Why America’s CEOs are turning vocal on political issues

The latest flashpoint is the controversial law passed by the Georgia state legislature which restricts voting rights. The law’s backers have claimed the new rules will eliminate voter fraud—which became a big issue given former US President Donald Trump’s claims of a stolen election—but its critics argue it adversely affects the poor and minorities. There is also little evidence of any fraud.

Two African American business leaders—Merck CEO Kenneth Frazier and former American Express CEO Kenneth Chenault—urged corporate America to oppose the restrictions, and 72 African American business leaders joined the call.

After hesitating initially, two major employers in Georgia’s capital, Atlanta, the airline Delta and the beverage maker Coca Cola criticized the legislation. Since then, 200 companies, including HP, Salesforce, Amazon, BlackRock, Google, and Under Armour, have signed a declaration opposing ‘discriminatory legislation’ in other states.

The statement appeared in full-page advertisements in leading dailies. Five bills restricting voting rights have been passed already, and there are 55 more restrictive bills pending in 24 states, according to the Brennan Center for Justice. Some companies have hinted they might not invest in states that suppress votes.

For, it is voter suppression, according to Jeffrey Sonnenfeld, senior academic at Yale University who helped convene a video call on the issue that scores of CEOs joined. “These business leaders don’t like being told (by politicians) to give us your money and shut up. Now they have a voice and it matters and the American public wants to hear," Sonnenfeld told CNBC.

Make no mistake, this is a significant moment for American business. Bennett Freeman, who was deputy assistant secretary for democracy, labour and human rights at the State Department during the Clinton years, told Mint: “American business leaders recognize that they have an existential stake in the rule of law and accountable governance."

Experts believe that the combative Trump years sharpened corporate resolve to act. Christine Bader, who has worked with large corporations and is author of Evolution of a Corporate Idealist, told Mint: “The idealist in me would like to think that the extreme egregiousness of the last administration made it clear that there are some bright red lines that shouldn’t be crossed when it comes to existential threats to our democracy, and that corporations need to be on the right side."

What then has sharpened corporate resolve to act? What are the risks companies face with these actions, and why do many feel they should think carefully before intervening? Finally, where does this leave Indian companies, which face no shortage of intense issues to react to?

The triggers

To be sure, many American business leaders have opposed Trump administration policies like travel bans on nationals from some countries (most of them being Muslim), anti-refugee policies, the withdrawal from the Paris climate accord, and the clampdown on H-1B visas. “Four years of Trump created an atmosphere where companies are more likely to make public statements because of the egregious policies of the US administration," said David Schilling, senior program director at the Interfaith Center for Corporate Responsibility.

For instance, companies filed amicus briefs supporting same-sex marriage in the US Supreme Court, and many companies vigorously supported the Black Lives Matter movement last year, after a Minneapolis police officer murdered George Floyd. After the recent spate of mass killings, Walmart said it would no longer sell ammunition for assault weapons. All these actions put companies against conservative Republicans.

John Sherman, former senior counsel at a large multinational, who has thought deeply on corporate accountability, told Mint: “It was easier for CEOs when all companies had to do was improve quarterly earnings. Now, they have to worry about many more constituencies or risk losing their social license to operate.

Corporations have many reasons for these actions. They don’t like friction at the workplace, and these issues have torn America apart. Concerns dear to millennial consumers is another. Former Financial Times correspondent in India, James Crabtree, who wrote The Billionaire Raj, a book on India’s gilded age, said: “Large companies are risk averse. Their political statements follow their customer’s views, they tend not to lead them. The exceptions to this rule are rare."

Regardless, political posturing has its risks, such as dividing the corporate world into Red (Republican) and Blue (Democrat) firms, says Witold Henisz, who teaches at University of Pennsylvania’s Wharton School. Of course, there are executives who supported Trump unabashedly, like Michael Lindell, the CEO of My Pillow. As late as October last year, Trump had raised five times the money Biden had from American CEOs.

Historically, big business has liked Republicans who believe in low taxes and light regulation. That’s why corporate advocacy on socio- political issues has stunned Republicans. The Senate Minority Leader Mitch McConnell accused the CEOs of running a “woke parallel government" and threatened serious consequences, but he later backtracked.

Corporate frustration with Republicans is driven by several factors. Employee and consumer pressure certainly play a role. Besides, companies like stability and predictability and Trump offered neither. Republicans have threatened childish retaliation, such as stripping Delta of a fuel tax break and condemning Major League Baseball (MLB), which moved an important game away from Atlanta.

Clearly, Republicans are losing support among large companies. More than 60 companies, including AirBnB, Amazon, American Express, AT&T, Walmart, BlackRock, Walt Disney, and Charles Schwab said they’d stop contributing to Republican lawmakers who voted against certifying Biden’s victory. Chief executives have higher credibility in the US than journalists, academics, clergy, and certainly more than politicians.

