The Trump administration's 2017 travel ban against the seven Muslim-majority nations was a shocking event in many ways. Besides the widespread public outrage, the overwhelming response by the business leaders against the ban was commendable. It was not a singular instance when profit-making and shareholder's value-maximizing companies went out of their way to take a stand. Over the past two decades, there are several instances where the heads of the companies have strongly represented their stance on a political or social issue. However, the situation was drastically different if we look further into history. Traditionally, companies have seen themselves as profit-makers. Their sole purpose of existence has been to maximize value for their shareholders. If they spoke their minds, they risked alienating their customers having differing views and opinions and invited a negative impact on their topline and bottom-line. As such, businesses have conventionally tried to maintain their distance from the controversy over a politically and socially charged issue.
The tendency and acts of CEOs to speak on matters which are unrelated to their business and are generally about social or political issues has been termed as CEO activism. CEO activism has been a step towards challenging the status quo and framing the debate in the zeitgeist. Further, business leaders can be seen leveraging their positions of power to influence the masses.
However, the engagement by business leaders on social or political issues leads to risk of prospective customers of differing political views and beliefs. Considering that this risk is larger now with the advent and reach of social media and light paced information sharing, an inquiry into factors instigating such risky and 'activist' behavior by the heads of the businesses is mandated.
There are multiple reasons behind rising CEO activism. Primary of these reasons is the defining the role of corporations in the society in which they provide goods and services. Accordingly, some point to their corporate values to explain their advocacy. Others argue that companies should have a higher purpose beyond maximizing shareholder value. They believe that today, CEOs need to stand up not just for their shareholders, but also their employees, their customers, their partners, the community, the environment, schools, everybody. For some leaders, speaking out is a matter of personal conviction. This reasoning is crystalized in the statement made by Jeff Immelt, the former CEO of GE, which stated that it is insincere to not stand up for those things that one believes in [2]. Adding further, he said, "We're also stewards of our companies; we're representatives of the people that work with us. And I think we're cowards if we don't take a position occasionally on those things that are really consistent with what our mission is and where our people stand."
Another reason is increasing awareness among millennials who have become extremely aware of their surroundings and their contribution to society as consumers in this information age. Many millennials believe that CEOs have a responsibility to speak out on political and social issues and emphasized that CEO activism is a factor in their purchasing decisions. A survey titled "CEO Activism in 2018: The Purposeful CEO" found that that 47% of people surveyed say CEOs who do not speak out risk criticism, whether, from the media, customers, employees or the government, and 21% say silent CEOs risk declining sales. Almost half (47%) of millennials surveyed believe that CEOs should take a public stand on social issues. This percentage dropped to 28% for those in generation X and baby boomers. Further, in another survey conducted among 3,544 individuals, the Rock Center for Corporate Governance at Stanford University found out that two-thirds of the people surveyed believe that the CEOs of large companies should use their position and potential influence to advocate on hot-button issues they care about personally, while one-third of them do not.[1]
Thus, CEOs speak so that their firm remain relevant in a market which is increasingly dominated by millennials. That's why they comment on government policies from time to time to lobby their agenda and prove their significance. The survey also found that most of the respondents expected CEOs to speak out when their companies were threatened.
Thus, it is debatable, if CEOs should use the platform of their organizations to air their personal views and to promote social justice or to garner the indirect economic benefit and aligning the goals and visions of the company with its customers.
The positive impact of CEO activism can be seen in the rise of feminism after Facebook CFO Sheryl Sandberg published Lean In, and women taking charge of their careers, while simultaneously letting facebook tide a little more smoothly over its media fiascos. Nike too saw a huge uptick in its sales after it created an advertising campaign lauding it's brand ambassador Colin Kaepernick action of taking a knee during the national anthem in an NFL game to protest police and filing a suit for discriminatory action by NFL against a fellow footballer. However, despite all the altruistic rhetoric, there seems to be inherent hypocrisy in such activist actions by CEOs and corporates. For example, Goldman Sachs CEO Lloyd Blankfein [2] spoke out publicly about LGBTQ rights in the US but has never given heed in those countries where such issues are sensitive, and discrimination is more prevalent.
Over the past few years, the corporate world has seen an upsurge in demand for CEOs and other leaders to take a stand on raging social, cultural, political, environmental issues and thereby, they are unable to avoid it. Professor Aaron Chatterji found in his research found that "being in the neutral middle, where most companies used to be a generation ago, is no longer tenable," adding that "it is seen as lacking authenticity." This has instigated the leaders to ride the wave which has taken the shape of disguised peer pressure. Other CEOs and corporates who aren't entirely willing to dive into such activism, face indirect pressure from the company and the society as a whole. Adding to that, when competitor CEOs or other leaders from the industry take a strong stand and receive media coverage, the expectations from non-activist CEOs rise, and they tend to match up to it leading to hasty decisions sometimes and to cause trouble to the company. The widespread criticism faced by the advertisement by PepsiCo featuring Kendall Jenner advocating using Pepsi to bridge the gap between protestors for social issues and the law enforcement agency representing the political establishment is the case in point of misguided attempt by a corporate of activism.
An astonishing result that came out from conducting the survey mentioned above was that customers' purchasing decisions are influenced by the stand CEOs take. Moreover, the negative influence is relatively more than the positive impact the activism generates. Consumers tend to remember those products which they have stopped using (35%) from the negative effect of the CEOs' stand than those who started using (20%) the companies' products because of the activism by their CEOs.
Dangerous Trade-off of CEO Activism and the way ahead
Though there have been instances of positive change from CEO activism, the attempts to influence the masses through their economic relevance and reach can subvert the democratic process. Marc Benioff, CEO of Salesforce, threatened Arizona state of exclusion from its corporate events over a bill that allowed for discrimination against LGBTQ community over religious beliefs. Thus, Salesforce which is a large employer of the country and contribute to the economic activity of the country has effectively tried to influence the policies of the state of Arizona for a liberal legislation using its relevance to the people contrary to the beliefs of representatives elected by the electorate of the state. From this perspective, CEO activism can endanger democracy's ideal that each citizen should have an equal say in influencing policy outcomes.Thus the companies and their boards need to understand their employees and customer base, to figure out if their CEOs are doing more harm than good when they speak out.
After leaving the past behind, we need to see what lies in the future of this phenomenon. The whole world is moving towards a values-based environment. Those companies, which contributes constructively to the society, are regarded as higher in the pecking order. Very obviously, in order to contribute, a stand needs to be taken - keeping which as a base, action plan could be devised. Same has been the case with politically sensitive or controversial topics as well. Company's stance is now increasingly been seen as the values for which it stands for. A move such as this is a reflection of the company's bold attitude inculcates faith within shareholders that the company will go to great lengths to protect the values it believes in.
Moreover, social media is now an unfathomable force which can destroy as well as create in an instant. Company executives should take advantage of such mediums to position themselves as well as their companies strategically inside people's mindset. A dynamic, bold, and clear stance is seen in a fairer light than a conservative bureaucratic position. Hence, soon, we can see CEO activism as either as a phenomenon or as a strategy used by company heads
Citations:
[1] Tayan, B., & Stanford University. (n.d.). Retrieved from https://corpgov.law.harvard.edu/2018/11/27/the-double-edged-sword-of-ceo-activism/
[2] Aaron K. Chatterji Michael W. Toffel, Retrieved from https://hbr.org/2018/01/the-new-ceo-activists
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