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Breaking the Vicious Cycle of Corporate Entanglement

Originally published in BCG HENDERSON INSTITUTE


This excellent article from the BCG Henderson Institute highlights how political issues are becoming centre stage for corporations. The article is well thought-out and raises many points that could do with broader discussion.


In the increasingly politicized environment, leaders face the choice of leaning into politics or having the courage of restraint by limiting engagement. We argue they should choose restraint, for the sake of business and society.


Once a business has expanded to the degree reached only by the very few I speak of, there is hardly anything in life it is not somehow involved with. It is a little cosmos. You would be amazed if you knew what seemingly quite uncommercial problems—artistic, moral, political—I sometimes have to bring up in conferring with my managing director.
Paul Arnheim, in The Man Without Qualities (Vol. 1, 1930)

By all accounts, we live in an increasingly polarized environment, one of intense disagreement across wide segments of society on difficult and sensitive issues. In such debates, which awaken strong emotions and deep commitments, support tends to be welcomed from all quarters, and corporations have not been the exception. The CEO press statement has become a coveted prize for advocates on all sides of an issue, creating a dynamic that feeds the expectation that businesses, much like individual citizens, ought to take sides on just about every contentious issue du jour.


Since corporate entanglement in political issues has itself become a hot button topic, we must first ask the reader for a temporary suspension of judgment and a fair hearing. If you are a great enthusiast of the CEO posting on LinkedIn in vigorous defense of your views, consider what you might think about that same CEO using his or her virtual podium to argue the opposite side of the issue. And if you are frustrated by what seems to be a relentless imposition of values from the top—some of which you don’t identify with—consider whether your frustration would not subside somewhat if the bosses happened to share your outlook.


These scenarios illustrate the difficulty of articulating a principled view of corporate entanglement — and the urgency of doing so. It is precisely such a view that we propose, one that marries the virtues of corporate restraint with a clear-eyed view of a business’s ethical commitments. We hope it will serve as an invitation for others to put forth their views on this increasingly important issue.


The virtue of corporate restraint


Corporate entanglement in democratic politics, even on the side of the angels, comes with significant risks and costs. The “politicization of business” can be a losing game for businesses because it strips them of control, creates friction, and positions them as targets of attack. It may also lead to undesirable economic outcomes, as political mistrust fostered by a business’s political intervention can impede commercial activities and dampen both growth and value creation.


Excessive corporate entanglement in democratic politics is also a losing game for democratic societies. It is tantamount to giving outsized power to non-representative and unaccountable entities, which distorts public, democratic contestation, and weakens democratic institutions.


For this reason, however alluring those short-lived moments in the sun of public opinion, corporate leaders should adopt an attitude of restraint in the face of contested societal debates that ought to be addressed through democratic processes and institutions designed for individual citizens to air their opinions and resolve their disagreements.

This is not to say that corporations should be ethically numb. On the contrary, they should decisively take sides in favor of the institutions that enable democratic contestation and decision-making—including the independence and efficacy of economic regulators.


Furthermore, corporations should come to terms with the issues in which they are inevitably entangled by dint of their business models (for example, a retailer must decide whether to sell cigarettes; a decision either way is unavoidable). On those issues, they should actively seek to create additional layers of civic and societal accountability. In any event, what corporations should not do is crowd out individual citizens from the democratic forum by getting voluntarily entangled in political discussions.


The problem of standing


The fundamental problem of corporate entanglement in democratic politics is one of legitimacy. Corporations have outsized power to shape public discourse and political decision-making, by virtue of their wealth and reach. However, corporations are not themselves democratically accountable entities—and this is by design. Private corporations certainly have their own forms of accountability (to shareholders and stakeholders), but they are not set up to be responsive to the views and preferences of the public at large. What a corporation does or thinks (including the press statements of its agents) is not even indirectly controlled by the body of citizens as citizens.


If corporations can tilt the scales of public discourse through their power and influence but aren’t designed to do so in a democratic manner, we should be concerned about the degree and nature of their involvement in political contestation. And we should be concerned regardless of which side businesses take on any given issue.


When corporations become sites of political contestation, we willingly confer too much influence in the public square to entities with enormous economic power that are not, nor are meant to be, democratically accountable.


The problem of standing is more acute now than it was in the past. Large corporations are bigger than ever before, and size matters—with it come reach and influence. In 2020, the 50 largest companies in the world by value were worth 28% of the global GDP, compared to only 5% in 1990. As corporate behemoths have grown bigger, it has also become easier for them to be politically vocal. And as the public square has become less mediated, there are fewer “hoops” through which a message must travel to reach its audience. A single social media post today can have a larger audience and greater impact than a 1990s press statement. In the age of Twitter, Charles Foster Kane wouldn’t have to buy the New York Inquirer.


