly railed against as “woke” capitalism.

The new caucus will advocate for policies that will encourage U.S. businesses to more broadly share the wealth they create and deploy American ingenuity to tackle the world’s most pressing challenges, said co-founders Dean Phillips of Minnesota and Chrissy Houlahan of Pennsylvania.

“We’ve long emphasized the right of business to make a profit, of course, but not the right of workers to share in those earnings — that success — that they help generate,” Phillips said at a launch event Friday.

“As we look to rebuild our economy in the wake of a very devastating pandemic, we must look to reimagine it,” Houlahan said. “Our environment, our national security, our economy, our health care — they’re all greatly threatened by the inaction that we’ve had on climate change.”

“Stakeholder capitalism” stands somewhere between the socialism that animates much of the left, and the idea of shareholder capitalism that underpins free-market thinking. Most famously espoused by Milton Friedman in a 1970 essay, the shareholder-centric model argues that a corporation’s only duty is to maximize profits for its owners, the stockholders, and that this promotes the efficient allocation of capital that leads economic growth and broad prosperity.

It’s a theory that has justified everything from the rise of private equity corporate raiders to lucrative stock-option-laden executive pay packages, and it mostly went unchallenged in the U.S. until the housing market collapsed in 2007, ushering in the 2008 recession.

Since then, interest in a friendly, gentler, more caring form of capitalism — stakeholder capitalism — has only grown. Rather than focusing just on boosting stockholder returns, the stakeholder-centric model says corporations should also consider what’s best for their workers, their communities and the planet. A similar impulse has fueled the rise of ESG — environmental, social and governance — investing, which by some metrics has grown to describe firms with $103 trillion in assets under management.

While the caucus is brand new, the idea behind it is anything but for Houlahan and Phillips.

Before Congress, Houlahan worked as the chief operating officer of AND1, the sports apparel company best known for their street basketball mixtapes. The company would only work with suppliers who paid their workers living wages, offered its own employees free day care and gave away 10 percent of its profits to local charities. But when the company sold in 2005, the new buyers ended most of those programs. Soon after, Houlahan’s husband — who was AND1’s president — founded B Lab with some other AND1 executives, and Houlahan came along as the new nonprofit’s COO.

B Lab created and helped popularize the first new corporate legal entity in over 50 years, the benefit corporation. Unlike regular corporations or limited liability companies, B Corps have explicit fiduciary duties to stakeholders. B Corp statutes have been adopted in 35 states, and a number of famous companies have formed or rechartered as B Corps — Ben & Jerry’s, Patagonia, Allbirds and New Belgium Brewing to name a few.

As for Phillips, who frequently sports Allbirds while roaming the halls of Congress, he owns two coffee shops that pay a living wage. Before Congress he co-owned Talenti Gelato, which was sold to Unilever in 2014. Under CEO Paul Polman, the Dutch and British brand conglomerate voluntarily committed itself to ambitious environmental goals, arguing that sustainability was good for the company’s bottom line as much as it was for the earth. Unilever announced in 2019 that all of its operations across five continents were powered entirely by renewable energy.

Polman was a keynote speaker at Friday’s launch. He acknowledged the risks corporate leaders — and politicians — face in challenging the business world’s modus operandi.

“It takes courage. And courage is a word that comes from the word French coeur, which actually means heart. Good leadership starts with the heart, and then the head,” said Polman, who left Unilever in 2018. “A high level of humanity, humility, a high level of compassion for what needs to be done in the world. This caucus that you have started is a great example.”

Phillips argued that the idea behind the caucus was catching on, pointing to a 2019 statement embracing stakeholder capitalism from the Business Roundtable, a collection of CEOs from the nation’s largest companies.

Some observers have accused the CEOs of peddling empty rhetoric, though, even as their declaration escalated the Republican Party’s nascent war against “woke” capitalism. That conflict has only deepened in recent months, as the corporations denouncing changes to Georgia’s voting laws found themselves targeted by GOP reprisals.

By creating the Stakeholder Capitalism Caucus, Houlahan and Phillips have volunteered themselves to fight on the frontlines of this rhetorical battle. The move may make political sense for the pair: both represent wealthier suburban districts that have shifted to the left as college-educated voters have soured on the GOP’s social positions but haven’t lost faith in American enterprise.

Those voters roughly match the profile of U.S. investors, who have increasingly advocated for corporations to adopt ESG policies. In May, Exxon-Mobil shareholders elected two directors backed by environmentalists to the oil giant’s board who will push the company to pivot away from fossil fuels more aggressively. While ESG advocates argue that stakeholder-friendly policies ultimately increase stock prices, the evidence is mixed. In the U.S., the growing interest in ESG investing and shareholder activism may reflect frustrations among the investor class with Congress’ seeming inability to deliver legislative results on issues like climate change and gun control.

Both Phillips and Houlahan won reelection last year with about 55 percent of the vote, making them targets in the upcoming midterms. Phillips is already on the National Republican Congressional Committee’s 2022 pickoff list, and Houlahan could be quickly added if Pennsylvania’s redistricting this year doesn’t go her way.

For now, it’s unclear how much the Stakeholder Capitalism Caucus realistically hopes to accomplish. Some caucuses wield real power on Capitol Hill, like the Freedom Caucus on the right, or the Progressive Caucus on the left. But most of the more than 275 official congressional member organizations — ranging from the Algae Caucus to the Zoo Caucus — do apparently little beyond padding members’ resumes.

Friday’s announcement provided few concrete policy goals for the caucus. Houlahan mentioned her co-sponsorship of a bill introduced last Congress that would require all U.S. electricity to be generated from renewable sources by 2035. Another speaker at the launch, U.S. Impact Investing Alliance President Fran Seegull, noted that the House will vote this week on a bill that would standardize ESG disclosures for public companies.