This week Washington is the scene of Joe Biden’s inauguration as the 46th president of the United States. His ascendancy comes just two weeks after insurrectionists, incited by Donald Trump, violently stormed the Capitol to halt the official confirmation of November’s presidential election results.
The event sent shockwaves not only through US politics but across the world, as viewers watched events unfold live on TV.
But the mob’s behaviour also sent reverberations through corporate America, forcing many boardroom leaders to consider where they stood, with many taking policy decisions—the most high-profile example being Twitter banning Trump—or issuing statements to signal where they stand.
Given the way corporates both lobby and donate to politicians, board leaders find themselves facing tough questions about how to navigate a political landscape that is in turmoil. Should corporate leaders get involved in politics? What are the risks?
Finding an answer is no easy task according to Nell Minow, at shareholder advisory group ValueEdge. “It is always a risk for a CEO to speak out on a controversial political issue,” she says. “Problem number one: all political issues are controversial. Problem number two: it can be just as much risk for a CEO not to speak out.”
Changing attitudes
The evidence of companies taking some form of action after violence at the Capitol is widespread. After spending months labelling Trump’s tweets claiming election fraud as misleading, Twitter suspended and then permanently banned him from the platform. Other social media sites followed suit, as well as launching action to shut down accounts associated with the attack, far-right militia groups and conspiracy theorists.
Elsewhere, Apple, Amazon and Google acted to remove social media app Parler from their platforms because of its association with extreme right-wing views and activity.
—Richard Edelman
Corporate America also withdrew funding from Republicans who voted against the confirmation of Joe Biden as president. Among the big names were the Marriott hotel chain, Hallmark, Mastercard and American Express. US politics website Politico described the decision as “momentous”.
But this comes against a background of changing public attitudes and a growing trend for people to place their faith in business to make better decisions than political leaders.
The 2021 Edelman Trust Barometer, an annual survey of public attitudes around the world, reveals that business has replaced government as the “most trusted institution”. Trust in business climbed two percentage points to 62%, while trust in government fell three points. Even trust in NGOs was down.
The trigger, Edelman finds, is declining trust in the information given to the public by politicians through media outlets. According to chief executive Richard Edelman: “The events of this past year reinforced business’s responsibility to lead on societal issues, such as upskilling workers and racial justice.
“It has also led to new expectations of business expanding its remit into unfamiliar areas, such as providing and safeguarding information.”
Political funding
If trust is shifting towards business that makes the entire process of making political donations and lobbying a tougher judgment call: hence announcements to halt political funding. That did not happen just because of the Capitol riot. Recent reporting has seen many corporates come under pressure for sending funds to controversial figures or, as Minow puts it, “putting their money where their mouths are not”.
She points out that while most funding is bipartisan—donations to both Democrats and Republicans—the cosying up to politicians can become an “embarrassment” when the politics goes awry.
Of course, some contact with politics is inevitable. The issue, as Henley Business School governance professor Andrew Kakabadse sees it, is that part of a chair’s role is effective stakeholder engagement. “Depending on the nature of the business, there will always be a variable breadth and spread of stakeholders needing to be engaged.” And that may mean politicians. For firms dependent on government, Kakabadse adds, this kind of engagement is a “critical aspect of strategy”. The risk is built in.
Politics and ESG strategy
Nevertheless, taking a stand has its complexities, as Minow says. It’s an problem noted by many. Board adviser Kieran Moynihan says the storming of the Capitol “was a watershed moment for many large corporate US boards who realised that as they are putting ESG front and centre, the whole idea of donating and endorsing a political party seems somehow extremely inappropriate and may significantly damage [their] brand and reputation.”
—Nell Minow, ValueEdge
Mention of ESG is important. Environmental, social and governance questions have become critical for many US boards, driven by the demands of employees and customers but also pressure from big fund managers such as BlackRock, LGIM, Aviva, Hermes, Vanguard and State Street. The Covid-19 pandemic has only served to emphasise their importance.
Investors therefore keep a close watch on the policies and strategies of companies. The public statements of corporate leaders are under close scrutiny.
“Investors want companies to be apolitical, except when they don’t,” says Minow. “Ideally, my view is they should speak out in favour of issues that relate to their products and operations and customers: pro-environment, pro-inclusiveness and human rights; and stay out of comments on individual candidates and elected officials.
“Except when they have no other choice, and it’s near impossible to predict that ahead of time.”
CEO activism and market valuation
But speaking out—at least on some issues—may be less risky than it seems at first. Recent research looked at the effects of CEO activism—chief executives making statements on key societal issues. The researchers, Anahit Mkrtchyan, Jason Sandvik and Vivi Z. Zhu, from Northeastern and Tulane Universities, built a dataset of news articles and tweets from 2010–19 in which the CEOs of S&P 500 companies spoke out on big public topics of debate.
First, the research revealed a growing trend for CEOs to take a stand on an issue, from 5% in 2010 to 56% in 2019. More importantly, the markets appear to like CEOs with a strong point of view.
“Consistent with the positive market response we observe that firms with CEO activism enjoy higher market valuations,” the writers conclude. They find CEO activism is more accepted in society and may “help bolster” the relationship between companies and their stakeholders, especially employees. Moreover, boards reward CEO activism with “reduced likelihood of turnover and more future directorships”.
Heading a company and a board is hard and calls for good judgment. Adopting a political position may be nerve-wracking but at a time of political turmoil it may be inevitable. The public increasingly places its trust in the judgment of business leaders. Staying out of politics and national policy may be all but impossible. But it may all also pay off.