Boards and CEO Activism

Howard Schultz, founder and former CEO of Starbucks once said: “You can’t create emotional attachment if you stand for nothing.” And yet, corporate social advocacy remains controversial. When a CEO speaks out directly with the public about a current social topic – but one that is not directly related to the core business they lead – it is both loved and loathed depending on your stance on the CEO, the company, the issue – or all three.

No doubt there are risks to speaking out. Boards of directors are especially hesitant to embrace CEO activism. At a Director’s Forum in February of 2021, 88% of boards surveyed said they would not want their CEO speaking out about political issues. But recent research argues that in the Twitter age, silence might be more conspicuous and consequential than speaking out.

While there are certain CEO’s who speak out often on social issues – like Salesforce CEO Marc Benioff – most speak out through their brand. Two issues over the last 12 months stand out – January 6, 2021 and February 24, 2022 as a demonstration of this trend.

A flurry of companies stopped their political contributions following the riot on the U.S. Capital building according to PBS. And, many have kept those promises a year later.

Since the Russian invasion of Ukraine, multiple companies have either halted their operations – like McDonald’s and Cocoa-Cola – or pulled out in full (e.g. T.J. Maxx). According to Jeffrey Sonnenfeld, other important issues pale in comparison to Ukraine: “Companies that fail to withdraw face a wave of U.S. public resentment far greater than what they face on climate change, voting rights, gun safety, immigration reform, or border security.”

Increasingly CEO activism is seen as expected by consumers and employees alike. The Edelman Trust Barometer regularly asks about these expectations. And expectations have grown over the past few years. In 2018, based on a sample of 32,000 people from 28 countries, the study found that 64 percent of global consumers believe that CEOs “should take the lead on change rather than waiting for government to impose it,” In 2021, that number rose to 74% according to the survey. In 2022, 81% of respondents believed CEOs should be personally visible when discussing public policy issues.

If CEOs are speaking out through the brand, it makes sense for boards to think about whether it benefits the brand. Buyers continue to stop buying a brand solely because it remained silent on a controversial societal or political issue that they believed it had an obligation to publicly address. Not surprisingly then, CEO activism can increase consumers’ intentions to purchase the company’s products. However, the same study finds that this intention is conditioned on alignment between the CEO’s message and the person’s policy preferences. Still, consumers are significantly more likely to remember products they stopped using or use less because of the position the CEO took than products they started using or use more.

Therefore, when the CEO speaks out on an issue a buyer already agrees with, it translates into the intention to purchase from that company. But the focus on boycotting firms or brands remains paramount in consumers’ eyes. Thus, if the risks outweigh the benefits, the board needs to find out some key information. For example, how well does the board understand the positions of the CEO? Is the company taking positions on issues via social media that the board ought to know about? What is the goal of speaking out (e.g. empathy for a cause/a people, avoiding silence, increasing purchases, preventing boycotting, etc.). Ideally, the board should discuss when and about what a company should take a position and establish a set of guidelines – especially when speaking out on such positions has the potential to affect the financial success, perception and reputation of the firm.

 

 

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