At first glance, it might appear that publicly traded companies have little incentive to take a stand on hot political issues like these. After all, such attitudes are often unrelated to the company’s products and could alienate shareholders and employeespotentially affecting her bottom line.
And yet, over the past 10 years, public companies have taken positions on many progressive political issues, including transgender rights, immigration and climate change.
Activism Specialist and Kellogg Professor Brayden King intrigued.
A common view of activism is that social movements act as an external force that shapes the business world through influence and high-pressure tactics. But in new research, King and his former graduate student Anna McKean (now with the University of Utah) find that the impetus for corporate activism can just as often come from within.
King and McKean examined four corporate signature letter campaigns where public companies expressed their collective support for a progressive cause in a letter to elected officials. And indeed, they found that companies were more likely to engage in this form of corporate activism when their top executives and general employees aligned with their political ideology.
“Corporate activism is a new phenomenon that didn’t exist twenty years ago,” says King. “There are many reasons why it is not a good idea for companies to take political positions. So when companies take a stand, it makes it clear that they’re not just money-making machines. They are collectives of people who have political views and want their companies to take a stand on issues that interest them.”
A new kind of corporate activism
To be sure, corporations are not apolitical entities—they often work to influence politicians through lobbying efforts that secure benefits for them, tax reductionor promote their core business interests.
But the corporate activism that has emerged over the past decade has a different flavor. First, it is often ideologically progressive, focusing on structural inequalities of class, race or gender and environmental impacts. These progressive issues are often in direct conflict with the usual corporate lobbying issues.
Also, this type of activism often involves several companies taking the same stance together, such as in letter-signing campaigns. This type of collective action has characteristics of a social movement.
Some previous research supports that Activism is a response to external pressures or a strategic move towards increasing employee retention.
Even so, where does this decision come from within the company? Some researchers have argued that this trend comes from the top, with CEOsusing their power to take a political position. Others have argued that it arises from the bottom up, stemming from a motivation employee base.
Track progressive letter writing campaigns
King and McKean were not convinced that any of these answers were correct. “CEOs alone are not likely to take the risk of a stance on behalf of the company that could be unpopular,” says King. “And it’s naive to think that companies will give in to employees on issues like this.”
To find out, they compiled a dataset of 1,328 US-based public companies in a variety of industries and tracked their participation in four letter campaigns in 2016-2017. Of these companies, 118 signed at least one of these letters.
The letters protested a variety of politically conservative actions.
The first letter campaign, led by the Human Rights Campaign in late 2016, opposed a North Carolina bill that would have required people to use the restroom corresponding to the gender on their birth certificate. The campaign gathered signatures from 212 organizations and individuals.
The second campaign was orchestrated by Low-Carbon USA, which collected the signatures of companies and investors in support of US participation in the Paris Climate Agreement. By the end of 2016, the letter had more than 1,000 signatures.
The third campaign supported a lawsuit against President Donald Trump’s travel ban in the U.S. In February 2017, 127 organizations signed the letter.
The fourth campaign supported maintaining the DACA program and included asking Congress to pass the DREAM Act. A total of 753 organizations signed the letter.
“Each letter represents collective action with a similar ideological angle,” says King. “It was a push for a change in society or against a proposed policy.”
In addition to information about which companies signed which letters, the team’s dataset included information about the companies’ performance. characteristics (such as industry and number of employees). and environmental, social and governance (ESG) performance. They drew on the political ideologies of corporate CEOs, top management and employees through Federal Election Commission donation deposits.
The researchers controlled for CEO power (based on a CEO’s tenure, founding status, and compensation) to estimate whether a CEO might have disproportionate influence on the decision to sign a letter. They also controlled for a firm’s industry, size, board diversity, and organizational values. Finally, the researchers used companies’ ESG performance to control for companies that were already engaged in social responsibility issues.
The decision is not made by the CEO alone
When they analyzed the data and controlled for all these variables, a few findings became apparent. CEO ideology alone was not independently associated with letter signing. C-suite ideology was also not independently associated with letter signing. Nor the ideology of the workers.
“This shows that CEOs alone are unlikely to take a position on behalf of their company that could ultimately be unpopular,” says King. “And it goes against the criticism that companies are giving in to what their employees want.”
In fact, there was only one scenario that was associated with corporate activism: when top management and workers both had a progressive political ideology. In this scenario, the company was 14% more likely to participate in at least one letter campaign.
Specifically, participation did not increase if the CEO and employees (but not the top management team) had a liberal political alignment. The only scenario associated with progressive corporate activism was a liberal alignment between the top management team and workers, suggesting that CEOs rely heavily on their top management team on these issues. (King and McKean found only one example of companies that took publicly conservative positions during their study period.)
“We can’t say for sure that this aligned ideology is what causes companies to take this political position, but it is positively correlated after we take into account many other variables,” says King. “That means that alignment between top management and workers is likely part of the conversation when companies consider whether to take a stand.”
Is Corporate Activism Dead?
Even if the top management team and employees are ideologically aligned, why take the risk? King suggests that it helps create employee commitment and dedication while reinforcing the values held by employees and top management.
When King and McKean began looking at corporate activism for their study, they wondered if they were seeing a new phenomenon taking hold. But companies have since realized that taking a political position can open them up to criticism, like Disney has found. And so, while letter-writing campaigns were common in 2016-2019, they seem to have been put to rest today.
“It seems that companies over the past four years have been much less willing to take sides on controversial political issues,” says King. “It has less to do with what’s going on inside the companies and more to do with the criticism those companies have faced for engaging in corporate activism.”
The political environment today is even more polarized than it was in 2016, so it will be interesting to see what happens after this year’s presidential election, King says.
“Will we see a resurgence of corporate activism? I don’t know,” he says. “Perhaps companies are wary of the costs associated with activism.”
