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Kennedy School Review

Topic / Business and Regulation

The Rise of Corporate CEO Activism in the Age of Information

In 2018 and 2019, more than 1000 businesses or their chief executive officers took public stands on constitutional, environmental and social matters often unrelated to their core business. The rise of unprecedented CEO activism in America signals the permanent convergence of business and social responsibility in the Information Age.  This activism by business leaders is in part a response to political gridlock, failure of governmental checks and balances on controversial policies, and civic disunity exacerbated by divisive rhetoric.  Cutting through the noise have been the voices of corporate CEOs exercising needed leadership on social and political issues by articulating a larger long-term vision of America, adopting corporate social responsibility (CSR) principles in their business operations, and encouraging Americans to work together to preserve democracy’s values. In fact, at least 28% of Fortune 500 company CEOs publicly weighed in on a myriad of topics during the past two years. The common thread among them was a desire to speak out on issues that impact core American values, including equality, opportunity, and religious freedom.

The phenomenon of corporate leadership on social and political issues is exemplified by the August 19, 2019 “Statement on the Purpose of a Corporation” manifesto issued by the highly influential Business Roundtable and signed by 181 CEOs of major U.S. corporations, according to which shareholder value is no longer their sole priority.  Instead, investing in employees, delivering value to customers, dealing ethically with suppliers, and supporting outside communities are now also at the forefront of American business goals. The statement follows on the heels of the  2019 Annual Letter issued to more than 600,000 public company CEOs in January by Larry Fink, the CEO of BlackRock, the world’s largest asset management company controlling more than $6 trillion in assets.  According to Fink, “companies cannot solve every issue of public importance, but there are many […] that cannot be solved without corporate leadership.” His game-changing 2018 Annual letter titled “A Sense of Purpose” said every company must show it makes a positive contribution to society.

This expanded social leadership role for business leaders is championed by a number of corporate titans, including Fink, Merck CEO Kenneth Frazier, Apple CEO Tim Cook, former Unilever CEO Paul Polman, young innovative entrepreneurs, new executives educated at forward-thinking universities, and most notably, the growing millennial population that demands corporate social responsibility.  This development is an unabashed rebuke of economist Milton Friedman’s outdated 1970 maxim that “the only social responsibility of business is to increase its profits.”  Unlike the “single focus” model of that Post War Age, transformative business leaders in the modern Information Age must have the skills to achieve financial results as well as positively impact the local and global communities in which their companies operate.

Corporate Captains of America

The public has increasingly begun to pay attention to leaders from nongovernmental sectors because 1) constitutional and fundamental voting, human rights and security protections have appeared vulnerable; 2) the government’s Madisonian checks and balances protections between the three branches of the federal government are not functioning normally; and 3) some political leaders have promoted discord rather than civic unity among the American public. Moreover, in 2017 and 2018, the legislative and executive branches were controlled by the same political party which arguably reduced oversight; to date political gridlock has continued to preclude compromise on many issues; there is ongoing distrust in many quarters in a presidential administration that was not elected by the majority of the American population; concern  abounds regarding the influence of foreign governments in policy making;  and doubts have arisen concerning the reliability of voting results due to compromised software voting systems and well-publicized  voter suppression and voter fraud.  Given these uncertainties, the time has been ripe for corporate leaders to weigh in and, as Merck Pharmaceuticals CEO Kenneth Frazier stated, “business leaders have an opportunity to help bridge some of the chasms of understanding in our society.”  Apple CEO Tim Cook adds, “[a]s a CEO if you see something going on that is not right, the most powerful form of consent is to say nothing. I think that is not acceptable to your company, to the team that works so hard for your company, for your customers, for your country, or for each country that you happen to be operating in.”

While America’s fundamental values and founding ideals are enshrined in our Constitution and Bill of Rights, there is not necessarily political consensus on how those principles are to be applied across all social issues. Despite this ambiguity, CEOs have engaged on a wide spectrum of topics including health, gender, sexual identity discrimination, abortion, religion, racism, police brutality, hate speech, climate change, gun control and mass shootings, diversity hiring and promotion, immigration, child and parent separations at the southern border, deplorable conditions in prisons and immigrant detention centers, international business relations, and free speech.

