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The writer is founder of The Ethical Capitalism Group. James Leitner of Falcon Management and Paul Rissman, co-founder of Rights CoLab, also contributed
Can capitalism be made into a force to serve the greater good and solve society’s most urgent systemic problems? As former institutional investors, we believe it is time for capitalists, especially asset owners such as pension funds, university endowments, foundations and sovereign wealth funds, to stand up for democracy.
There are clear indicators that declining democratic rights are correlated with poorer investment returns, lower growth and economic instability. This issue should be front and centre for investors. Capitalism without democracy is oligarchy, with winners and losers determined by autocrats.
Asset owners and their investment managers can learn not only from 20th-century history, but from the warnings of academics that US democracy is in peril. Such capitalists should be better informed than the general public about investment risks, and given their responsibility for allocating capital, they must not ignore the dangers to their investments and the economy as a whole posed by the decline of American democracy.
Historian Timothy Snyder and philosophy professor Jason Stanley are among those in no doubt that it is time to act. As Snyder explained in a recent interview: “The thing about these transitions is that you have to start acting right away.” By the time autocracy appears clearly, he added, “it’s already all over and you’re already in trouble; you have to start acting right away, even though you’re not exactly sure what’s going to happen”.
Snyder argued that now is our last chance to stop “system meltdown” in the 2024 presidential election, and warned of the urgency in convincing corporations to stop funding racially-targeted voter suppression through their support of political parties.
Holocaust survivor Batsheva Dagan last year asked at a memorial at Auschwitz: “Where was the world, who could see everything and yet did nothing?” A similar question will be asked by stakeholders and the public of the university endowments, foundations and pension funds that are some of the nation’s largest, most influential asset owners, if they do nothing to address the erosion of US democratic rights.
But corporations will not stop funding the legislators who are behind the voter suppression measures unless Wall Street investment managers ask them to, and investment managers will not take action unless asset owners ask them to. Politicians will not be able to save our democracy alone: asset holders can and must do their part.
To return to Dagan’s question, why do people fail to act? Part of the answer is that addressing the decline of democracy forces us to go beyond our normal patterns of activity at work and in our leisure hours. For a long time, we enjoyed the luxury of taking our freedoms for granted. But this must change. Those who spoke out in the past took far greater risks than asset holders must take now.
If we do not save our democracy, it will be much harder to solve other existential problems, such as climate change and economic inequality. In response to a US Supreme Court ruling that upheld discriminatory voting laws in Arizona, Stanley commented that it was “hard to see how even the semblance of democracy will survive”. And in that case all ESG will be off the table.
In his book Citizens DisUnited, pioneering shareholder activist Robert Monks wrote that “our foundational democratic system [is] being wilfully shredded by far more than a handful of leading American corporations”. Of “the Great and Good of investing — there are not and cannot be any innocents . . . [To] have known vast harm was being done and to have had the power, standing and resources to intervene, and yet to have failed to act. That is a shame not easily overcome . . . The time is right; the need, great. This is the moment to decide.”
It doesn’t have to be this way. Indeed, it must not be. Leading institutional investors are duty-bound to protect their beneficiaries from systemic financial risks. If they fail to act, they violate this obligation. We call upon asset owners to recognise the threat that the erosion of American democracy and rule of law pose to the safety of their investments and to act to eliminate this risk. It will feel strange to act first, but others will soon follow.