More than ever, it’s time for economic freedom, not DEI or ESG
by Stefan Padfield and Anthony Kim · The Washington TimesOPINION:
Can economic freedom, fiduciary duty and investments in DEI (diversity, equity, and inclusion) co-exist? Let’s consider the evidence.
Economic freedom, as explained in The Heritage Foundation’s newest edition of the Index of Economic Freedom, depends in part on property rights and investment freedom. Those, in turn, depend on “an effective rule of law” that supports “an effective investment framework … characterized by transparency.”
That last word is crucial.
The fiduciary duties of corporate boards and executives support this framework by, among other things, imposing a “duty of candor” or “duty of disclosure” anytime the corporation seeks stockholder action, such as in connection with a shareholder meeting proposal.
Indeed, “failure to disclose financial projections may be considered a material omission” as a recent law firm memo notes, and “selective disclosure of only some projections can be misleading.”
So if, for example, a board recommends voting against a proposal seeking an audit of the company’s DEI initiatives and asserts that such an audit is unnecessary because the board knows or believes “diversity is good for business,” any data supporting that assertion in the form of projected financial returns on investments (ROI) in diversity should arguably be disclosed.
On the flip side, if there is no such data — either because available projections do not support the proffered assertion or the company has never bothered to try to collect and analyze relevant data — then that should arguably also be disclosed.
(We’ll leave aside whether such a lack of data raises the specter of a breach of the duty of care, which requires fully informed decision-making.)
Advertisement Advertisement
The same principle should be applied to Environmental, Social and Governance (ESG) platitudes more generally.
To be sure, investments and expenditures can be made based on rational business judgement even when data is unavailable, or they may be necessary components of regulatory compliance rather than making a profit. But those rationales should arguably also be disclosed when applicable.
Accordingly, corporations should arguably be doing more to inform investors about the return on investment of their DEI and ESG investments.
But the left doesn’t seem to understand that. It has been persistently trying to refashion how policymakers and private-sector leaders understand their roles by insisting that their actions must have DEI and ESG focuses, apparently with no regard to how it affects a company’s financial health. Such an approach is completely misguided and politically manipulative.
The DEI and ESG agenda insists that policymakers and private-sector leaders see themselves as the stewards of a newly “woke” planet. In actuality, it is a way to force companies to take positions in the political arena on issues that may have nothing to do with the company’s actual business activities.
Advertisement Advertisement
As Heritage Foundation President Kevin Roberts pointed out in a recent op-ed, “leftist shrieking about the cruelty of markets and the rapacity of capitalism masks the truth that the wealth of nations is mostly a matter of policy, not privilege.”
Indeed, policies that enhance economic freedom — not the DEI and ESG agenda — make the society flourish with more inclusive opportunities for upward mobility through greater economic dynamism while enabling the world to be cleaner, safer and better governed. It is not hard to find the economic damage that is inflicted by heavy-handed and misguided government policies, which result in lingering uncertainty, deteriorating entrepreneurial environments, and lower employment growth.
As documented each year in the Index of Economic Freedom, the link between economic freedom, individual liberty, and prosperity around the world is unambiguous. In countries where people are free to compete, save and invest, nations thrive. Everywhere they’re not, they are stuck in misery.
By building on what works, we can accelerate our progress in the face of even the most difficult challenges and chart ever greater success. The key to that is to advance the four pillars of economic freedom: the rule of law, limited government, efficient regulation and market openness.
Advertisement Advertisement
Real-world trends already provide compelling evidence that the pathway to such improvements lies not with infringing on people’s economic freedom through DEI and ESG agendas, but with allowing their economic freedom to flourish.
That responsibility is to advance free people and free markets.
Stefan Padfield is a senior legal fellow at The Heritage Foundation and a principal in its Free Enterprise Initiative. Anthony Kim is Heritage’s Jay Kingham Research Fellow.
Advertisement Advertisement