In response to the Supreme Court’s 2014 decision to strike down the Affordable Care Act mandate that closely-held corporations provide emergency contraceptives, Barbara Green, co-founder of Hobby Lobby, who filed the lawsuit, said, “[t]oday, the nation’s highest court has reaffirmed the vital importance of religious liberty as one of our country’s founding principles. The court’s decision is a victory, not just for our family business, but for all who seek to live out their faith.” Also in the realm of health and gender, in 2019, more than 180  CEOs opposed state abortion bans including the heads of Twitter, DVF, Ben & Jerry’s, and Bloomberg. In addition, 190 companies signed letters or joined lawsuits against state laws impacting LGBT rights and transgender public bathroom accommodations in North Carolina and Texas.

Companies have also weighed in on racism, police brutality, hate speech, and gun control.  More than 30 CEOs from major companies like Merck, Intel, Walmart, IBM, 3M, Blackstone, and PepsiCo resigned from or voted to disband two White House advisory panels after Donald Trump failed to condemn white supremacists for the violence, injuries, and murder at the Unite the Right rally in Charlottesville, VA in 2017 but instead blamed both the supremacists and counter-protestors.  After national protests in 2014 in response to police brutality in Ferguson, Missouri, New York City, and Oakland, California, former Starbucks CEO Howard Schultz stated that “the American people have a fractured level of trust and confidence in government today.“ And Dropbox CEO Drew Houston tweeted “What a terrible time for this country. #BlackLivesMatter,” following the July 2016 protests after the police killing of two black men in Louisiana and Minnesota and the related subsequent killing of five police officers by a military veteran in Dallas. As a result of the tragic  increase in  mass shootings across the country, Salesforce has banned use of its software for the sale of assault weapons.  Following the 2019 mass shootings in El Paso and Odessa, Texas and Dayton, OH, more than 145 CEOs sent a letter to the U.S. Senate urging action.  After the 2018 mass shooting at the high school in Parkland, Florida, more than 40 companies including Delta, Symantec, Chubb and Walmart took actions in support of gun control and Ed Stack, CEO of Dick’s Sporting Goods changed the company’s automatic rifle sales policies and said, “we have to help solve the problem that’s in front of us. Gun violence is an epidemic that’s taking the lives of too many people.”

Climate change is also top of mind in many corner offices. Walt Disney Company CEO Bob Iger resigned from a White House advisory council on the heels of Donald Trump’s June 2017 decision to withdraw the United States from the Paris Climate Agreement. Iger tweeted that he did so “as a matter of principle” and later remarked that the Disney Company is in favor of a global effort to protect the environment and has a value system infused in its brand by its founder.  To date, more than 2,201 American companies have signed the “We Are Still In”  Paris Climate Agreement pledge letter.

Corporate leaders have also taken action on human rights issues such as immigration, child and parent separations at the southern US border, and the deplorable abuse and living conditions reported at some prisoner and immigrant detention centers. Bank of America, JP Morgan Chase, Wells Fargo and several other banks announced they would no longer do business with companies that run detention centers120 companies including Apple, Facebook, Goldman Sachs, Airbnb, and Chobani oppose the policy of  separating refugee children from their parents at the border.  Microsoft CEO Satya Nadella wrote a personal commentary on LinkedIn that “[he was] appalled at the abhorrent policy of separating immigrant children from their families.” In response to restrictions on skilled workers, more than 60 CEO members of the powerful U.S. Business Roundtable wrote a letter to the Department of Homeland Security stating that the government “must avoid making changes [to immigration policies] that disrupt the lives of thousands of law abiding and skilled employees, and that inflict substantial harm on U.S. competitiveness.” And 127 companies, including many tech giants, joined lawsuits against the 2016 Muslim travel ban.

The X-Factor: Intention

Although CSR has gained such momentum, many in the business community do not want companies or CEOs to focus on corporate responsibility and social impact. According to Charles Elson, a corporate governance expert at the University of Delaware, “this is fundamentally not the role of a public company and it’s unfair to investors who may not agree with [a CEO’s] politics […] [a] CEO shouldn’t use house money to further a goal that may not create economic returns.” Others argue that adopting the CSR principles of  positively  managing economic, environmental, and social impacts will lead to more rigorous regulations internally and externally that will increase costs for business.

