Episode 106: Woke Business – Tom Wheelwright and Stephen Soukup

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Tom Wheelwright:

Welcome to The WealthAbility Show, where we're always discovering how to make way more money and pay way less taxes. Hi, this is Tom Wheelwright, your host, founder, and CEO of WealthAbility. Big business is woke. How'd this happen? How did we even get to the point where business became so political? This is a fascinating idea. It's fascinating because it affects all of our businesses. It affects how do you discuss certain things, even the cancel culture side of things affects how you discuss things, and what you can discuss, and why do you discuss it. We're going to get into that and how it affects your business and actually what some things that you can do about this. I'm really thrilled to have Steve Soukup with us. His book is The Dictatorship of Woke Capital. I love the title. Thank you very much. It says, “How Political Correctness Captured Big Business.” Steve, welcome to The WealthAbility Show.

Steve Soukup:

Thank you very much for having me, Tom. I appreciate it.

Tom Wheelwright:

We were talking before, but why'd you get in this? What's your background that would get you into discussing woke capitalism?

Steve Soukup:

25 years ago, fresh out of graduate school, I joined the Washington Research Team at Prudential Securities, which was the number one rated institutional investor research team for eight years straight. My boss, my senior analyst, and I got into a little bit of trouble at our firm over politics. We've left and joined another large firm that's now defunct, stayed there for a couple years before getting into a tussle over the politicization of capital markets.

Steve Soukup:

We decided at that point we wanted to be independent, so we've been independent research providers for 19 years now, providing our analysis of economic, social, and political events and trends to institutional investors on our own as independents. Roughly three or four years ago, it became apparent to me that the few instances of politicization that we had seen working for large firms several years ago had become more and more the norm on Wall Street, so it became an issue that concerned me greatly, and that I wanted to delve into more.

Steve Soukup:

What I learned from a handful of people who've been involved in shareholder activism and pushing back against woke shareholder activism for several years was that this is pervasive, that the way that the capital markets function today is very much set up to be a top-down, anti-democratic process by which business is trying to change a relationship between the citizen and the state and thus trying to change the way American businesses function.

Tom Wheelwright:

Yeah, so that's the essence of it. Let's talk about this to begin with. A business, particularly a public company, is mandated. I mean, they have a fiduciary responsibility to their shareholders, fiduciary responsibility to produce profit for their shareholders, right? That is their mandate. I've got to believe there's money behind this. I have a hard time believing there's anything but money behind this. Why? Why have we seen this very quick? I mean, it's been rapid in the last eight years, this quick shift from just going after profits and building shareholder value and going after mission to going to being careful what you say, firing people over what they say. There's cancel culture is part of this. Where did it all come from?

Steve Soukup:

Well, the book delves into the history of it, and essentially traces it back more than 150 years. But in the immediate sense, I think you're right, there was money to be made, and some people who are very good at making money who are very good at collecting assets, in fact, the primary mover in this is Larry Fink, the founder and CEO of the largest asset set management firm that's ever existed. He saw an opportunity not only to advance what he thought were important political values, but also to create a niche for himself and for his firm as one of the most aggressively sustainable asset management firms around, and it's benefited him tremendously, and it's benefited the others who have gotten involved as well, so yeah, there was a lot of money to be made, there was a market that was untapped, and there were some longstanding historical economic and philosophical forces that at the time that they made the move, it made it very sensible and very lucrative.

Tom Wheelwright:

Okay, so we've seen Facebook overtly politicized, we've seen other big companies, overtly politicized and woke. Are they just trying to catch up and be part of this because that's what they see their investors want, or is there something else behind it?

Steve Soukup:

Well, generally speaking, when a company takes on a woke position, it's receiving pressure from one of three directions. It's receiving pressure from the bottom up, which would be as employees, which is something that happens an awful lot with tech companies. It could be re receiving pressure from the top down, which would be in the C-suites, if for example, Mark Zuckerberg, wanted something done that was particularly political, there would be pressure on the company to do it. Then we see pressure from the outside to in, which most often takes the place of shareholder activism. It could be any of those three. In tech, as I said, a lot of the pressure comes from the bottom up from employees, but a good deal of pressure also comes from the outside in.

