Should Companies Take a Position on Political Issues?
November 17, 2021
Recently, several state legislatures have been passing tighter voting laws, some of which might make it more difficult for certain American to vote. Georgia’s legislature made it harder to do absentee voting and gives the Georgia legislature more control over the voting process. President Joe Biden labeled Georgia’s legislative actions ”Jim Crow in the 21st century.” Two major companies headquartered in Atlanta — Delta Airlines and Coca Cola — viewed these new voter laws as too restrictive and anti-democratic. These companies publicly called the new laws “unacceptable.” And Major League Baseball decided to move its scheduled annual all-star game to another State.
Shortly afterwards, the Business Roundtable, representing the CEOs of many major U.S. companies, said “unnecessary restrictions on the right to vote strike at the heart of representative government.” Following this, two major companies headquartered in Texas — America Airlines and Dell Technologies — came out against a proposed Texas law that aimed to limit voting hours and ban drive-through voting.
The willingness of these companies to publicly object to specific political legislation represents a new business move, and possibly a new level of business posturing.
To see this in perspective, there was a remarkably long period of time when businesses were all focused solely on profit maximization. They followed University of Chicago Professor Milton Friedman’s advice to strictly maximize profits and ignore supporting causes or taking a stand on social or political issues. Milton Friedman and Margaret Thatcher of the U.K. were the ideologues of neoliberalism that had dominated all business schools and CEO suites.
Things began to change in the 1970s when critics called upon companies to start distinguishing between shareholder capitalism and stakeholder capitalism. The idea was that companies owed their success to a large number of stakeholders — customers, employees, suppliers, distributors, and communities — not only to shareholders who had supplied the capital. This further meant that a modern company would aim to reward equitably (not equally) all the stakeholders who contributed to the company’s success. It was further argued that by the company rewarding all its stakeholders, the company’s shareholders would earn a higher return than if the company only aimed to make profits for the shareholders. Much evidence piled up that companies operating on a stakeholder point of view actually produced higher returns to their shareholders.
The next development was the growing concern about climate change. The fossil fuel energy foundation of modern industry was polluting the air, heating up the planet, and causing more hurricanes, fires, and droughts. Some leading business firms agreed to add “sustainability” as one of their aims, along with profits. Perhaps the best example came from Unilever’s CEO Paul Polman who developed the following goal for Unilever: Polman aimed to double the company’s growth, halve its environmental impact and triple its social impact. Unilever’s annual sales rose from $38 billion to more than $60 billion during Polman’s 10 years of managing Unilever.
Then in January 17, 2018, Larry Fink, CEO of the important Black Rock Investment Group, made the following announcement to fellow CEOs:
“Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society.”
He suggested that companies should be able to show how their annual activities have made a positive contribution to society. Several company CEOs — Starbucks, Levi Strauss, Nike, Body Shop, Patagonia, Ben and Jerry’s — had already been guiding their companies to make a positive contribution to society. These companies acknowledged the existence of social problems — hunger, homelessness, food waste, hard drugs — and opened their philanthropic purse to support social causes.
However, companies generally avoided commenting publicly on legislative actions. When some political issue surfaced, they would handle it quietly through the lobbying process and not make public statements. Are we now at a new stage where some major company CEOs are willing to publicly state that legislators are moving against the public interest and common good?
The Issue of Whether to Take a Political Stand
Legislators are clearly an important power group that exerts a strong impact through their public statements and their legislative decisions. Their task is to represent the interests of the voters in their districts. Often, however, they also pay attention to their donors’ interests and their political party’s interests. This explains why there are many occasions where new legislation deviates from public interest as indicated by polls. For example, polling indicates that 80% of Americans favor assault weapon gun control and yet legislators resist passing any assault gun control legislation.
CEOs also represent an important power group. They may have opinions on legislative activity but they normally keep it to themselves or use lobbying activity to shape political affairs in their interest. What is new in this Georgia incident is how some companies have publicly dared to criticize current legislators and their policies.
Consider the tough decisions of Delta Airline and Coca Cola in this light. The first question is whether these CEOs took time to estimate how these public statements against legislators would affect their customers, employees and stockholders. How many customers would Coca Cola lose or gain by such a public announcement? Would Coca Cola’s employees be pleased with their statement? Would their stockholders be upset? If the CEO thought that all three groups favored Coca Cola’s public statement, the CEO would go ahead. If the CEO thought that all three groups would oppose this public statement, the CEO wouldn’t make it. If the three groups were split in their opinion, the CEO would find it a tough decision to make. Normally, the CEO would first clear the decision with the Board, and follow the Board’s advice.
All this makes it clear why company CEOs generally stay away from making public statements on legislative matters. They would find it hard to gather knowledge of the thinking of their three key groups. My guess is that while companies will continue to go public about supporting sustainability, they are much less likely to make public statements about negatively viewed legislators’ decisions.