Drowning in Politics
By Maureen Milford

Historically, corporate leaders have had to navigate through political waters. A look back may provide a way forward for directors.

Facebook chairman Mark Zuckerberg thought he was speaking privately to company employees at an internal all-hands meeting in July when he railed against a plan backed by Democratic presidential candidate U.S. Sen. Elizabeth Warren to break up the tech giants.

“So there might be a political movement where people are angry at the tech companies or are worried about concentration or worried about different issues and worried that they’re not being handled well,” Zuckerberg says, according to a transcript of a leaked audio published by The Verge in October. “But look, at the end of the day, if someone’s going to try to threaten something that existential, you go to the mat and you fight.”

Compare that to 61 years ago when an executive at Gulf Oil wrote a letter to employees and shareholders about the company’s plan to play hardball in opposing socialism and organized labor, a force he considered an existential threat.

“If we are to survive, labor’s political power must now be opposed by matching force,” wrote Gulf senior vice president Archie Gray, according to a September 1958 article in the St. Louis Post-Dispatch.

Gray knew this constant corporate truism: that “Gulf and every other American corporation is in politics — up to its ears in politics.”

But what has varied over time is the dynamics of how business plays the game ­— as lone combatants or as a team sport. Historically, big business in America often worked collectively to affect public policy, but grew more individually oriented toward the end of the last century, according to Michael Useem, professor of management at the University of Pennsylvania Wharton School. 

Now, as companies navigate today’s highly charged political and social moment, directors in accordance with their oversight responsibilities will need to determine when it’s prudent to go it alone or better to join hands with their peers on political issues. This decision will be particularly important with the growing narrative that business is responsible for a variety of societal ills, from the opioid epidemic to poverty.

Shifting Winds

For much of the 20th century business often spoke as a group through a network of a few large corporations. That changed with the rise in focus on the maximization of shareholder value.  By the 1980s, corporate political participation began transitioning into more of an individual activity among S&P 500 companies, Useem explains.

Advice for Boards

Holly Gregory, co-chair of the global corporate governance and executive compansation practice at Sidley Austin, has suggestions for directors in handling contributions and lobbying activity include:

• Examining the strategy for these undertakings and seeing to what degree it conforms with the overall corporate strategy.

• Questioning what the board expects from the company’s method of political spending and lobbying.

• Asking in what ways the company’s activities measure up against the position taken by major institutional investors.

Gregory suggests boards exercise care when it comes to CEO political activity. Directors should decide when its best to stand alone or join with other company leaders with similar viewpoints. The board should see what other companies and their trade groups have done on various issues.

Her other recommendations for CEO involvement include:

• Deciding how an issue relates to business, values and company interests.

• Determining possible risks and benefits with taking a stand, such as the possible impact on  employees, customers, the public and the bottom line.

• Questioning what the possible risks might be, such as the impact on reputation and relationships, if the company stays quiet.

• Creating procedures to keep directors informed and determine when board input is needed.

But actions undertaken this year seem to indicate business is moving toward more collective political action, he adds. In August, more than 180 CEOs with the Business Roundtable released a new “Statement on the Purpose of a Corporation” that broke with the longstanding shareholder primacy model. For the first time since 1997, the mighty lobbying force called for commitment to all stakeholders.

“The recent statement by the Business Roundtable would suggest that the pendulum is swinging back, with at least large companies more willing to try to speak with a common voice as they did some years ago,” Useem says.

Indeed, corporations increasingly are being called on to take public stands on sensitive political and social issues, such as wealth inequality, climate change, gun control, immigration and LGBTQ issues.

Edward Stack, chairman of Dick’s Sporting Goods, who has been out in front on gun control, captured the sentiment in a recent interview with The New York Times. When asked what he would say to other business leaders who don’t want to get political, Stack replied:

“I think it’s your responsibility as business leaders to speak up. This country is craving for leadership today, and the leadership is not coming out of Washington. So the leadership has to come from someplace else. Right now, the private sector is the place that it’s going to have to come from.”

This comes as corporate boards face a backlash on business and capitalism not seen in decades. Politicians, pundits, activists and the public have ratcheted-up calls to make business more accountable.

Warren, who is among the top contenders in the Democratic presidential primary polls, is pushing for an overhaul of capitalism. Her regulatory proposals would break up tech giants like Facebook, Amazon, Google and Apple.

Americans seem to be receptive to constraining tech, with nearly two-thirds of people saying they would strongly support a policy breaking up companies by undoing recent mergers, according to a poll by Data for Progress and YouGov Blue, Vox reported.