It is no secret that companies have always promoted their own business interests and regularly invest millions of dollars in concerted action through political action committees (PACs), campaign donations, and direct and indirect lobbying on federal and state levels. These methods of influence can lack transparency and hard and soft contribution dollars have been hidden or are hard for the general public to track.

The public, too, often views corporate altruism with skepticism when corporations promote self-serving community service and charitable efforts through sophisticated public relations, marketing, websites and social media platforms in order to increase sales and consumer goodwill. Many corporate critics like Anand Giridharadas, author of Winners Take All, characterize CEOs and companies as hypocritical for enabling inequality but wanting to do “virtuous side projects instead of doing their day jobs more honorably.”  Newspaper headlines are full of stories of companies that promote their good deeds and tout great work cultures, yet actually pollute the environment, share private consumer data, discriminate against employees, provide false performance and statistical data to the public and regulators, pay women less for equal work, violate fair labor standards, and wield too much political influence.

Adapting to the Age of Information 

So what’s new about corporate social responsibility in 2019? Now more than ever before, society demands values and accountability from business leaders. Modern, innovative business leaders, consumers, new employees entering the workforce and young people, especially millennials, believe that, as Bloomberg founder and CEO Michael Bloomberg says, “[a] company has an obligation to give back in every city where [it does] business.“ Apple CEO Tim Cook asserted in 2017 that “[p]eople should have values. Companies are nothing more than a collection of people and so by extension, all companies should have values. As a CEO one of your primary responsibilities is to decide what the values of your company are and lead accordingly.“  This is in stark contrast to economist Milton Friedman’s view that “only people have responsibilities […] but business cannot be said to have responsibilities.” Undergraduate and graduate business schools in the modern Information Age have incorporated ethics, compliance, sustainability, and corporate social responsibility training into the curriculum, and a new generation of business leaders has the updated skill set needed to focus on the financial bottom line in a manner that also includes social and environmental considerations – in other words, the triple bottom line.

A 2017 study by public relations firm Weber Shandwick reveals that 47% of millennials believe that CEOs have a responsibility to speak out on issues that are important to society and say  CEO activism positively affects their purchasing decisions. According to Deloitte,  63% of millennials say the primary purpose of business should be improving society.  Activism affects not only the reputations of both CEOs and their enterprises, but also the willingness of people to buy from and work for a company.  According to research firm Nielsen, 66% of consumers do care about a company’s social and environmental impact and they will pay more for products made by a responsible company. Additional research by Cone Communications indicates that consumers value the community work and social reputation brands of the companies they patronize and 87% will purchase a product because a company advocated for an issue they cared about.

Increasing numbers of companies are proactively seeking to make a difference in the quality of life for others and manage their impacts responsibly because doing good is good business and responsible companies financially outperform their peers. The 2017 KPMG Survey of Corporate Responsibility Reporting found that 93% of the world’s largest Fortune 250 companies now publish an Annual CSR Report for consumers and shareholders along with the traditional Financial Annual Report. Not surprisingly, social and  environmental issues were front and center in this year’s Super Bowl commercials. The ads featured renewable energy (Budweiser), gender equality (Bumble), civic unity and togetherness (Coca Cola), universal need to  engage and communicate (Google),  and the impact and importance of creating products for all consumers including those with disabilities (Microsoft).

Social good is also important to investors and leading financial experts predict that the demand for social impact investing considerations, also known as environmental, social and governance (ESG) criteria, is going to transform all forms of investing in at least five years.

Endgame: The Bottom Line 

The foregoing developments and data are crucial considerations for corporations and their philanthropic programs. The strength of the American economy relies on a stable democracy and financially successful businesses.  All CEOs and business leaders need not become activists, but they would be well advised to innovate and adapt to the changing business ecosystem of the Information Age and a new generation of stakeholders demanding corporate social responsibility. Leaders with the competency to achieve financial results, incorporate corporate social responsibility principles into their operations, and assertively articulate the company’s values will be well positioned for the long term and a sustainable future.

Edited by: Nikhil Kumar

Photo by: Creative Commons