The most popular type of activism in corporate America

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In recent years, business leaders have taken positions on a variety of issues that earlier generations of business leaders may have avoided altogether. Some have pledged money or reassessed their company’s political commitment. Most importantly, they wrote and signed countless public letters.

Anti-LGBTQ laws, police brutality against Black Americans, violence against Asian Americans, and recent efforts to restrict electoral access have all led to harsh testimony from some of the country’s most prominent businessmen. In one case, hundreds of them signed a letter together.

It can be easy to dismiss the importance of a letter as a tool for change. A signed declaration is pure talk in the truest sense of the word and does not guarantee any further action. But these letters also mark a shift in the relationship between companies and their employees and customers, and in the role expected of business leaders in the social and political landscape.

“The turning point was really the 2016 election,” said Meike Eilert, who most recently researched corporate and consumer behavior at the University of Kentucky.

As politics became increasingly divided, Generation Z entered the world of work and gained power as consumers. “Digital native generations, especially Generation Z, are putting a lot of pressure on companies to stand up and demonstrate their values,” she said.

The nature of the core topics of these discussions has also changed. For example, recent CEO letters against electoral legislation are a case where the issue is not about calling for change, but about advocating for democratic rights that were enshrined in law decades ago.

“What you see are CEOs holding the center,” said Michael Toffel, a Harvard Business School professor who studies CEO activism. Ten years ago securing voting rights was not seen as “liberal,” he said, adding, “It would have been kind of an American thing.”

So why write an open letter? Businesses want to balance the shift in consumer and employee expectations with pressure from investors, who in the past have tended to disapprove of any effort that might divert resources away from shareholder value. Writing a letter is a relatively safe way to do this, suggested an article in the Journal of Marketing last year. It is even safer to sign a group letter.

The study analyzed the effects of corporate activism on corporate value. It turned out that investors are more critical of actions (such as withdrawing products or canceling events) than statements; by companies operating alone and not as part of a coalition; and from political viewpoints that clashed with those of a significant proportion of customers (e.g., Walmart’s decision in 2015 to stop selling goods bearing the Confederate flag).

There was one major exception to the disdain investors often have for CEO activism: if the social stance promotes business interests, they are much more likely to be on board.

Because of this, Nooshin Warren, assistant professor of marketing at the University of Arizona and co-author of the paper, expects to see more of these public statements, she said. The more consumers expect companies to comment on issues that matter to them, the more investors will see such activism as an extension of company interests rather than a distraction from them.

Consumers and employees “no longer accept silence as neutrality,” said Ms. Warren.

Companies that make statements also respond to the activism of their competitors, Ms. Warren said. “If you talk and I keep calm, my silence now seems to be on the other side,” she said.

The more interesting dichotomy going forward could be between companies that advocate the values ​​they actually hold and those that simply take the position of their consumers.

“One of two things has to happen: either you have to be authentically value-driven, or you have to be really good at knowing who your consumer is at all times and making sure you don’t keep changing your strategy because then people will See this is just a fake, ”Ms. Warren said. “And that will definitely backfire.”

Most research on corporate activism focuses on its impact on the company: whether it alienates investors, creates brand loyalty, or triggers boycotts. There isn’t that much insight into the power a letter has on the subject it addresses.

The most important thing a letter does is publicly commit the person or company to change, said Malia Lazu, a lecturer at the MIT Sloan School of Management and director of the consulting firm Lazu Group. A signed statement of a CEO’s commitment to an issue, she said, “gives a promissory note to people who want to hold companies accountable.”

The public engagement is one reason why some bosses shy away from such statements and some are not yet ready to go beyond words.

Several companies asked to sign an April statement in support of voting rights demanded that a sentence be omitted from the letter obliging them to “oppose any discriminatory legislation or measure that prevents any eligible voter from having equal and fair opportunities to vote”. (Organizers Kenneth Chenault, a former CEO of American Express, and Kenneth Frazier, CEO of Merck, declined, and several of the companies that objected to the line signed the letter anyway.)

Words matter because consumers and potential employees are careful to ensure that companies keep their promises. A year after companies flooded social media with nominal statements of support for Black Lives Matter, many activists took note that those promises failed to lead to action.

According to Creative Investment Research, a Washington advisory firm, US companies have pledged around $ 65 billion in racial equality since last year’s demonstrations, including donations to civil rights groups and investments in training programs for black workers. So far, only $ 500 million has been spent, said William Michael Cunningham, founder and managing director of the company and associate professor at Georgetown University.

In May, Mr. Cunningham filed a petition with the Securities and Exchange Commission demanding a rule requiring companies to disclose their activities related to their Black Lives Matter pledges.

Without a rule: “Can you really trust companies to report honestly what they are doing in this controversial area?” He asked. “We say no.”

It’s hard to say whether this type of review will lead companies and their investors to engage in corporate activism beyond letter writing.

“Some companies are trying, but it’s hard to turn a ship,” said Ms. Lazu. “I’d say let’s see what companies do next year after their promises have worn off.”

Attempts by consumers to punish companies for the political beliefs of their leaders are often dashed by additional support from customers approving the position. Nike’s decision to make quarterback and social activist Colin Kaepernick its brand ambassador may have led some angry customers to burn gear they already bought, but it ultimately boosted both sales and the company’s reputation with consumers. Punitive measures by a more organized opposition, such as the Georgian legislature’s proposal to withdraw a multi-million dollar tax credit in the state from Delta Air Lines, could have greater implications and even curb the activism of Harvard Business School CEO Mr Toffel said .

“It could go either way,” he said. “CEOs could double up – sometimes this backlash helps because it reinforces your message. And sometimes this backlash is detrimental because it undermines your customers’ trust in you or reduces your applicant base. “

What do you think? Is Corporate Activism Here To Stay? Should companies do more than write letters? Let us know: [email protected].