When virtue backfires


Corporate entanglement may not only be of questionable legitimacy, it can also distract from the need to strengthen democratic institutions.


Democratic institutions are essentially a set of rules and processes designed to enable collective decision-making in a way that is responsive to citizens’ preferences and opinions. The quality and persistence of these processes largely depend on actual civic engagement. A sufficient number of citizens need to be sufficiently involved to sustain them over time.


The fact that democratic institutions depend on civic engagement also means that they are quite fragile. There is a long tradition of thought—from Rousseau, Constant, and Tocqueville to modern “social capital” theorists like Robert Putnam—that has rightly pointed out how difficult it is for civic engagement to persist and flourish in large commercial societies. There is just too much going on in our private lives, and the bonds of community tend to be too loose.


Politically vocal corporations acting with the best intentions can exacerbate the problem of civic engagement. They can make it easier for us to become complacent about our role as citizens, outsourcing advocacy and contestation to the vocal CEO. And they can also alienate us from the public square by turning public contestation into an uneven match against the power of the purse.


More concerning still is the vicious cycle between dysfunctional representative institutions and corporate entanglement. Frustrations with democratic processes and institutions—with, say, Congress’ inability to pass legislation or settle some issue in a particular way—have fueled expectations of greater corporate political engagement. By embracing those expectations, corporations risk further eroding these processes and institutions, turning the workplace into a site of political contestation—a task for which it is badly equipped. A company’s PR and HR policies are poor substitutes for adequate legislation and regulation.


Legitimizing inevitable entanglement


The concerns we are raising about corporate entanglement are grounded in a commitment to democratic values and institutions and are by no means “neutral” when it comes to upholding these values and institutions themselves. In fact, this commitment can be quite demanding, involving non-partisan encouragement of civic participation, support for evidence-based journalism, respect for the independence of market regulators, and support for campaign finance reform, to name a few. Business leaders should be prepared to stake a stand, and face challenges, to support the democratic “rules of the game” even when they come under attack.


Consistent with that outlook, we think business leaders should actively and consistently support legitimate, democratic channels while defaulting to non-involvement on issue-level political debates. These attitudes are of a piece: Corporations ought to be politically restrained out of respect for democracy.


The point is not that business leaders should never engage in political discourse, but that they should do so infrequently and cautiously, with a strong presumption that it is best to allow democratic deliberation and institutions to sort out socio-political disagreements.


So when can and should businesses get involved? The answer depends on one’s business model. As socially embedded institutions, corporations find themselves inevitably “taking sides” on issues directly involved in their core economic activities. Getting entangled on such issues is often beyond their control. In such cases, businesses should endeavor to legitimize their entanglement by adopting enhanced practices of social accountability.


Consider the case of an asset management firm, the business of which is to decide where to invest the money under its care—and, by implication, where not to invest it. Whatever the asset management firm chooses to do, its actions embody an implicit commitment, a taking sides of sorts. As a result, it cannot avoid entanglement on questions about ethical guardrails and the sorts of industries or companies that are (or should be) ruled out as investment vehicles on grounds of principle (e.g., those with clear ties to government corruption). This issue is inseparable from the decisions at the core of the asset manager’s business model. The asset manager is thus almost inevitably entangled, having to adopt a principled stance where other businesses don’t need to.


It is important that businesses create mechanisms of enhanced accountability for this sort of entanglement, which they can do in two ways. First, they should actively invite stakeholders—including employees, suppliers, clients, and regulators—to scrutinize their chosen mode of engagement on the issue at hand. Second, businesses should ensure that their involvement ultimately points to the appropriate democratic and/or regulatory forums for broader societal decisions. The asset manager deciding not to invest in companies known to engage in corrupt practices may want to involve Transparency International as a partner in vetting potential investment vehicles while also rallying public awareness around compliance standards, legal or otherwise, that should be adopted for the industry as a whole.


Objections and responses


Doesn’t the argument imply that powerful and wealthy civic organizations should be excluded from political contestation? No, it doesn’t. The problem of legitimacy doesn’t stop at the fact of the private corporation’s economic power; rather, the problem refers to the fact that this power is not conferred on the corporation by citizens for the purpose of political advocacy conducted on their behalf. In this regard, the private corporation is in a different class than, say, the National Association of Consumer Advocates and all other voluntary, not-for-profit civic organizations that aggregate individual citizens’ voices.