Tom Wheelwright:

I mean, outside of Larry Fink, what do you think they get out of it? Do you think they all believe it? Or do you think that they're doing this because they've got some reason behind it that is more related to profits and their position and how they're seen by society?

Steve Soukup:

Well, I think that there's a handful. In the book, in the introduction to the book, in fact, I try to distinguish between the true believers, which I think Larry Fink is one of those, but also between those who have seen the value created by the true believers and have decided to get into the game because they think that, again, there's a niche here to exploit, there's a market here that can be created and used to create wealth. But there's also a handful of people who are just scared to death of their shareholders and the activists, people who just want very much to be left alone, and will do anything they can to get the activists to back off.

Tom Wheelwright:

Let's bring it down to smaller business because our audience is primarily smaller business entrepreneurs. How is this affecting what you see, basically, Main Street? How is this whole thing in Wall Street affecting Main Street?

Steve Soukup:

Well, one of the chief ways that it's affecting Main Street is that if you're an owner of a business and you provide a 401(k) plan for your retirees, you have a handful of options as to who's going to manage your plan and what sort of funds are going to be invested in.

Steve Soukup:

If your 401(k) is invested with BlackRock, then you are supporting essentially the woking of American business. Larry Fink has said explicitly that it's not just the ESG funds that he holds that are going to be used to vote for sustainability and diversity and equity and inclusion, but all of the funds that he holds are going to be put to that use, that sustainability in particular is his primary investment criteria. If you happen to have your funds, your 401(k) plan, your employees' retirement funds invested in a BlackRock fund, then Larry Fink is taking your shareholder rights and he is exercising that vote to advance his political beliefs.

Steve Soukup:

The risk, obviously, is that it will compromise return on investment. That's one of the ways that it affects small businesses considerably is that it creates this problem where, as an employer, you can't be absolutely certain that you're doing the best by your employees because you cannot control the shares, the votes that your retirement funds are going into.

Tom Wheelwright:

I always believe there's only two things that a business owner… Well, there's two primary things somebody wants, power or money, right? Do you see this as also an issue as far as curing favor from a political standpoint with Washington, D.C.? You're in Washington, D.C.

Steve Soukup:

I think it's more an issue of trying to drag Washington, D.C. along with the woke capitalists.

Tom Wheelwright:

Oh, interesting.

Steve Soukup:

I get into arguments occasionally with others who deal in this field, whether or not we're talking about corporatism or corporatocracy. A corporatist state is a state in which business and government collude to keep the people out of the decision-making process, but government leads. Corporatocracy is the opposite, where business leads. I tend to think that this is a corporate-cratic issue where big business is driving this and dragging government along with it.

Tom Wheelwright:

Oh, interesting. Interesting. I have not heard that point of view. That's fascinating. Now, your book's called The Dictatorship of Woke Capital, so I gather you're not a fan?

Steve Soukup:

I'm not a fan. I think that even if we were able to take the claims of ESG investments at face value, that you can do well by doing good, that I oppose the way this is done because it's anti-democratic, it takes the policy-making process out of the hands of the people, and their elected representatives, and it takes shareholder rights away from the actual owners of those shares. I oppose this basically on philosophical grounds.

Steve Soukup:

But as we've seen over the past year or so, there's reasons to oppose it on other grounds as well. For example, doing good by doing well. First of all, ESG funds are not going to do as well as traditional investment funds are going to do. In addition, they don't do a whole lot to improve the situations that they claim to improve. Larry Fink claims to be pushing for sustainability, and yet he's the largest single shareholder of PetroChina, which is the listed arm of the Chinese National Petroleum Company, which is in no way, shape, or form a clean energy company, so we have this hypocrisy that causes significant issues with even the way the ESG claims are laid out.

Tom Wheelwright:

Make sure everybody understands what we're talking about. Can you lay out ESGs and what all that means to in the investing world?