According to a Harris poll, the percentage of Americans who believe CEOs should speak up on important social issues went up from 59% in 2019 to 68% in 2020. The Edelman trust barometer showed that 54% of employees believe their CEOs should speak out on issues they care about, and 53% of consumers think brands should get involved with at least one issue that does not impact their business.

There are three reasons why companies are speaking out, Aaron Chatterji, who teaches at Duke University’s Fuqua School of Business, told Mint: “Increased political polarization makes the middle ground difficult to occupy; the rise of social media demands immediate answers to binary questions and where silence is conspicuous; and the preferences of their millennial employees."

Corporate outspokenness also arises out of governmental abdication. Surya Deva, member of the UN Working Group for Business and Human Rights, believes business is filling the vacuum left by the government. “There is a cost to remaining silent," he said. Companies should take principled positions, he adds, and try to stay away from getting embroiled in politics, as they lack the legitimacy to do so.

The costs of intervening

Companies should think carefully before intervening, Paul Argenti, professor of corporate communication at the Tuck School of Business at Dartmouth College, told Mint. “The most important thing that you have to worry about is: Can you actually do something about it? If you’re just signing on, it’s a little bit of woke-washing when companies just get on the bandwagon," he said.

One reason as to why keeping a low profile makes sense is that when the issue is contentious, whichever side a company picks will antagonise the other side. But Duke’s Chatterji explains: “For many companies, demand for their products is less sensitive to these statements than the supply of their future employees."

While Trump called for a boycott of Delta and Coke (though Diet Coke is his preferred drink), Raghu Sundaram, dean of Stern School of Business at New York University said that such calls fail. “Rallying against a company for racist policies is easier to organize than rallying against them for making statements against racism," he said.

While McConnell dismissed corporate concerns as woke, he does have a point. American CEOs are willing to grandstand in the US, but they are usually silent on China or Saudi Arabia. Sundaram added: "To a degree, (the statement over the Georgia law) may be regarded as virtue signalling—the same companies show no hesitation in dealing with other problematic states and actors—but even then, it could have salutary effects."

Social media has altered traditional power structures in society and made corporate leaders much more vulnerable to what their employees and other stakeholders think of them. “No one wants to be perceived as a racist or a bigot," Sundaram says. “The real test only comes when a corporation has to choose between a moral path and keeping the business going."

In 1990, when African American Democrat Harvey Gantt asked basketball star Michael Jordan to endorse him against Senator Jesse Helms of North Carolina, Jordan declined, saying “Republicans buy sneakers, too." Jordan had a lucrative tie-up with Nike. He had said it half in jest, but it made an important point. Consumers may get repelled by a company’s views.

Conventional academic view supports that. In 1958, the management guru Theodore Levitt wrote that corporate social responsibility was "dangerous", and in 1970, Nobel Laureate Milton Friedman wrote a much-cited essay where he saw creeping socialism in business responding to stakeholders. Its sole responsibility is to its shareholders.

But five decades later, American companies have evolved. More recently, US companies have criticized police brutality in Ferguson and Minneapolis, and racial unrest in Charlottesville. When Trump didn’t condemn the violence in Charlottesville, Merck’s Frazier left the presidential business advisory council. Other CEOs followed.

American companies have spoken out internationally too, such as against apartheid in South Africa. More recently, western companies like Nike, H&M, Uniqlo, and Adidas have expressed concern over the treatment of Uyghurs in western China, and pro-government Chinese activists have attacked the companies on social media.

The impact on India

Where does that place Indian companies? There is no shortage of intense issues. Indian companies have championed diversity and inclusion, and brands like Tanishq, Hidesign, and Amul supported decriminalization of same sex relationships, or celebrated same-sex relationships, as Anouk did.

But when they have intervened in more sensitive areas, such as Tanishq’s recent ad about a Muslim family celebrating their Hindu daughter-in-law, the Hindu nationalist backlash led to the ad being withdrawn. Can Muslim employees count on their employer’s support against bullying or intimidation, given the highly charged mood in India over the national registry of citizens or the Citizenship Amendment Act, or instances of mob lynching? Henisz is not sanguine. He said, “Indian companies are likely self-censoring any concerns that they may have regarding the societal consequences of the Modi government’s policies."

That said, the inter-connected reality of today is that human rights expectations won’t be limited to a few countries. “As Indian companies become more global, they are going to have to step up their understanding of the local politics in markets where they operate," said Crabtree. That’s good advice. The Adani Group was recently removed from the S&P Sustainability Index because of its alleged ties with the Myanmar army, and other Indian companies may face similar challenges.

In 2002, after the riots in Gujarat, several Indian CEOs had spoken up. Their silence in the years since is noteworthy. Henisz asks: “Is this cowardice or rational calculus on the part of Indian CEOs? Probably both. Or, perhaps, complicity."

Salil Tripathi is a writer based in New York