PATRIOTIC CAPITALISM, GEOPOLITICS AND THE BOARDROOM: Should directors consider devotion to country when making decisions that affect their companies?

• Author: Montelongo, Michael

No human-designed process, system, service or structure is infallible; by definition, a construct like capitalism is imperfect. Comparatively, however, it has an impressive track record of proven success as an economic model with many more pluses than minuses. The pluses include reduced poverty, elevated material well-being, increased national competitiveness and general societal prosperity. No other economic system has done or can do that.

We witnessed this system reach its zenith in the decades since the end of the Cold War (until very recently). In an environment that many assumed was geopolitically risk-free, David Ricardos theory of comparative advantage flourished. Business activity went to where it could most efficiently be conducted and laissez-faire globalization--global free trade based on unimpeded flows of inexpensive capital, labor and energy--gave us an unprecedented period of rapidly expanding and broad-based prosperity where the world economy tripled, almost every country grew richer and more than 1 billion people escaped extreme poverty to join history's first global middle class.

Suddenly and sadly, the unprovoked attack on Ukraine by Russia on Feb. 24, 2022, shattered that peaceful paradigm, altered the rules-based global order, reintroduced great-power competition and ushered a transition from a unipolar world to a multipolar structure of blocs. It was a rude awakening reminding many that history--expressed as great-power rivalry--never really ended after the first Cold War. Capitalism, expressed as globalization, is again evolving and entering a new and riskier phase because nationalities matter once again as they did decades ago. Nations are taking sides.

Meanwhile, there has been much recent discussion and commentary in the United States about capitalism's most recent expression--stakeholder capitalism and its close cousin, ESG--catalyzed partly by environmental concerns. These concepts generally maintain that employees, customers, suppliers and communities merit as much consideration as do shareholders. While fiduciary duties still require a focus on shareholders, it seems prudent and reasonable to consider other key constituents who contribute to a corporation's success, particularly when those interests align with shareholders.

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