Aren’t CEOs entitled to voice their own opinions as citizens? Yes, of course they are. But, if our argument holds, good CEOs must understand that their personal political statements will often be difficult to separate from their corporate role and may have to rein them in accordingly. There is nothing unusual about this, and we have similar expectations about people in all sorts of roles with codes of professional ethics (defense attorneys, judges, journalists, etc.).


The argument assumes that all sides of an issue are equally acceptable—but on [insert your issue of choice], there is only one defensible position! The argument makes no such assumption; all it assumes is that there must be issues on which reasonable people can disagree passionately. Whoever rejects that assumption takes issue not with our argument but with the very idea of a pluralistic society. Democratic pluralism is difficult because it asks us to concede that “they” might be reasonable people despite disagreeing with “us” on something “we” care very deeply about. This demand—a sort of “double-think,” an ethically upheld cognitive dissonance—constitutes the admittedly fragile psychological basis of toleration. It is as difficult for us today as it was when it was first articulated in response to the religious wars that ravaged 17th century Europe.


What if democratic institutions themselves become a façade, a lie that one cannot in good conscience uphold? It is possible for unreflective support of democratic processes to morph into complicity with unconscionable, even barbaric, forms of politics. The 1933 German election is the most obvious example, but one needn’t go too far back to find others. When confronted with such situations, business leaders are in the same position as every other citizen, having to rely on their own judgement as to whether their democratic political institutions deserve the name. This is the breaking point of civilized politics.


Resetting expectations


Business leaders can take concrete steps to shape their role—obtained sometimes unwillingly, sometimes too eagerly—in polarizing social debates into something more constructive. While surely not a comprehensive list, we think there are six principles that can help corporations navigate our difficult political moment:

  • Commit to the democratic rule of law and do so consistently. This commitment should translate into active promotion of nonpartisan civic engagement, campaign finance reform, support for independent market regulators, and widespread public access to trustworthy information in the form of fact-based journalism. It also means that transnational corporations need to live up to the same standards across geographies and consider the viability of doing so when deciding where and how to expand.


  • Default to non-involvement. While the urge to take a stand is understandable, leaders should remember that in the long term, excessive political participation in the name of private corporations risks eroding democratic institutions and unduly influencing public contestation in unaccountable, possibly illegitimate ways. In the end, the weakening of the democratic rule of law may also weaken the foundations of business itself.


  • Understand areas of inevitable entanglement. Know your business, employees, customers, and other stakeholders, and understand where you must get involved, either in the interest of the business, or to protect a stakeholder, especially employees. Continue to assume that you will act cautiously, not going beyond what you must in order to ethically support the business or stakeholder. At the same time, continue working to bolster the process by which the issue is decided democratically.


  • Make entanglement accountable. Leaders should take a hard look at their inevitable entanglements: When and how do these require taking a stand? When they do require it, leaders should invite stakeholders to serve as watchdogs, ensuring that the business’s actions have adequate social and civic oversight. More broadly, where appropriate, such entanglement should push for consistent regulatory action.


  • Develop a principled narrative for your stakeholder ecosystem. With a clear outline of reasonable entanglements and the rationale for them, leaders can develop and make public to employees and customers clear principles about the boundaries of their involvement—what issues will they weigh in on, why, and how. This public commitment is valuable in two ways. First, it provides businesses an alternative to silence on social debates that are best left to individual citizens in the democratic forum. Leaders can use this commitment to explain that their non-participation is principled and grounded in respect for democratic contestation. Second, it prevents crises or short-term pressures from prompting counterproductive entanglement.


  • Empower employees to become more active and effective citizens using their own voice as individuals. First, ensure there is an ethical component to the employee value proposition, including fair wages, equitable benefits, and non-discrimination and harassment practices, going wherever possible beyond the requirements of the law (and where those vary across geographies, consistently adhering to the highest standard everywhere). Further, foster civic engagement by protecting time for employees to register to vote, cast their votes, and volunteer in elections. Also promote healthy, fact-based discourse by creating clear norms for open discussions at work, setting high standards of transparency, and supporting a safe and respectful environment for individuals across the political spectrum.

We realize that the issue of how corporations should deal with socially polarizing questions is itself a heavily polarizing one, and that we have left many questions unanswered. But we hope to have at least called into question the uncritical assumption that corporate entanglement on the “right” side of a political issue (typically one’s own side) is always a good thing. In our view, the role of corporate leadership in the political debates of a democratic society should be first and foremost to support democratic processes and institutions themselves while exercising restraint in deference to the voice of individual citizens.

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