A review of A Tyranny for the Good of Its Victims, by Andy Puzder.
O n January 10, Federal Judge Reed O’Connor, of the U.S. District Court for the Northern District of Texas, ruled that American Airlines had violated both federal law and its fiduciary duty of loyalty to its employees by contracting with BlackRock to manage its retirement plans. BlackRock, of course, is the world’s largest asset manager and one of the world’s (erstwhile?) foremost proponents of ESG, an investment discipline under which actual or potential portfolio companies are, in part, scored by how well they meet certain environmental, social, or governance criteria.
To be clear, this ruling is controversial, and it will almost certainly be appealed. Until it is, however, it stands as the law of the land. But even if it’s overturned, or partly overturned, it nevertheless provides a stinging rebuke of ESG and its practitioners.
According to Judge O’Connor, because BlackRock has been so pervasively involved in ESG and in pursuing an investment scheme based on environmental “sustainability,” by contracting with the asset management giant, the airline implicitly enabled its retirement plan to be influenced by factors not in the best interests of its employees. Among other things, O’Connor wrote in his decision: “ESG investing is a strategy that considers or pursues a non-pecuniary interest as an end itself rather than as a means to some financial end.”
To many of us, this is a statement of fact. Of course ESG considers nonpecuniary interests as ends in themselves. That’s the whole point.
The catch is that ESG advocates have always insisted otherwise. That’s the heart of the argument between the two sides. Or, as Bloomberg’s Matt Levine put it in his Money Stuff column the other day, “virtually 100% of ESG investors would disagree with” Judge O’Connor. They would say that they embrace ESG because they believe that environmental and social factors “are material to long-term risk-adjusted financial returns.”
It’s easy to see, given this, how some people — voters, politicians, and retail investors — might be confused by ESG and the related controversy. If one side in this debate says one thing, and the other side says the exact opposite, how is one to know which side is telling the truth? How is one to know whom to believe?
Fortunately for everyone, the answer to these questions, as well as countless others, can be found in a new book by Andy Puzder, A Tyranny for the Good of Its Victims: The Ugly Truth about Stakeholder Capitalism, just out from Encounter Books. Puzder, an attorney and the former CEO of CKE Restaurants, has lately been a fellow at the Heritage Foundation and has, in that role, been at the forefront of the effort to expose ESG and its promoters as adversaries of shareholder primacy (the principle that a company should be run for the benefit of its shareholders) and the notion that, unless they specifically state otherwise, investors are focused solely on financial return. In his fourth chapter — “The Environment, as a Tool” — Puzder explains how ESG advocates have convinced themselves and others that they are doing the right thing, not just for the world but for their investors as well:
[In] a 2019 report titled “Fiduciary Duty in the 21st Century,” PRI [Principles for Responsible Investment] sought to revise and rewrite the rules on fiduciary responsibility [for institutional investors] to specifically include advancing the ESG agenda. According to PRI, the report’s purpose was “the integration of environmental, social, and governance (ESG) issues into investment practice and decision making” as a “standard part of the regulatory and legal requirements for institutional investors.
The U.N.-backed PRI describes itself as “the world’s leading proponent of responsible investment.” Puzder continues:
So addressing BlackRock’s fiduciary responsibilities was now seemingly no problem for [CEO] Larry Fink. Consistent with PRI’s redefined concept of fiduciary responsibility, he simply redefined investment risk, declaring that “climate risk is investment risk.” In five simple words, Fink conflated addressing climate change and protecting the financial interests of BlackRock’s clients — so that there was no bothersome need to even comment on the severe negative impact such collectivist policies could — would — have on companies in which BlackRock had invested its clients’ monies.
To be blunt, it’s not especially easy at this point to write a book almost entirely about ESG and to make it interesting and informative. Five years ago, when I sat down to write my book on the subject, The Dictatorship of Woke Capital, the field was largely unexplored and unexplained. ESG was virgin territory. That’s no longer the case, and even just the last few months have seen the issue discussed, rediscussed, and re-rediscussed by various authors.
Puzder manages, nevertheless, to pull it off, writing a book that is both edifying and engaging.
For starters, Puzder brings to the subject a unique perspective, that of someone who spent nearly two decades running a major corporation — precisely the type of corporation that has been harassed by the massive asset management firms for the last few years to put the pursuit of a political agenda before profits. Additionally — and presumably because of his experience as a corporate executive — he has been involved in the fight against ESG since the very start. He knew it was an important issue right away. He has seen how the battle has evolved, and, more to the point, he has seen how the foundations of the “stakeholder” ruse — which cynically pits a company’s shareholders against its employees, customers, and others — crumble in the face of simple, honest, basic information about its radical premises and practical incoherence.
Puzder is also willing to take on aspects of ESG that most authors leave untouched. In addition to his rather thorough debunking of the “fiduciary” premises that enable the movement, his book really shines when he explains how ESG is an attack on “the profit motive” and when he describes what the “G” in ESG has come to stand for. Many ESG opponents — including some very prominent ones — divide the phenomenon into two categories, “bad ESG” and “good ESG.” Bad ESG deals mostly with the E and the S, while good ESG addresses the G, governance, which is the long-standing, important, and legitimate concern about how a company is being run, covering issues such as board accountability, executive compensation, transparency, and conflicts of interest. Lumping the G in with the E and the S was a mistake, they say. Governance is a real and acceptable means of evaluating corporate leadership.
Not so fast, says Andy Puzder:
The “G” in ESG should be a “D” because it stands for selecting corporate board members based on “diversity” rather than merit or value to the company. Worse yet, they value only the particular type of diversity that is most politically correct in the most progressive circles. In other words, the “G” in ESG demands that companies in which the Big Three invest choose directors who belong to identity groups that rank high in the intersectional pecking order, regardless of whether those board candidates have any business running large publicly held companies.
The “G” in the ESG is social-policy engineering, not good corporate governance — in fact, it mandates bad corporate governance.
For example, Puzder notes that “in 2022 Boeing changed its bonus plan” to accommodate purported “governance” concerns. After the change, only 75 percent of management’s compensation was “weighted toward profitability.” The remaining 25 percent was determined based on “Climate [plus] Diversity, Equity, and Inclusion.” It (almost) goes without saying that this change was a disaster for Boeing and especially for its customers.
A Tyranny for the Good of Its Victims covers a sometimes complex topic, but it is a good read and an easy read. Puzder’s writing style is plain and straightforward, and his prose is full of examples that drive home his points. Even if you think you already know everything there is to know about ESG and stakeholder capitalism, you’ll still learn a thing or two. Even in a world saturated with books, essays, and articles about ESG, Andy Puzder’s tome is well worth your time.