Should Businesses Get Their Feathers Wet? It Depends

Historically, most companies have avoided getting involved in political, social and ethical issues. The mantra was “stick to business” and make money for the shareholders, in line with American economist Milton Friedman’s doctrine on the social responsibility of business.¹ Nowadays, that theory is no longer embraced by the majority of the public. The prevailing line of thought is that companies must cater for the interests of all their stakeholders (not just the shareholders, but also their employees, their customers, their suppliers, public administrations, the communities in which they operate and society as a whole) and that they cannot focus solely on making a profit.

This is where the growing demand for companies to engage in public debates — which until now was alien to them — and to have a voice of their own in influencing society is found. The trend, which has come to be called corporate activism, came to life a few years ago in the United States in connection with movements like Black Lives Matter and Me Too, or with campaigns in support of immigrant or LGBTI rights. This corporate commitment has spread to the rest of the Western countries, partly because of the crisis of liberal democracy and public institutions’ loss of credibility, which has pushed companies to fill this confidence vacuum. And this current of opinion has accelerated due to the increased social involvement of companies during the coronavirus pandemic. Let us look at what is happening using two examples:

Environmental, social and governance (ESG) goals. The widespread awareness that we must progress toward a more sustainable and equitable world — from an ESG point of view — is putting pressure on companies to adopt practices adapted to the new criteria. This pressure is particularly intense in the case of the environment. Since the 2015 Paris Agreement² established legally binding greenhouse gas emission-reduction targets to control the increase in global temperature and required all signatory countries to cope with the effects of climate change, stakeholders in many companies (primarily employees and customers, but also investors) have mobilised to align management of their businesses with environmental principles. Demonstrated ESG effort is already an essential requirement in many sectors of activity.

Russia. The Russian invasion of Ukraine has caused a major institutional and public opinion backlash, forcing many companies to take sides beyond compliance with the sanctions imposed by the international community. One of the most common decisions has been to cease activity with and in Russia. In Spain, companies as important as Inditex,³ Gestamp,⁴ Cortefiel⁵ and Roca,⁶ among many others, have stopped doing business in the country. This is a decision that has got quite a few sharp edges, because of the economic implications and impact on employment, but most companies have considered acting to be less risky than doing nothing. A recent address⁷ to the Cortes Generales by Ukraine president Volodymyr Zelenskiy, in which he accused some Spanish companies of continuing to do business with Russia, illustrates the reputational risks for those companies that have decided to ignore the conflict.

The Cost of Tiptoeing

These examples show that companies can no longer tiptoe around the debates that cause a stir in society. The wave of corporate activism is here to stay, and it needs to be surfed in order for companies not to drown. Does this mean that companies must take a stance on all social controversies? Not at all. Blackrock’s chief executive officer (CEO), Larry Fink, who is one of the most active advocates of corporate and senior management involvement in social concerns, delineates the boundaries of corporate commitment in his latest annual letter to CEOs,⁸ which has become a must-read for business leaders around the world: “Stakeholders don’t want CEOs to think about all the issues that appear every day, but they do need to know where we stand in those social debates that are intrinsic to the long-term success of our companies.” This translates into “get your feathers wet” on the topics that are critical to your business. A central issue in this matter is coherence.

If a company advocates a particular political, social or ethical choice, all its behaviours must be consistent with that stance. It has sometimes been the case that a company that has a clear and firm voice in favour of social justice has at the same time developed advanced tax engineering mechanisms to not pay the Treasury. Such contradictions are lethal to the reputation of companies and encourage accusations of opportunism or facelift exercises (greenwashing, in the case of environmental measures). Of course, getting involved in certain debates has its risks, because whatever position is adopted can alienate some investors, employees and customers, especially in an environment as polarised as the current one. In extreme cases, reactions can become very severe. For example, PayPal CEO Dan Schulman received death threats⁹ after his company cancelled the accounts of some organisations involved in the January 2021 U.S. Capitol assault.

Risks and Rewards

Companies need to know how to manage these risks. And it is not an easy job. They must align the company’s strategy, and the operational policies at all levels, with the causes and principles they are advocating. In addition, they must establish appropriate links between corporate commitments and the management bodies and governance model. Management must consider at all times the likelihood of a particular stance or opinion generating adverse responses, and the external relations department must be on permanent alert to manage conflict and mitigate its consequences. The risks of involvement are high, but the potential rewards are also huge. Proper management of political, social and ethical commitments allows you to connect with stakeholder values, exercise social leadership, strengthen your brand and improve your reputation in the long term. It is all about helping the company do good and become more profitable.

Footnotes:

1: https://corporatefinanceinstitute.com/resources/knowledge/finance/friedman-doctrine/

2: https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement

3: https://www.cnmv.es/portal/verDoc.axd?t=%7Bc8219e97-1b53-4cbf-86bb-cb718985e2a8%7D

4: https://www.gestamp.com/Medios/Prensa/Comunicados-de-prensa/2022/Sobre-la-situacion-en-Ucrania

5: https://www.tendam.es/tendam-suspende-temporalmente-sus-operaciones-en-rusia/

6: https://www.expansion.com/empresas/2022/03/09/6227b947e5fdea1c2b8b461f.html

7: https://elpais.com/espana/2022-04-05/video-en-directo-zelenski-habla-ante-en-el-congreso-de-los-diputados.html

8: https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

9: https://fortune.com/2021/02/05/paypal-death-threats-trump-capitol/