Steve Soukup:

Okay, “ESG” stands for “environmental, social, and corporate governance” investing. ESG funds are generally funds that will pick stocks based on either their potential for engagement on environmental, social, and governance issues, or will divest from certain companies based on those issues. Generally, ESG, as opposed to socially responsible investing will be the coercive side of this, the side that will buy companies specifically to confront them specifically to try and change their behaviors, to introduce shareholder proposals, et cetera, and put activists on corporate boards that are trying to change the way corporations behave, to leverage the power that the shares that they have under management, to leverage that power in order to change the way companies actually act in the-

Tom Wheelwright:

Basically, what I'm hearing is that when you buy into a fund that is one of these ESG funds, you're basically buying into the belief system and the modeling of whoever is running those funds?

Steve Soukup:

… Yeah, absolutely.

Tom Wheelwright:

Interesting.

Steve Soukup:

Generally, they are supposed to have a fairly clear description of what the fund is about, what its goals are, what its intentions are, but that's one of the big problems with ESG is that there are no set standards, and anybody at this point can label almost anything they want to ESG and use it exclusively as a marketing technique.

Tom Wheelwright:

How do you or how do they reconcile that style of investing with the mandate for core value?

Steve Soukup:

Well, that's one of the things that's a problem is that when you hear these same business leaders, these same asset management companies speak about stakeholder capitalism, they want to make sure that we're taking care of all the stakeholder. They're not speaking about stakeholder capitalism in the way that a small business owner would speak about it.

Steve Soukup:

A small business owner would say, “Yes, of course, I have to take care of my employees. Yes, I have to make sure my customers are satisfied. Yes, I have to take care of all of this, because if I don't, then I'm not going to be successful.” The way the big businesses look at it, they look at stakeholder capitalism as a normative proposition, which is to say that they take each and every one of the stakeholders as an end in and of itself. The purpose of a corporation is to serve the stakeholders, not necessarily the shareholders. The purpose of a corporation is to make this population of employees happy, or this particular community happy in addition to providing for the shareholders, so essentially, what they're doing is they're abdicating their role as fiduciaries and claiming that they have an existing moral role that goes beyond that.

Tom Wheelwright:

Hey, if you like financial education the way I do, you're going to love Buck Joffrey's podcast. Buck's a friend of mine. He's a client of mine. He's a former board-certified surgeon and he's turned into a real estate professional. He has this podcast that is geared towards high-paid professionals. That's who he's geared towards. If you're a high-paid professional, you're going, “Look, I'd like to do something different with my money than what I'm doing, I'd like to get financially educated. I'd like to take control of my money and my life and my taxes,” I would love to recommend Buck Joffrey's podcast, which is called Wealth Formula Podcast with Buck Joffrey. I hope you join Buck on this adventure of a lifetime.

Tom Wheelwright:

Actually, the name of our company is WealthAbility, and our goal is to help people take charge of their own wealth as opposed to turning it to over Wall Street. To me, this sounds like an argument for being in charge of your own wealth creation, as opposed to letting somebody else handle it, because if you do let somebody else handling it, you are letting them handle it.

Steve Soukup:

Yeah, absolutely. That's the thing is if you turn your money over to your investment advisor and he puts you in State Street or Vanguard or BlackRock funds, then State Street, BlackRock and Vanguard take your shareholder rights and they use them for their purposes, so yeah, you're absolutely correct. If you are involved, if you're invested in large ETFs, large index funds that are run by some of these woke managers, then they are usurping your shareholder rights.

Tom Wheelwright:

What do you do about it?

Steve Soukup:

Well, the first thing you is-

Tom Wheelwright:

Give us some things you do.

Steve Soukup:

… Well, the first thing you do is you make yourself aware of what the problem is. You do your best to try and understand what ESG is, what the sustainability movement is, what stakeholder capitalism is, and what all of this means to your wealth, and the way that the large Wall Street firms are handling this.

