The Arguments Against Stakeholder Capitalism Focus on Statism, Corporatism, and a Vague Definition
By Bruce Bolger
A Lack of Definition
Stephen M. Bainbridge
Lucian A. Bebchuk and Roberto Tallarita
Council of Institutional Investors
Milton Friedman
Peter S. Goodman, Author, Davos Man
Heritage Foundation
Professor Michael C. Jensen (deceased)
Hester M. Peirce
Andrew Puzder
Vivek Ramaswamy
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An objective analysis of stakeholder capitalism going back to the work of Peter Drucker and W. Edwards Deming to the 1940s and 1950s and later advocates R. Edward Freeman and companies like Costco, Whole Foods and other stakeholder capitalists clearly shows that stakeholder theory enhances performance by harmonizing the interests of stakeholders, not balancing them. This important distinction hasn’t stopped the continued opposition of generally right-wing critics who continue to conflate stakeholder capitalism with an unwieldly governance model almost no proponents advocate.
Imagine a six-year debate hinging on an unclear definition, one that makes all the difference between controversy and a non-issue. Since most of the world still hasn’t heard of the now 70-year-old theory behind stakeholder capitalism, even since 2019 the Business Roundtable issued its press release that created the controversy; with no formal definition in any dictionary including even Wikipedia, and no accepted authority to define it, the concept continues to be discussed in the media, increasingly worldwide, without a clear definition.
A Lack of Definition
Without citing a single source for their definition of the term, nor indicating any research on the long history of the field, the opponents highlighted from the left and right hinge all their arguments on a definition with almost no basis in the literature other than the Business Roundtable press release. Based on a review of the critics of stakeholder capitalism, they appear to base their critique on the following composite definition: “A corporate governance model in which directors and executives when making decisions are expected to serve not only shareholders but also a broader set of stakeholders — such as employees, customers, suppliers, communities, and society at large even if this means sacrificing some shareholder value in the short or long run.”
The problem with their argument is that one cannot find any source for this definition. What does it mean to serve not only shareholders but also a broader set of stakeholders? On the other hand, how can an organization deliver returns to shareholders unless their customers love the products and services; employees feel impassioned to serve internal and external customers, and distribution and supply chain partners are on onboard?
Critics have every right to be confused. No official definition exists. In 1973, the World Economic Forum defined stakeholder capitalism as “a system where companies focus on creating long-term value for all their stakeholders—including employees, customers, suppliers, communities, and the environment—not just shareholders....That is the core of stakeholder capitalism: it is a form of capitalism in which companies do not only optimize short-term profits for shareholders, but seek long term value creation, by taking into account the needs of all their stakeholders, and society at large.”
In 2020, anticipating the dangers of the ambiguity, the Enterprise Engagement Alliance, after a review of about 100 sources of literature on the topic, and collaboration with Alex Edmans, Professor of Finance at London Business School, and Martin Whittaker, CEO of JUST Capital, the London Business School published this definition in Forbes in August 2020: “enhancing returns for investors only by creating value for customers, employees, distribution and supply chain partners, and communities.”
Based on the literature, including the 1984 work of R. Edward Freeman, author of Strategic Management, A Stakeholder Approach, stakeholder capitalism embodies great leadership by harmonizing the interests of all stakeholders toward a common purpose, goals, objectives, and values. Nowhere can one find in the EEA library and its hundreds of sources any definition implying companies should divert money from shareholders to accomplish the personal social interests of the management, nor that they should manage by trying to make everyone happy. Nor, will one find any literature suggesting large companies and investment firms should gang up to impose their social objectives on other firms. Rather, the management goal is to get everyone to sing from the same hymn book, so that when difficult trade-offs must be decided, people at least have an understanding of why.
The purpose of the organization, usually involving attracting and retaining customers, is what guides stakeholder capitalists, not simply the pursuit of profit, because without satisfying the customer, and the other stakeholders responsible for this, profit cannot be optimized over the long run.
Stephen M. Bainbridge
Affiliation/Role: University of California at Los Angeles Law, corporate law scholar
Definition cited:
Discusses Business Roundtable’s pledge to “deliver value to all stakeholders” and contrasts with shareholder value and director primacy.
Main arguments against stakeholder capitalism:
Dilutes accountability and clashes with Delaware corporate law norms; favors clear objective of shareholder value under director primacy.
Examples:
Analyzes BRT’s 2019 reversal and defends shareholder value maximization in books and articles.
Sources: Director Primacy: The Means and Ends of Corporate Governance (PDF) | Interview on Corporate Purpose
Lucian A. Bebchuk and Roberto Tallarita 
Affiliation/Role: Harvard Law School, corporate governance scholars
Definition used:
Stakeholder capitalism means giving corporate leaders enhanced discretion to consider interests of all stakeholders.
Main arguments against stakeholder capitalism:
Managers lack incentives and accountability to deliver for stakeholders; stakeholder capitalism risks managerial opportunism; better to protect stakeholders via regulation & contracts.
Examples:
In 95% of private equity buyouts studied, sellers did not negotiate layoff restrictions; ESG (environmental, social, governance) metrics in S&P 100 CEO pay often have small weights (about1–3%) and are vague.
Sources:Illusory Promise of Stakeholder Governance | For Whom Corporate Leaders Bargain | Bebchuk & Tallarita, Iowa Journal of Corp Law
Council of Institutional Investors (CII)
Affiliation/Role: Investor association (pension funds, endowments)
Definition cited:
It responded to the Business Roundtable’s definition: companies should serve customers, employees, suppliers, communities and shareholders.
Main arguments against stakeholder capitalism:
“Accountability to everyone means accountability to no one.” The statement weakened shareholder rights without adding mechanisms to hold boards accountable to other stakeholders.
