Corporate Political Involvement

Our current issue is themed on the important topic of corporate political involvement. As a divided nation has become much more politically aware and vocal, there are increasing demands from certain quarters for corporations to take political positions on the varied social issues of our day. For boards, the pressing question is how to respond to these calls for companies to become more politically active.

Historically, corporations avoided politics except where the company’s basic interest was Involved (See Richard Sylla’s piece on the history of corporate political speech).

Then came the now-landmark U.S. Supreme Court decision in Citizens United. There, the court explicitly allowed the corporation to take vocal (and financially supported) positions on political issues. There was an outcry from the left who feared that hitherto conservative corporations with seemingly limitless funds would corrupt the process of legitimate political debate. What transpired, however, was very different.

Rather than creating a wave of corporate activism promoting conservative causes, many large companies appeared to be on the vanguard of the social justice movement and supported causes that had little to do with their businesses. The result was the promotion of significant social change, as opposed to a reactionary defense of “traditional values.” Companies began to reflect the political divisions inherent in our current culture. We have seen the rise of the “red” and the “blue” corporation. The technology sector has become particularly noted for this phenomenon, but the change was not limited to these companies. Numerous public corporations began to take positions on the varied societal issues of our time from gay marriage to global equity and, most notably, climate change, going far astray from their traditionally narrow involvement.

With the recent rebirth of the “stakeholder” movement, it has been forcefully argued that businesses should not be narrowly concerned with shareholder value, but instead become active participants in a broader campaign for social justice. I am not an enthusiast of this ­development.

It is not that I am unsympathetic to some of the positions espoused. But I do not feel that the corporation is the appropriate place to so advocate and there are several reasons for my reluctance.

The corporation and its various constituencies reflect the diversity of the body politic. Employees, customers, suppliers and shareholders hold viewpoints that may be quite divergent within their ranks. For a CEO to direct a particular position which reflects his or her own viewpoint may equally be opposed by as many constituencies that support it

For a business to be successful, there must be a near unanimity of purpose. A position on a controversial social issue taken by the CEO will offend as many as who embrace it, ultimately harming the success of the business. Companies were created to supply good products at fair prices to the public in a lawful manner. Anything outside of this sphere that detracts from this objective should be avoided no matter how noble one views the purpose.

We all have our political viewpoints which are important and must be respected. But that is our role as citizens and that is the role of our political process. A corporation may allow its individual constituents to express whatever views they hold freely, but outside of the corporate sphere. A company should not become a political force — it is outside of its purpose and competency. Such an approach may limit the access to the vital capital which all corporations require. No investor from either side of the political divide will be happy to contribute capital to a venture whose political position he or she may strongly oppose.

Under the corporate law, a gift of corporate assets unrelated to corporate purpose must be unanimously approved by all the shareholders. Why? Because it is their money. The legal allowance for corporate philanthropy has been justified if there is some, even if remote, relation to corporate purpose. One could argue that corporate social advocacy is similar, as it creates a better society and ultimately corporate benefit.

I believe that this takes the concept way too far. While most will agree that philanthropic largesse has societal and ultimately corporate benefit, a politically inspired social position does not — as there may well be a significant split on the issue amongst the various constituencies who comprise the corporation and, most importantly, the owner-shareholders. It is inherently undemocratic to use other people’s monies to further social/political causes with which they strongly disagree.

Boards, particularly in our contentious era, must be mindful of this and focus instead on the primary objective of corporate success, which benefits all of us. Corporations must never be viewed as “red” or “blue.” But, in the United States, the only appropriate label, as publisher Bob Rock argues, should rather be red, white and blue.

Other related article