Steve Soukup:

The second thing you do is you find out where your money is. If you happen to be an employee at a small business and you contribute to your 401(k) every month, find out who's managing it. Find out what sort of funds it's invested in. Find out if there's any way, if it's invested with one of these woke capital asset management firms, if there's any way that the business leader's CEO will consider moving it, considering having it locally managed, doing something a little more with the community as opposed to simply turning over this wealth and the accompanying shareholder rights to the big firms.

Tom Wheelwright:

How do you actually do that research? How do you actually find out about this? If you're going to dig a little bit, I mean, how do you know? I mean, obviously, other than those that you've mentioned, how do you know?

Steve Soukup:

You should get a statement quarterly that we will tell you where your contributions are being invested. If you don't, ask HR to help you figure that out. If you're a small business owner, if you have your money directly invested with an investment advisor, ask him or her where your money is going. It seems like it should be a very daunting, complicated task, but it really isn't, in practice. You have to look at your statements and you have to ask a few questions, which may be uncomfortable, but you can, in fact, find out where your money is being invested. If you invest in stocks individually, you can also take this up with the companies themselves, you can get involved at, pardon me, annual shareholder meetings. You can call the shareholder response teams at the companies and talk to them about what you think the problems with the way your wealth is being used by them.

Steve Soukup:

You can get yourself involved. The idea basically is to engage any way you can. Don't boycott. Don't get out and just run away and say, “You know what? Coke is woke, so I'm not going to drink Coke products.” If you are a consumer, complain to consumer relations. If you are an investor in Coke, then complain to investor resources. Just get involved and be active in engaging the companies that you believe are violating your shareholder rights and your political values.

Tom Wheelwright:

On the other side, if you actually value that and you actually think that's a good thing, then you got to be looking at that side of it, too. Is that fair?

Steve Soukup:

Yeah, absolutely.

Tom Wheelwright:

Make sure they really are doing what they say they're doing when, yeah, it's like the NBA talks about human rights and then they give into China, right? I mean, there's a obvious conflict going on there.

Steve Soukup:

Yep. Well, yeah, and again, that's one of the things that has made ESG investing so frustrating for a lot of people. They want to do, they share are these values, they have environmental aspirations, they want to get involved, and yet, even though they're investing in ESG funds, they find out that all that the ESG fund is concerned about is making sure that it's not selling tobacco products and it's not investing in guns. That's not going to help you if you have, as I said, environmental beliefs that you would like for your wealth to be promoting. It's a very confusing time right now. Various governments and various international agencies are trying to straighten out and provide definitions for what ESG is, what it means and who can claim to be ESG-friendly, but that carries with it a whole host of other issues that come from top-down regulatory regimes.

Tom Wheelwright:

Yeah. Very interesting. This is our argument for, as I said, for taking control of your wealth and doing private investing, as opposed to the public investing. The returns, certainly, are higher on private investing as well, as long as you get the education that you need in order to do that private investing. But Steve, I really appreciate you writing this book. Really appreciate you. It's not that, I mean, there's some good causes out there. For example, I'm a big fan of solar technology.

Steve Soukup:

Right, sure.

Tom Wheelwright:

I'm a huge fan of it, so I put solar on my studio, I put solar on my business building, but I want to do that, but I don't want to turn it over to somebody else. Independent business owners, entrepreneurs, we like to be in control, and it sounds like this is just another reason to take control of your money and your taxes and your wealth.

Steve Soukup:

Yeah, absolutely. I agree.

Tom Wheelwright:

All right, well, thank you. Besides the book, The Dictatorship of Woke Capital, where else can we find information about you, Steve?

Steve Soukup:

Well, I can be found at wokecapital.org, which is the website for our nonprofit arm, The Political Forum Institute, which is dedicated specifically to creating and promoting community among those who have shared values of free markets and free peoples and particularly those who are involved in capital markets.

Tom Wheelwright:

Awesome. Thank you again. Again, the book is The Dictatorship of Woke Capital. Our guest is Steve Soukup. Remember, when we get that financial education and we take control of our own wealth and our own taxes, we're always going to make way more money and pay way less taxes. We'll see you next time.

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