Why CEOs go “woke”—and why they shouldn’t

Why CEOs go “woke”—and why they shouldn’t

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Following cues from social and environmental activists, many CEOs are now signaling the wokeness of their companies. They extol the virtues of ESG (environment, social, governance) goals such as fighting climate change and increasing biodiversity to promoting racial justice, income equality, and higher taxation.

The poster CEO in the United States is Larry Fink of BlackRock who has been sermonizing about woke stakeholder “capitalism” for some time. In 2019, Fink persuaded his 200 fellow CEOs on the Business Roundtable to redefine the corporate purpose from serving shareholders to benefiting all stakeholders equally.  

Other executives have joined the woke movement, most recently Amazon’s CEO Jeff Bezos. As the Biden administration is planning to increase corporate taxes, Bezos has endorsed a higher corporate tax rate (knowing full well that corporations don’t pay income taxes—their employees and customers do, through decreased wages and higher prices).

In Canada, the CEOs of the major banks are at the forefront of corporate wokeness. As Terence Corcoran reports in Financial Post, the banks’ leaders make pronouncements about “racial and gender diversity, climate and carbon issues, social responsibility, net-zeroism, charitable giving, COVID guidance.” They label this as “thought leadership”—and urge government action in all areas.

In France, the shining example of ESG wokeness is Emmanuel Faber, the (now former) CEO of the yogurt-distributor Danone who famously claimed that Danone had managed to “topple the statue of Milton Friedman” by placing ESG goals ahead of profits.

Why do CEOs go woke?

Some seem to be true believers, such as Faber. As Terence Corcoran writes, Faber deliberately worked to shift Danone’s focus from serving the shareholders to creating value for stakeholders. He scored a major victory in 2020 when Danone changed its legal structure to do so. (In a stroke of poetic justice, Danone shareholders later turfed Faber as various environmental initiatives threatened to swallow the company’s profits).

However, most CEOs go woke because they are pragmatists. They believe that by appeasing the woke among their employees (which unfortunately include many business school graduates today), customers and investors, they believe to be protecting their companies’ profits—and their own generous compensation packages.

Rather than being true believers, these pragmatists pay lip-service to the causes they believe their stakeholders and shareholders hold dear. They virtue-signal, like the leaders of Canadian banks who posture as thought leaders on ESG, or like Larry Fink, who pretends to divest BlackRock of fossil fuels and has made a large portion of his fortune from them.

Why should CEOs reject ESG wokeness and virtue-signaling about it?

Before embracing or virtue-signaling about ESG initiatives, such as net-zero carbon emission goals and advocating for more taxes, CEOs should pause to think about the proper role of business in society. In their enthusiasm for environmental and social goals, they may have concluded that the focus on profit maximization is not necessary and that Milton Friedman’s statue deserves to be toppled.

But such a conclusion is wrong. The proper role of business is to produce and trade material values from food and medicine to insurance policies and smartphones (that we all need to survive and flourish), not to fight climate change or ensure income equality. If business didn’t produce and trade material values, we would be reduced to subsistence agriculture of our ancestors—and to their miserable poverty.

Producing and trading material values require the pursuit of profits as motivation. Without a potential to earn a return, there would be no shareholders willing to invest their capital in business. The legal fiduciary duty is therefore to the shareholders, and not stakeholders. Shareholders risk their capital without which the business could not exist and thus deserve to profit.

Producing and trading material values profitably is a demanding task. It requires a full focus on reality: how to structure and operate a business that employees want to work for, to create the best possible products and services for which customers are willing to pay more than the cost of production. Performing that task well doesn’t allow diverting efforts to pursuing biodiversity, income equality, or another pet project of the CEO.

The good news is that the focus on profit maximization, and not on ESG initiatives, will lead to win-win outcomes for all: better products and services at lower prices for customers, higher returns to shareholders (and more investment in further production), more and better-paying jobs for employees, and a cleaner environment and more efficient energy use (through investment in technology).

Wokeness can be resisted, as the Canada Pension Plan Investment Board’s new CEO John Graham has done by refusing to divest its fossil fuel holdings.  If his fellow CEOs want to maximize profits and win-win outcomes for all, they would do well by following Graham’s lead and saying ‘no’ to wokeness.

Photo by Callum Shaw on Unsplash.

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6 Responses

  1. True ‘woke’ ideology explicitly rejects what is essential to business and life – rationality. Pandering is of course irrational – what you call ‘pragmatic’. It is also foolish behaviour, as attackers know they ‘can have you’ – that you will compromise under pressure.

    ‘Woke’ is another extreme form of using emotions as means of knowledge, so inevitability favours certain interests, with a strong element of teachings of the most murderous ideology of the 20th century, one that teaches violence. Businesses will be a target, as it blames them for all ills – as David Suzuki, high priest of environmentalism, did in his speech sanctifying the ‘Occupy’ mob in Vancouver BC (which invaded a private business).

    What you all term ‘woke’ is a combination of decades old schemes. Such as ‘Stakeholders’, based on the notion that business is intrinsically unfair so has to be forced to ensure customers are not cheated and ‘society’ gets some benefit beyond the creativity and productivity of a successful enterprise in a society with a justice system.

    History is littered with the carcasses of businesses that failed because they did not serve customers well. Amazon and Microsoft exist because they did something others couldn’t or wouldn’t do (produce a computer operating system for IBM who took a chance on an upstart, organizing to sell books by mail order in the case of the Bezos couple).


    1. Thanks, Keith, for excellent notes on “wokeness” and the long history of irrational appeasement. Pragmatism in this case means exactly the latter: doing whatever seems to work, for now. The woke CEOs I write about about in the post are trying to gain the approval of the enemies of business in the short term – which leads to the destruction of business down the road.

  2. Right, I think there’s a psychological problem, causes of which might include guilt for success, second-handing (the concept from Ayn Rand’s best-selling novel The Fountainhead), and negativity.

    The glitzy business lady from the Dragon’s Den TV show who lives in Calgary is a climate alarmist, a belief system based on a negative view of humans. She may be a good research subject.

    Lack of actual thinking skills may be a factor, such as figuring out essentials in all the blather about instead of being shallow, (ethics too (noting those listed as key factors for success in the book The Essence of Leadership by Edwin A. Locke et al). For example, a business person who got where she now is by being shady will feel guilt and not have excellent thinking skills because her mental focus is off kilter.

  3. https://www.realclearinvestigations.com/articles/2021/05/13/the_high-pressure_business_of_selling_woke_corporate_armor_776879.html may be interesting.

    Some activists are making money working as coordinators of equity/race/etc. efforts in government and companies, with ‘Manager’ titles. Jesse Jackson has been accused of motivating General Motors to contribute to favoured efforts in return for he laying off criticizing them (he and others trade on Martin Luther King Jr.’s memory to do what does not fit his ‘content of character’ maxim). Some former neo-Marxist terrorists are now in paid positions with government or seemingly mainstream activist organizations. Activists have taken over foundations started by successful business people and established charitable organizations.

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Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada.

She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada.

Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.

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