How to Respond to Social and Political Issues
For the Directors & Boards' Board Guide to Political Engagement, four governance experts gave their views on how to respond to social and political issues in the present-day atmosphere.
Crisis Communications Specialist
Chairman and CEO, Levick
For the most part, companies have followed the Milton Friedman axiom that “the business of business is business” and have largely stayed away from the third rail of politics. But it’s become much more complicated now. Faith in institutions like Congress, the media and even the Supreme Court is at historic lows, and people are looking to others for leadership. Democracy and capitalism are voluntary systems. We each make a tiny sacrifice for the greater whole. That’s lost right now. In many ways, companies are the last bastion of hope and leadership. That’s why, at this moment, it’s important for them to step up periodically with care and sensitivity on issues that meet their business criteria: issues that speak to the brand, speak to their stakeholders and are part of who they are.
There are several key factors boards and management teams should consider. Rule number one is to know what you stand for. If you’re just a fungible product competing on either availability or price, there’s too much elasticity in the ability for your customers to go other places and no elasticity in terms of the love of your brand, because it doesn’t stand for anything. Your brand is everything, but it’s not just the product itself; it’s where you advertise, it’s how you advertise, it’s your supply chain, your environmental footprint, your political spend. Boards don’t want to be in a position where they’re reacting to the environment. It’s important to understand up front what the issues are that you care about.
Rule number two is to understand who your customers, your shareholders and your stakeholders are and, perhaps more importantly, who they are going to be. Where are your customers going next? What’s the long-term view? How, ultimately, are you perceived? That is the definition of a proactive approach that avoids most of the landmines.
Rule number three is to think holistically. The unintended consequence of the Citizens United ruling is a perception that if companies have First Amendment rights, then they also have First Amendment responsibilities. Stakeholders are more apt to look at everything that your company is doing. Your political giving is transparent, so corporations can’t just say, “We’re doing the right thing,” and then be found out that they’re contributing to politicians who are among the 147 who refused to vote in favor of the certification of the 2020 election or have historic records of racism or anti-environmentalism. So your enterprise risk management needs to be much more sophisticated. You should ask: “If we say we’re diverse, would we be credible when we look at all the different aspects: how we advertise, where we advertise, who we fund politically?” For the past 70 years, companies have had IR, HR, PR brand and legal in separate buildings, sometimes separate cities, sometimes separate countries. Well, now the issues du jour are those that touch on all of those. The only way you navigate that is to not just look at them only from an IR perspective, or a legal perspective. You have to combine everything, and the people from these different disciplines have to know and trust each other so that they can work together and give the board the insight to say, “We need to look at this issue much differently than we used to.” — as told to Erin Essenmacher
CEO, Third Economy
I’ve seen a move toward more transparency as companies consider how to respond to social and political issues, and I think that the capital markets are going to continue to move in that direction. The challenge is determining what’s really meaningful to disclose, and that’s where companies need a lot of help. It’s always been the role of the general counsel to help limit the amount of disclosure, because historically the view has been that more disclosure equals more risk. What we’re now seeing is a risk of not disclosing enough, so striking a balance between what’s the appropriate amount of disclosure and the relevant topics to disclose is key for corporate issuers. Oftentimes we see political spending amounts, or candidate names or particular initiatives being backed, but it’s important to explain why you’re supporting a candidate or initiative in terms of alignment with the business activities and the business strategy. It’s helpful for external stakeholders who want to understand your spending, but it also provides you cover. I’ve seen clients who have supported candidates because of a particular view that they have on a particular topic, but then that candidate does some other things that are totally unrelated that the company doesn’t agree with, and [the company] is held accountable for supporting that candidate. Having some disclosure around the rationale, and how it aligns with your business strategy, can help you get ahead of that.
As a company, you always want to start from a place of authenticity and genuineness. Values are important. Morals and ethics are important. Not everybody is going to have the same morals or ethics, but it’s important to state what yours are. I don’t know of too many examples where doing the right thing has resulted in a financial issue over the long term. I do think that companies can get into trouble if they start to execute initiatives that they don’t truly believe in, or that are not necessarily aligned with the company’s morals or values systems. You don’t ever want to take action in a way that’s inconsistent with who you are and what you believe is right. More than ever, companies really need to genuinely reflect on their own belief systems, relative to how they build a business.
