CEOs Must Start Selling Capitalism

Alexandria Ocasio-Cortez wants the government to pay those “unwilling to work” and to end air travel as part of her Green New Deal. Kamala Harris likes the idea of free medical care for all Americans; Bernie Sanders would throw in free college. And Elizabeth Warren seeks to upend hundreds of years of U.S. legal tradition by making CEOs subject to personal criminal prosecution for misdeeds in their companies. This follows two years of President Donald Trump publicly assailing CEO decisions ranging from GM plant closings to Twitter algorithm tweaks.

So should CEOs be battening down the hatches amid all this populist campaigning against business leaders—and even calls for outright socialism?

Not exactly. “You can’t overreact to the shrillness you’re hearing out of Washington and other places,” says Mark Hogan, a global advisor to Toyota and a member of its board. “You control what you can control. You do your best in supporting the communities where you work. You can’t wring your hands about the other stuff. These things go in cycles.”

But that doesn’t mean CEOs should stay silent. Instead of simply kissing off the threat of fundamental changes to our economic system, some business leaders understandably want to engage their constituencies in defending free enterprise and address their concerns, especially among young consumers.

“We need to be telling that positive story to make sure all the things that business represents today are clear and understood and put in a historical context,” says Idie Kesner, dean of the Indiana University business school in Bloomington, Indiana. The trick, of course, is how.

MAKE A CASE FOR BUSINESS

CEOs can begin by highlighting the current U.S. economy that—despite recent hiccups—includes low unemployment, rising wages, increasing consumer confidence and productivity that is finally climbing. Worldwide, standards of living are rising as never before, thanks to industry-led revolutions in technology, medicine, manufacturing and more.

Many icons of modern life also illustrate these benefits. For Apple, it could be as simple as explaining how a government committee couldn’t have created the iPhone. And Uber and Lyft wouldn’t exist in a socialist straitjacket of overregulation and union control.

“Unlike a college professor who has to rely on blackboard economics to tell the story of market discipline,” says Emily Chamlee-Wright, president of the Institute for Humane Studies at George Mason University, “companies can actually tell the story of how they’re creating value.”

WARTS AND ALL

Capitalists’ toolboxes must include more than just defiant salesmanship. The case for free markets must also acknowledge that the past few decades have shown an ugly side of capitalism. “Corporate executives launched the greatest epidemic of executive corruption in American history in the early 2000s,” which soured middle America on the Fortune 500 and Wall Street, argues Chuck Underwood, a management consultant and speaker on generational differences.

These days, it behooves companies to adjust to the new reality that younger generation consumers and employees expect companies to stand for—and embrace—sublime purposes beyond merely generating sales and profits for shareholders, including social and even political causes. This shift is taking place mainly through greater consideration of ESG issues. Evansville, Indiana-based Berry Global, for instance, has joined about 30 other companies, including P&G, in the Alliance to End Plastic Waste to help end plastic waste in the environment, a cause célèbre among consumers.

It’s smart strategy. Since 2014, there have been nearly 300 ESG-related proxy campaigns in the U.S., according to FactSet. From 2009 through 2013, there were only about 80. CEOs have long relied on robust philanthropy to even out capitalism’s rough edges, but they may need to overhaul corporate giving as well. Many younger Americans seem unimpressed by traditional charities like United Way.

Kesner argues that it may be a matter of refashioning philanthropy to appeal to younger generations. “They must know where their money is going before they give it,” she says. “They must be able to relate to the cause it supports; they don’t see the generic benefit of philanthropy like previous generations do.”

THE PAY THING

Topics like income inequality can be even gnarlier. The issue ties into what many Americans identify as most offputting about capitalism—and most appealing about socialism.

Actual data can help here. Chief Executive’s annual study of C-level pay in the U.S. found median CEO comp in 2017 was around $350,000, just 6.7 times the median income for all U.S. workers, not 275 times, as is more widely reported.

Still, “On the fringe these days are people like Sanders and, on the other end, those who want to go back to the gold standard,” says Gary Tobin, a Fortune 500 communications veteran. “Both don’t work. But if you don’t self-regulate, you’re going to get regulated. Look at what happened to Wells Fargo.”

That serious consideration is being given to such ideas underscores the level of distrust in business right now. Fifty percent of millennials and Generation Z members surveyed by the Harris Poll earlier this year said they would prefer living in a socialist country, with huge majorities expressing support for government-provided universal healthcare and tuition-free college. They will make up 37 percent of the 2020 electorate.

“I hope that, like most young idealists, once they get through the learning curve of life and put their skills to work… they’ll start to sort all of this out and do some of their own learning on socialism and free enterprise,” says Dan Ariens, CEO of lawn equipment manufacturer Ariens. “That’s when reality may set in. I’m hoping they’ll decide that all their hard work shouldn’t be given away to a government that is going to be about as wasteful as any on earth. Keep it for yourselves, or donate it if you feel that sort of responsibility.”

Die-hard progressives warn against overreacting. Even they find it difficult to picture America turning into Sweden anytime soon. “Every generation when they’re 18 to 26 is more idealistic and liberal-leaning,” says Tim Hubbard, a University of Notre Dame business professor with liberal affiliations. “Is there something fundamentally different now? Maybe. But I don’t think in this election cycle or even six years out we’re going to see it. I’m not holding my breath.”

Read more: Elizabeth Warren’s War On Big Tech