Q1 2020 Texas CEO Magazine

5 Things
TO CONSIDER BEFORE TAKING AN ACTIVIST STANCE
Before jumping into the activist role, here are
some things you should consider:
1. CEO activism remains a rare phenomenon. Despite lots
of press to the contrary, CEO activism remains an exceptional
activity. In 2018, researchers at the Stanford Graduate School
of Business surveyed 3,544 CEOs and found that the vast
majority never go on the record regarding social or political issues
in a meaningful way. Only 12 percent of S&P 1500 company
CEOs engage in activism, and much of this activity was less
controversial (i.e., surprisingly mainstream) than headlines such
as “The New CEO Activism” might suggest. And the Stanford
researchers surveyed only publicly traded companies, not the far
more numerous group of private businesses, where CEOs can
more easily avoid publicity. So, if you’re not receiving outside
pressure to engage in CEO activism, don’t let your internal team
talk you into it without clear and compelling reasons.
2. Potential backlash requires preparation. Activist executives
go at least as far back in American history as Thomas McKenney
and John Jacob Astor’s differing views on Native Americans and
the fur trade of the early 1800s. The difference today is the speed
at which social pressure can be brought to bear. Social media and
the 24-hour news cycle have changed the model. CEOs almost
immediately know when something has gone viral as tweets and
retweets begin to rain down in indescribable quantities. Protests,
email campaigns, and boycotts can organize in an instant and
have an impact not only on business but on organizational morale
and dynamics. Several years ago, Target responded to internal
and external pressure and made an activist decision regarding the
use of restrooms by transgender individuals. A boycott followed
swiftly and Target would spend $20 million to install private
bathrooms in stores. Thankfully, CEO statements and company
positions can also be disseminated in seconds, changing the
narrative instantly. Being prepared is key. The blade of corporate
activism swings in both directions, but the speed at which it does
can be dizzying.
3. CEOs can advocate for state or national economic issues
instead. CEO activism is framed as a political activity, even
though it is far removed from the political decisions made by
executive, legislative, and judicial players in Texas or Washington,
DC. In fact, the Stanford survey intentionally disregarded CEO
advocacy on matters such as trade negotiations, tariffs, and
corporate tax rates. Yet these are the very things that CEOs can
address far more effectively than political actors can. It’s almost
like asking CEOs to do the job of Congress and vice versa. Who is
speaking out to create economic environments where businesses
can flourish? Texas is such a place at present, but so was
Michigan at one time. Rather than becoming embroiled in social
issues, you might consider speaking out on an economic issue
that’s important to you or your business. Be mindful, however,
that even seemingly benign topics can be met with resistance.
Walmart’s recent efforts to encourage US manufacturing have
been a contributor to the resurgence of US-based production.
Surprisingly, some critics accused Walmart of trying to minimize
its reliance on Chinese imports. Others said that those were not
the kind of jobs we wanted back in the US. Even when you think
everyone will be on board, activism will often result in criticism.
4. Private ownership affords special freedoms. Founded in
1972, Hobby Lobby had almost 200 stores when it initiated its
policy of closing on Sundays in 1998. The company later noted
that it estimated $100 million in lost sales when it made the
decision. Company leadership could have put on the “cloak of
social responsibility” and stated that they did this for the sake
of climate change (reduced energy usage and less car travel to
their stores) or to take a stance against war (by promoting peace
and mindfulness among its workforce). But, largely because it
is a privately owned company, Hobby Lobby’s leadership felt
comfortable clearly communicating that they implemented this
policy for religious reasons—the least favorably regarded category
of corporate activism according to the Stanford survey. Similarly,
Chick-fil-A’s religion-based decision to stay closed on Sunday
would be very difficult if it were a public company. As a private
company, Chick-fil-A can make the decision to forgo its Sunday
earnings without pressure from shareholders.
5. The cloak of social responsibility increases the risk of
political capture. The objective of any CEO activism should be
to take a position that benefits the corporation as well as society
as a whole. As Friedman pointed out, CEOs often don the cloak
of social responsibility to earn public goodwill for decisions
that ultimately serve the interests of the business. These two
things can be very difficult to separate. Friedman would argue
that when CEOs allow “social responsibility” to dominate
their decision making, the result is to “extend the scope of the
political mechanism to every human activity”—meaning that the
corporation becomes a tool for certain social interests and can
thus open itself to political influence. Why, for example, would
legislatures pass potentially controversial gun control legislation
when they could pressure CEOs to take their preferred stances
instead? CEOs can minimize the risk of political capture by using
the cloak sparingly and being up front about the benefits of this
activity to their companies.
38 Texas CEO Magazine Q1 2020