Most importantly, I would ask: Do you have effective board oversight of management in alignment with corporate strategy? You really want to make sure that you’ve got that alignment between the board and the C-suite on political spending. Set that tone at the top, have your policies and procedures align with that tone and then ensure that disclosures describe why these things are part of your business strategy and how they contribute to that long-term financial success. — as told to Erin Essenmacher
Board Member: Xponential Fitness,
Duluth Trading Company, Boot Barn Holdings, iHerb.Com, Ideal Image
Ten years ago, when I first became a board member, social and environmental issues were on the agenda, but they were more tangential than what we see now. In all of my boards, we are now having conversations about political and social issues and how they’re impacted by what’s happening in the environment. Board members and executive leadership teams are overseers of the well-being of all the stakeholders of the business. So the question for boards becomes: How do you find ways to support the things that are right — or should be right — in the world, that don’t necessarily alienate people who are really important to what you do? We’re asking questions like: What’s the appropriate level of engagement? How firm of a position do we take on certain issues? What is the right place to focus our energy, and what initiatives do you lean into, and how does that align with our products, our services, our customers and our stakeholders? Do we know who all of our stakeholders are? The board needs to ensure that from an oversight standpoint the company is taking these things seriously and putting real, executable initiatives into place.
When you consider whether to make a statement on a given issue, boards and management teams must consider several factors: What are the risks around giving an organizationally supported position on an issue, whether in support, against or somewhere in the middle? What types of tensions are happening in the world around it? What are the potential upsides or downsides to that? Someone can speak out against or for something, and there could be significant backlash to the organization. I come from consumer products. If you’re a retailer, you can end up having store locations vandalized because somebody doesn’t like your position. Now not only do you have a reputational risk issue, you also have a true business interruption issue.
Finally, you have to stay grounded in your mission, vision and values, and in knowing who your corporate stakeholders are and what’s important to them. That includes customers, employees, team members, investors and others. Last year we saw several CEOs who took a stand on issues and they received backlash, because now all of a sudden, their statement was being dissected through the lens of “Do they really walk the talk?” In this world of fast-moving news and media, you could say one thing that then can be discounted by some group and it looks like you’ve just lied, even if you meant to be supportive of the issue. So the company has to be really, really planful in how they launch initiatives, support initiatives, and also express their voice. — as told to Erin Essenmacher
Corporate Director, Former CMO
Board Member: Pinnacol Assurance, Delco Financial, Delta Dental; Trustee: Tufts University
Boards are used to dealing with issues every quarter at the board meeting, but the world has changed. We have triggering events, both in society and for individuals, that happen in a concentrated way, thanks in part to the immediacy of access to information on the internet and through social media. From a business standpoint, freedom of speech does not mean I say anything I want to say with no consequences — it’s not the way the market works, it’s not the way consumers work. The urgency impacts how companies, particularly at the governance level, have to say, “Wait a minute. We might need to pay more attention to this right now versus waiting for the board meeting to see how things shake out.” You really have to have a kind of Doppler radar screen where you can watch for impending thunderstorms and then discuss immediately what that might mean for the C-suite and on up to the board in terms of how you think about reacting.
It comes down to whether there is consistency in how the mission, the values and the principles of the company are viewed, and then where and whether it’s prudent to make judgments when something comes up across stakeholder/shareholder groups, employee groups, or consumers and clients that you’re serving. If you keep coming back to what our fundamental duties are as directors, and the mission or objectives of the organization, a picture starts to emerge of what ought to be done.
There are plenty of examples where companies do a version of putting their head in the sand, and it really blows up in their face. This happened at Smith College last summer where someone in food service did not allow a Black student to access the dining hall during the summer, and it just snowballed. The board and others admitted afterwards they were very slow to react, and it caused some pretty big reputational harm for them.
On one of my boards, we saw a similar issue brewing around the Kyle Rittenhouse trial. There was a pretty quick galvanizing of a cross-functional group of employees that was demanding of us, all the way up to the board, to reinforce what we stand for versus what we don’t stand for. From a fiduciary standpoint, it became obvious to me in my role as compensation committee chair, and to my fellow colleagues on the comp committee, that doing nothing was not an option. We talked as a board and determined that ignoring it would mean abandoning our commitment to management to support them with the tools needed for talent recruitment and retention. After careful discussion, we decided it was not incompatible to come out with a statement, because it reaffirmed the company’s mission and what it stands for. So, to the extent that someone either disagreed or wanted to, then they would actually be disagreeing with the company’s mission, which then takes you to a very different conversation. — as told to Erin Essenmacher