Examples:
Opposed the BRT 2019 statement as undercutting managerial accountability to shareowners; urged that social objectives be handled by government.
Sources:
CII Response to BRT Statement | CII Press Release PDF | BRT Statement
Milton Friedman 
Affiliation/Role: Economist; New York Times magazine essay (1970)
Definition used:
Rejects corporate “social responsibility” beyond profit "so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." —precursor critique to stakeholder capitalism.
Main arguments against stakeholder capitalism:
Executives spending corporate money on social goals is taxation without representation; blurs democratic accountability; reduces efficiency.
Examples:
Argues that hiring to reduce unemployment or cutting prices to fight inflation uses shareholders’ money (and potentially employees’/customers’) for social ends.
Sources:
Original NYT Essay PDF
Peter S. Goodman, Author, Davos Man 
Peter S. Goodman, in Davos Man, argues that stakeholder capitalism is often a rhetorical shield for the wealthy elite:
- Marketing Tool, Not Substance: Goodman frames stakeholder capitalism as a public relations move by global elites (e.g., World Economic Forum attendees) to deflect pressure for systemic reform. Corporate leaders talk about “purpose” and “social responsibility” while continuing to extract value for themselves and shareholders.
- Maintaining the Status Quo: He argues that stakeholderism allows corporate elites to claim moral legitimacy and avoid regulation, taxation, and redistributive policies that would actually limit their power.
- Empirical Skepticism: Goodman points to the lack of measurable outcomes — corporations that trumpet ESG or stakeholder commitments often continue practices that harm workers (e.g., wage stagnation, layoffs) and the environment.
Professor Michael C. Jensen (deceased) 
Note that during the height of his academic career in the late 20th century, he was one of the most prominent proponents of shareholder capitalism. However, after his retirement, he shifted gears and told the producers of the documentary, “Fishing With Dynamite,” “Shareholder capitalism is stupid, stop it. It will impose costs on you, the shareholder.”
Affiliation/Role: Harvard Business School. Finance scholar.
Definition cited
Stakeholder theory: managers should make decisions that take account of all stakeholders’ interests.
Main arguments against stakeholder capitalism.
Impossible to maximize in multiple dimensions; need a single objective (long-run firm value). Stakeholder scorecards give “no score” and weaken accountability.
Examples
Balanced scorecard (the managerial analog to stakeholder theory) is flawed because it lacks a single-valued performance measure.
Source:
Value Maximization, Stakeholder Theory, and the Corporate Objective Function (PDF) | European Financial Management Journal
Heritage Foundation
Affiliation/Role: Conservative public policy think tank
Definition used:
Stakeholder capitalism reframes corporate purpose away from profit toward vague activist or state-directed goals, risking corporate focus on ideology over financial success.
Main arguments against stakeholder capitalism:
Undermines ownership rights and profit motive, shifts power toward elites and central planning, reduces wages and efficiency, politicizes business decisions.
Examples:
Describes stakeholder capitalism as “theft, path to central planning, or both”; argues it will reduce wages, incomes, and employment; criticizes Larry Fink and BlackRock for using ESG to push radical policy goals.
Sources:
Stakeholder Capitalism: Theft, Path to Central Planning, or Both? | Success, Not Corporate Wokeness, Elevates the Human Condition | Larry Fink’s Crusade Runs Into Resistance
Hester M. Peirce 
Affiliation/Role: Securities & Exchange Commissioner (speech, 2018)
Definition cited:
Critiques using public companies to achieve “other goals not directly related to investor returns” (i.e., privileging stakeholders over investors).
Main arguments against stakeholder capitalism:
Shifts focus from investors to “stakeholders” with elastic definitions; jeopardizes pension beneficiaries; lacks clear standards; politicizes corporate decisions.
Example claim(s):
Warns of “CEO activism” where boards spend on political causes; lack of consistent ESG/stakeholder standards; beneficiaries can’t exit like investors.
Sources:
Scarlet Letters: Remarks before AEI (SEC.gov)
Andrew Puzder 
Affiliation/role: Former CEO of CKE Restaurants (Carl’s Jr., Hardee’s), author of A Tyranny for the Good of Its Victims
Definition used:
Defines stakeholder capitalism as shifting corporate purpose from maximizing shareholder value to serving customers, employees, suppliers, communities, and shareholders equally.
Main arguments against stakeholder capitalism:
“Accountability to everyone means accountability to no one.” Argues it weakens fiduciary duty, erodes managerial accountability to shareholders, and allows large asset managers to impose social and political agendas through ESG initiatives. Warns that this shift threatens free-market capitalism and democratic accountability.
Examples:
Criticized BlackRock, State Street, and Vanguard for steering companies toward net-zero and DEI goals; highlighted Disney, Exxon, and Target as examples of firms pressured into policies misaligned with shareholder interests.
Sources:
A Tyranny for the Good of Its Victims | RealClearPolitics interview | Daily Signal article | CSPAN2 book discussion
Vivek Ramaswamy 
Affiliation/Role: Entrepreneur/author; U.S. Senate testimony (2021)
Definition used:
Stakeholder capitalism means that companies should serve not only shareholders but broader societal interests, per the Business Roundtable statement.
Main arguments against stakeholder capitalism:
Entangles business with politics; undermines democracy; creates conflicts of interest and potential ESG asset bubbles (“Citizens United on steroids”).
Examples:
Cites corporate use of the “piggy bank” for social causes; warns of ESG flows fueling a bubble; argues CEOs should not set social values.
Sources:
Senate Testimony (PDF)
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Contact: Bruce Bolger at TheICEE.org; 914-591-7600, ext. 230.
