Executive Summary

CEO activism, the growing trend of top executives speaking out on sensitive social and political issues, has been labeled the “new normal.” But when should CEOs speak out on a social issue? In some cases, taking a stand can be just as detrimental to the company’s bottom line as saying nothing — and vice versa. The author’s company, nonprofit sustainability consultancy, studied how different stakeholder groups perceive its clients. What it learned: Companies must consider values, not just shared value. Employees have become a company’s most powerful interest group. The polarization of an issue heightens the risk of speaking out. A CEO’s rhetoric must be aligned with the company’s dollars. And, whatever a CEO may say in public, the opportunities for a company to take direct action can be limited.

fotog/Getty Images

CEO activism, the growing trend of top executives speaking out on sensitive social and political issues, has been labeled the “new normal.” But behind the scenes, executives do not feel in control. They are struggling to anticipate and respond to intensifying pressure from the public, investors, and — above all — their employees.

There are conflicting views of how CEOs should proceed. One survey suggests the public wants chief executives to lead on social change without waiting for the government to act. A separate survey shows public support for corporate engagement on such issues as sexual harassment and equal pay — though not on gun control or abortion. A third survey indicates that brands may be punished for even mentioning President Donald Trump, regardless of whether they are being critical or complimentary.

Companies we work with at BSR, a nonprofit sustainability business network and consultancy, feel trapped: Although every conceivable action carries considerable risk, inaction may not be much of an option, either.

What to do, now that the neutral middle ground has become a quicksand? We have been working with businesses to develop a strategic framework for when to take a stand on social issues. It draws on the work of R. Edward Freeman and others regarding stakeholder theory, which offers a way of examining the interests of all groups affected by an organization — not just shareholders but also customers, employees, governments, suppliers, and communities. We started by studying how distinct stakeholder groups view our corporate clients’ positions on social issues. Here is what we learned.

Companies must consider values, not just shared value. Most companies prefer to prioritize their business interests in line with both fiduciary duty and the shared value approach to corporate responsibility, which connects business success with social good. This would suggest that companies should act only when there is a clear business case and an opportunity for direct action. For example, most would assume that it’s easier and more effective for the CEO to cut a company’s climate emissions than to take a stand on immigration. A CEO could be forgiven for thinking it’s safest to only weigh in on political issues that affect operational and strategic goals, industry dynamics, or a company’s regulatory and policy landscape.

But a company’s exposure to a political issue is also determined by its values. Values are determined by the company’s culture, mission, and voluntary commitments, along with the opinions and beliefs of a range of actors — not just customers but also employees, business partners, and civil society organizations.

We were surprised to find that when business interests and values conflict, values are the dominant variable. That’s why, although focusing on core interests may seem sensible, reality shows it to be untenable. Tech companies, for example, had little to gain strategically by opposing the Trump administration’s family separation policy. But Microsoft and Google found it impossible to remain silent in the face of employee demands for a response to what staff regarded as an assault on company values. The same dynamic may now complicate Google’s plans to re-enter China’s search market. Employee pressure can even drive significant turnover in senior leadership ranks, as happened recently at Nike, which earlier this year was sued for sexual discrimination by several former employees.

Employees are now a company’s most powerful interest group. In many ways, corporate power seems to be high: Companies prioritize shareholder value; union membership rates are at an all-time low; employment contracts for some jobs include nondisclosure clauses as standard features; certain sectors of the workforce are moving toward gig economy jobs with diminishing hourly rates and no health care; other sectors are facing unemployment as jobs are automated. So why are leaders responding so readily when employees pressure them to demonstrate integrity? Workers are freely using the tools of this hyper-transparent era — including petitions and email leaks — to land punishing blows against corporate reputations and finances, in the process emerging as companies’ most powerful interest group. At a time when the U.S. economy seems to be approaching full employment, employees have more influence over whether and how their leaders speak out.

Polarization heightens risk. Companies seem to face the greatest peril when an issue is politically polarizing to customers and has more to do with values than with long-term financial consequences. On Jan. 28, 2017, Uber cut congestion pricing to John F. Kennedy International Airport while New York taxi drivers were protesting President Trump’s new immigration policy; although the move was a financial one on Uber’s part, it was perceived as aligning the company with the “Muslim ban,” leading to the #deleteUber hashtag and to hundreds of thousands of riders deleting their accounts. Keurig faced complaints when it pulled advertising from Sean Hannity’s Fox News show. Delta drew outrage and lost tax breaks when it decided to end a travel discount for the National Rifle Association. Still, Target, after undergoing boycotts and petition drives for implementing a transgender bathroom policy in its stores, said it had suffered no material financial impact.

Companies certainly have tools to parse the views of their customers, but fretting over who is yelling the loudest on Twitter does not offer a firm ground for action. Basing decisions on corporate principles and employee values is a better approach than trying to navigate what is likely to be a broad spectrum of customer sentiment.

Your rhetoric has to be aligned with your dollars. Companies face heightened scrutiny over influence-peddling and corruption, which makes it much harder to decouple public rhetoric and private lobbying efforts. The Center for Political Accountability has called out companies on a range of issues, including contraceptive makers that indirectly fund political officials who aim to limit women’s reproductive rights. C-suite hypocrisy is now a media focus, with funding for business associations a particularly vulnerable flank. Climate activists have long highlighted the gap between the oil and gas sector’s softening rhetoric on climate change and the corporate funding for its trade group, the American Petroleum Institute, which has opposed numerous climate change policies.

Opportunities for direct action may be constrained. Companies are not governments, and their customers are not the electorate. So even when they want to take action, there are concrete limits on what businesses can achieve. Companies can accept or decline business, and they can tackle such issues as diversity and climate change in their own operations, but on pure policy matters like trade or immigration, there’s only so much they can do.

Companies know this well, but they struggle to communicate the limits of their ability to drive systemic social change, which leaves them at risk of raising expectations they cannot fulfill. For example, an incident of discrimination by staff at a Starbucks in Philadelphia led to public outcry against the company, which soon stood accused of helping foster gentrification and systemic racism in the U.S. This was a discouraging development, given that the organization has long mounted efforts to drive collaborative action on race and immigration issues, including a pledge to hire 10,000 refugees.

So the paradoxes multiply. While pressure to enhance shareholder value has not relented, companies are listening intently as they try to balance the needs and demands of a broad range of stakeholders. At the same time, powerful sections of the investment community are amplifying demands that companies move beyond empty posturing to better manage their social, political, and environmental efforts. Amid all the fuss, key shareholders seem to be concluding that prioritizing only profits may be neither smart nor sustainable. Behind the roiling divisions on specific issues, a consensus is emerging among markets, employees, and the public: Companies must fundamentally rethink their interactions with society.

Sending
User Review
0 (0 votes)