Even Facebook’s cofounder, Chris Hughes, is pushing back against corporate power with a $10 million anti-monopoly fund to “harness the political and cultural moment we are in to create meaningful structural change to our economy and effectively use civic power to check private power” that has fueled inequality and lack of economic mobility.

“Corporate America is clearly under attack from the left and depending how the next election goes, they may need to pull together to counter the hostility we are seeing,” says Wendy Hansen, a professor of political science at the University of New Mexico.

Joining Hands and Breaking Up

It’s nothing new for business to work together politically.

When the U.S. Chamber of Commerce was formed in 1912, the founding principal was to have a unified voice to participate in policymaking, according to Alyssa Katz in “The Influence Machine.” Today, the chamber is “the single most influential organization in American politics, outside the Republican and Democratic party apparatuses,” Katz writes.

After the Democratic party routed the GOP during the 1958 congressional election, and business began to fear labor’s power, the chamber president called for members to “roll up our sleeves and get to work,” write Andrew Hacker and Joel Aberbach in “Businessmen in Politics.”

As Gulf’s Gray put it: “…there is no place in the United States where such a force can be generated except among corporations that make up America.”

Indeed, a critical factor in the extraordinary political transformation of the early 1980s and the ushering in of Reaganomics was, in part, the result of unprecedented political mobilization in the 1970s, according to Useem, who’s also the author of The Inner Circle: Large Corporations and the Rise of Business Political Activity in the U.S. and U.K.

But despite the powerful organizations like the chamber and Business Roundtable, business political activity is far from marching in lockstep.

In a move that would have been nearly unthinkable in another time, Marc Benioff, chairman of Salesforce, has said publicly he supports breaking up Facebook. Meanwhile, Apple is in a battle with tech giants Facebook and Google over the privacy of users’ data.

Now companies sometimes separate themselves from each other to minimize blame for some crisis in society, Hansen explains. “You repeatedly see firms trying to distinguish themselves from others in regards to responsibility for society’s ills, like claiming greater environmental friendliness,” he adds..

In October, the automotive giants split over fuel economy standards when the Coalition for Sustainable Automotive Regulation, a group backed by General Motors, Toyota and Chrysler, and other manufacturers, backed President Donald Trump’s administration in a lawsuit brought by California and 22 states seeking tougher emissions standards, The Hill reports.

The move put these companies at odds with other leading manufacturers, including Ford and Honda, which reached an agreement with California supporting its cleaner car standards, according to The Hill.

Silicon Valley companies, which pride themselves on their contrarian and disruptive mentality, have never played together. Tech generally stayed away from any type of lobbying in the last century, says Steven Blank, a tech entrepreneur and adjunct professor of management science and engineering at Stanford University.

The industry got its wake-up call in 1998 when the government brought an antitrust case against Microsoft Corp.  “It was a watershed event,” Blank says. But while the tech companies have fairly significant lobbying efforts today, they tend to act alone, he continues. “There is very little unified action,” he notes.

Some tech companies, including Apple, even parted ways with the U.S. Chamber of Commerce over climate change policy. “I think (tech companies) are so focused on individual issues, they’ll throw each other out of the lifeboat,” Blank says.

Brian Richter, assistant professor of business, government and society at the University of Texas at Austin’s McCombs School, is also skeptical that businesses can combine forces in today’s business environment. “When they’re fighting over market share rather than market growth it’s hard for them to have a unified voice,” he explains.

Board Response

Without a unified approach, the University of Mexico’s Hansen believes corporate political activity will continue to be a mix of collective and lone wolf activities depending on the industry and issue. 

Similarly Holly Gregory, co-chair of the global corporate governance and executive compensation practice at Sidley Austin, sees companies “tailoring their approaches to meet their unique circumstances. Sometimes that means individual action and sometimes collective.”

While companies benefit from both individual and collective actions, Useem sees the recent Business Roundtable action as an opportunity. “This is a good moment for directors and executives, building on the Business Roundtable’s recent declaration, to press their firms to reintroduce the collective dimension,” he advises.

Hansen even suggests that “collective action might also yield the best policy outcomes.”

No matter what the strategy, corporate political activity, ranging from lobbying activities to CEO activism are part of the oversight duties of the board, Gregory says. This oversight includes managing risk and ensuring procedures and structures are in place to provide sufficient monitoring.

When it comes to political spending and lobbying, Gregory suggests boards look at the policy and procedures of peer companies to see how their company stacks up. Boards should be supported in their oversight duties with an ongoing stream of information.

Maureen Milford is a Delaware writer focused on corporation law and governance matters.

 

 


Issue: 
2019 Fourth Quarter

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