Originally Published in Bloomberg Business Week
Discord over everything from global warming to abortion has led politicians to punish businesses, which are beset by competing views from employees and investors.
Not that long ago, corporate executives had a single thing to worry about: profit. It was the raison d’etre, and it largely determined a company’s stock price, its ability to pay out dividends, and its longevity as a going concern. The public lionized old-school business leaders such as General Electric Co.’s Jack Welch not because of their winning personalities or social media savvy, but because they could reliably deliver growing profits year after year.
No longer. For today’s chief executive officers, the traditional financial metrics such as earnings and return on investment are being eclipsed in the boardroom and society by the demand to satisfy constituencies or take a stand on issues like abortion, global warming, and racial and gender equity. There’s long been that pressure from Democrats and liberals. But as the Republican Party has evolved from a body focused on tax cuts and less regulation into one driven by identity politics and White grievance, the pressure on businesses to pick sides will only grow.
“Society is calling on companies to become more human,” says Davia Temin, founder of New York-based crisis consulting firm Temin and Co. and a corporate coach. “All the new responsibilities that companies are claiming and grappling with are being put to the test. The consequences for getting this wrong are humongous. And they are career limiting.”
If there was any question about the new expectations for corporate America in the town square, the current furor over abortion access is putting that to rest. Politico published a leaked draft ruling that seems to indicate a majority of the Supreme Court has agreed to overturn the Roe v. Wade precedent that has kept abortion legal in most cases for almost 50 years. Fear on the left—and hope on the right—has spurred an urgent call for companies to take a stand. The result is chaos as states scramble to ban abortion or create protective havens for it, and companies stumble into the fray.
Business’s perennial standby position that employees should keep politics out of the workplace makes little sense to many of those for whom the home has become the office in the wake of the Covid-19 pandemic. And with about 1 in 5 Americans continuing to say abortion should be illegal in all cases at the same time that almost a third say it should always be legal, there are only wrong answers for companies caught in the debate.
“There is a difference between corporations being political and corporations being activists,” says Joe Zammit-Lucia, author of the book The New Political Capitalism: How Businesses and Societies Can Thrive in a Deeply Politicized World. “Being political means finding a way forward among many conflicting opinions. Being activist means taking one side, taking one view, and being activist around that.”
For brands like Hobby Lobby, Ben & Jerry’s, or Patagonia, taking stands is part of the culture. Most companies, though, risk looking foolish or hypocritical when they weigh in on issues, he says.
Through the 1980s, ’90s, and the first part of the 2000s, CEOs lived with the idea that somehow business was separate from society, and their role was to make money and not get involved in anything else, Zammit-Lucia says. But that apolitical stance was always a delusion, given that companies were making huge political contributions and spending billions of dollars on lobbying, he says.
The Conference Board, a leading research organization for corporations, said in a report released Thursday that companies need to do an annual, comprehensive risk assessment of political activity to avoid being caught up in unnecessary controversy. In an earlier survey, two thirds of companies said that the environment for corporate political activity was challenging, and 87% said 2022 would be worse, the group said.
While companies usually faced mainly reputational damage for their social actions, politicians are increasingly eager to craft legislation that can be used as a cudgel against businesses that don’t share their social views. A conservative Texas lawmaker warned Citigroup in March that the bank could be barred from underwriting municipal bonds in the state and that its officers and employees could face criminal prosecution unless it backs off its abortion travel policy.
Texas Comptroller Glenn Hegar sent letters to 19 financial firms warning they could be barred from doing business with state entities or have state pension funds divest their stocks if they violate a new state law that prohibits companies from “boycotting” fossil fuel companies—one of the demands many CEOs today face from climate activists. And former Vice President Mike Pence, a potential GOP presidential candidate in 2024, added another volley in the business culture war on May 10 when he criticized investor campaigns to force companies to follow socially conscious investing principles, saying they elevate “left wing” goals.
Republican members of Congress had already called for the cancellation of US government contracts with Citigroup, which provides the credit cards that members of the House of Representatives use to pay for flights, supplies, and other goods. Then, on May 4, Republican Senator Marco Rubio of Florida introduced a bill to remove tax breaks for what he considers to be “woke” corporations. The legislation would prohibit employers from deducting expenses related to their employees’ abortion-travel costs or to the cost of gender-affirming care for their young children.
On the left, companies that give to Republicans who oppose abortion are also being singled out for criticism by activists, even as the businesses say they give to politicians on both sides of the divide.
Meanwhile, some Senate Democrats are taking aim at tax breaks for companies such as Amazon and Starbucks that are opposing their workers’ union organizing activities. Their bill would propose that employers’ spending on anti-union activities qualifies as political speech under the tax code, barring those companies from deducting the costs on their taxes. “Hundreds of millions of dollars are being spent every year busting unions, and they spend all of those hundreds of millions, and then they get a tax break from our tax code,” the Pennsylvania Senator Bob Casey said on May 12 at a press conference announcing the anti-union busting bill.
Companies to some extent have brought this on themselves, after promising in recent years to shift from shareholder capitalism, focused solely on profits, to so-called stakeholder capitalism, which takes into account a broader suite of issues of interest to its customers, employees, and investors, such as workers’ rights, climate impact, and social concerns, says David Larcker, a professor at the Stanford Graduate School of Business, who studies CEO performance.
Business today is more than “we make a good product, we do it on time, and we back things up,” Larcker says. “Now we’ve gotten into these broad-ranging issues related to abortion, or the war in Ukraine, and oil and gas, and a whole host of ESG things.”
As the country braces for the Supreme Court decision on abortion rights, CEOs and corporate directors must decide how to balance the risks of alienating customers, employees, investors, and lawmakers, says Dipanjan Chatterjee, vice president and principal analyst at market researcher Forrester. Its research shows fewer than 1 in 5 customers act on their disdain for corporate positions or lack thereof. But with almost half of employees today thinking about seeking a new job, companies can ill-afford to anger their own workers.
Walt Disney Co. learned that first-hand when angry employees took to social media after the company failed to speak out against Florida’s “Don’t Say Gay” bill, which limits discussion of sexual orientation and gender identity in schools. Their outcry led CEO Bob Chapek in March to acknowledge that Disney had opposed the bill all along but had sought to avoid saying so publicly while it engaged with lawmakers behind the scenes.
That candor led Florida GOP politicians to pass a bill in April revoking the company’s special self-governmental status around its Disney World properties. And on May 10, Republican Senator Josh Hawley proposed shortening the time companies can protect their creative work through copyrights—a move he said will “take away Disney’s special privileges.”
Activist investors are also seeking to force boards to take clear positions, which could cause trouble with politicians like Pence. Retailers Walmart Inc. and TJX Cos faced shareholder proposals involving employee abortion rights this spring, while Home Depot, Pfizer, and JPMorgan drew shareholder proposals claiming their political contributions were at odds with their corporate values.
Chatterjee says today’s CEO has to imagine he or she is moving a slider on a control board to find the position that provides the least damage to the company. For many, he says, the futility of that exercise will keep them silent. —With Paige Smith