Guest article by Tor W. Andreassen.
While scientific research consistently highlights the benefits of stakeholder capitalism, it is paradoxical that legislators and business leaders are reverting to Milton Friedman’s shareholder capitalism.
Despite documented economic and social benefits of integrating corporate social responsibility into business strategies, the United States is witnessing a retreat from initiatives such as Diversity, Equity, and Inclusion (DEI) and Environmental, Social, and Governance (ESG). This shift appears to be driven more by fear of government retaliation and legal challenges than by conviction, resulting in policies that do not reflect best business practices or research-based evidence. With the rise of right-wing politics in Europe, can we expect a similar trend here?
Scientific Consensus on Stakeholder Capitalism
Decades of research have consistently shown that companies embracing stakeholder capitalism—considering the needs of all stakeholders, including employees, customers, communities, and the environment—tend to achieve superior economic performance and long-term sustainability. The table below provides an overview of key studies:
| Study | Key Findings | Conclusion |
|---|---|---|
| Porter & Kramer (2011) | Companies integrating social responsibility into their business model achieve competitive advantages and better long-term returns. | Corporate social responsibility (CSR) can drive innovation and enhance business sustainability. |
| Margolis & Walsh (2003) | Firms with a strong focus on social responsibility perform better economically over time. | Social responsibility aligns with shareholder interests in the long run. |
| Awaysheh et al. (2017) | CSR initiatives can enhance corporate reputation and attract talented employees. | Responsible business practices serve as a source of competitive advantage. |
| Surroca et al. (2010) | Social responsibility positively impacts financial performance, especially in industries with high public exposure. | Investing in social responsibility improves economic outcomes. |
| Luo & Bhattacharya (2006) | Companies with a strong corporate social responsibility profile experience higher customer satisfaction and stronger financial performance. | Social responsibility strengthens both brand reputation and customer loyalty. |
| Sen & Bhattacharya (2001) | Consumers are more willing to support companies perceived as socially responsible. | Withdrawing from ESG and DEI initiatives can weaken customer loyalty and market share. |
| Turban & Greening (1997) | Companies with positive social responsibility reputations attract more qualified job applicants. | Abandoning DEI and ESG initiatives may increase employee turnover and talent loss. |
| Berry et al. (2024) | Firms with a Social Profit Orientation (SPO) create long-term value by balancing financial performance with social impact. | SPO leads to sustained competitive advantage and enhanced stakeholder trust. |
Political Backlash and Legal Challenges
Despite this research-based support, there has been a significant political backlash against DEI and ESG initiatives. In January 2025, President Trump signed Executive Order 14173, directing federal agencies to “combat unlawful private DEI preferences” and promote “merit-based opportunities.” This order has created uncertainty among businesses regarding the legality of their DEI programs.
As a result, several major corporations have started scaling back or modifying their DEI and ESG initiatives. For instance, Coca-Cola, McDonald’s, Google, Accenture, Meta, Target, and all four major consulting firms have announced that they will no longer pursue specific DEI targets. Their leadership cites changes in the legal landscape and new federal guidelines. Similarly, multiple major banks have reduced mentions of DEI programs in public reports, partly due to concerns over legal repercussions.
Consequences of Non-Evidence-Based Policy
This retreat from stakeholder capitalism in favor of a narrow focus on shareholder value represents a departure from evidence-based business practices. By ignoring the scientific consensus on the benefits of integrating social responsibility into corporate strategies, companies risk undermining brand equity, long-term financial performance, and overall societal well-being. Moreover, alienating employees and customers in the process only compounds the issue.
This paradox—where political decisions and corporate strategies diverge from empirical research—raises critical questions about how fear and political pressure can negatively shape business practices, ultimately harming industries, consumers, employees, and society at large. Science and truth will prevail.
Tor W. Andreassen
Professor of Innovation at NHH Norwegian School of Economics
Director for the research center Digital Innovation for sustainable Growth
References
- Awaysheh, A., Heron, R. A., Perry, T., & Wilson, J. I. (2017). On the Relation between Corporate Social Responsibility and Financial Performance. Strategic Management Journal, 38(2), 413–431.
- Luo, X., & Bhattacharya, C. B. (2006). Corporate Social Responsibility, Customer Satisfaction, and Market Value. Journal of Marketing, 70(4), 1–18.
- Margolis, J. D., & Walsh, J. P. (2003). Misery Loves Companies: Rethinking Social Initiatives by Business. Administrative Science Quarterly, 48(2), 268–305.
- Porter, M. E., & Kramer, M. R. (2011). Creating Shared Value. Harvard Business Review, 89(1/2), 62–77.
- Sen, S., & Bhattacharya, C. B. (2001). Does Doing Good Always Lead to Doing Better? Consumer Reactions to Corporate Social Responsibility. Journal of Marketing Research, 38(2), 225–243.
- Surroca, J., Tribó, J. A., & Waddock, S. (2010). Corporate Responsibility and Financial Performance: The Role of Intangible Resources. Strategic Management Journal, 31(5), 463–490.
- Turban, D. B., & Greening, D. W. (1997). Corporate Social Performance and Organizational Attractiveness to Prospective Employees. Academy of Management Journal, 40(3), 658–672.
- Andreassen, T. W., et al. (2024). Social Profit Orientation and Sustainable Value Creation. Journal of Marketing, 88(1), 35–52.
Image credit: Harold Mendoza.
