The National Association of Corporate Directors (NACD) explored the growing trend of CEO activism in CEO Activism: What's the Board's Role?, which builds upon guidance related to corporate, social and political speech provided in an earlier NACD report, The Future of the American Board: A Framework for Governing into the Future. We spoke to Peter Gleason, president and CEO of NACD, to discuss the factors that have led more CEOs to speak out, the board's role in determining if a company should address social issues and whether the CEO is obligated to consult the board on all matters with societal import.
Directors & Boards: What are the factors that have led more CEOs to be quicker to speak out on social issues?
Peter Gleason: In recent years, we have witnessed a turning point in business, as concerns about the response to COVID-19 and the murder of George Floyd, among others, created a movement of CEOs and companies speaking out and taking public positions on social issues. This led to an increased expectation among employees, shareholders and other key stakeholders for leadership to speak out and, in some cases, to take immediate action. The more recent example of the Supreme Court's ruling overturning Roe v. Wade brought all eyes on companies as to how they would respond.
Companies are faced with a challenge of balancing the varying interests of their stakeholders (such as employees and shareholders) on these often emotional and divisive issues, and the decision to speak out is not always an easy one. In some cases, remaining neutral on issues can cause more harm. We saw this with Disney's response to Florida's Parental Rights in Education Act in March 2022. Recently, Adidas came under fire for the timing of its decision to end its partnership with Kanye West.
As the CEO and company activism movement is becoming the norm, it's important for boards to prepare ahead of time. The three most important things boards and management must do are take the time to understand the relationship of current and emerging social issues to your business, purpose, values and various stakeholders; be clear on the potential impact and degree of authenticity of stating your position publicly; and understand the risks of speaking out vs. silence, or if the best route lies somewhere in between.
DB: How important is the board's role in determining whether a company should speak out on a social issue, and how can a board ensure proper communication with the CEO on these issues?
PG: We have seen companies and their CEOs experience backlash or unintended consequences when speaking out or staying silent, which can have material impact on the company. The board's role is key in these decisions to provide guardrails for management, given their oversight responsibilities of risk and strategy. NACD encourages a proactive discussion with the board to establish a framework — which should then be followed by regular updates and discussions — in order to be vigilant about emerging issues. Finally, and very importantly, the board and CEO must be aligned on the approach and clear on the company's past actions on the issue (if any). They must ensure that future decisions align with the company's track record.
DB: Should a CEO always come to the board before responding to a social issue, or are there circumstances where that is not necessary?
PG: Boards should clarify their expected level of involvement in these matters in advance, keeping in mind the “nose in, fingers out” standard, which underscores the oversight role of the board. With an agreed-upon approach to addressing these issues established in advance, management will have clear guidelines for appropriate direction and will have authority to act without board involvement each time. However, try as we might, we cannot anticipate every issue, and directors can serve as a guide and sounding board to management. A trust relationship between the CEO and management is a key factor, one that may take time to develop. That trust often will depend on the CEO's tenure and track record.
DB: What can boards do to assess stakeholders' views on social and political issues?
PG: Companies should work to strengthen relationships with stakeholders to understand their interests and perspectives on current and emerging social issues and their intersection with the company's mission, vision and values. Examples include conducting surveys, engaging employee resource groups, materiality mapping and listening tours. Typically, management leads these efforts, but the board must be informed. Directors can provide oversight of these engagement efforts and may be asked to interact with employees to hear firsthand from them.
Regardless of these efforts, a company should expect criticism and understand that they will alienate some stakeholders no matter what path they choose. Strong leadership in today's environment requires a deep understanding of your company's corporate purpose, thoughtful planning and resiliency.
DB: What are the most important questions for boards to ask when determining if they should respond to a social issue?
PG: Key questions include “How does the issue relate to the company's core business and values, and the interests of our key stakeholders?” and “Can the company have an authentic impact, and are the company's past and current actions consistent?”