About the Author: Mike Callahan is Professor of Legal Practice at Stanford Law School and Executive Director of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University. He is the former general counsel of LinkedIn and Yahoo! The views expressed in this comment are his own and do not reflect the views of any organization with which he is affiliated.
The leaked Supreme Court draft opinion that purports to overturn Roe vs. Wade has thrown businesses into the fray of one of the most polarizing issues in American society.
Expectations for companies and CEOs to pick a side are rising. Just this week Amazon and Citigroup announcement plans to cover travel expenses for employee medical treatment, including abortion. Recent events have also prompted companies to speak out. The Russian invasion of Ukraine has led to corporate condemnation and the severing of business ties in Russia, even going beyond the demands of government sanctions. The events of January 6, 2021 at the United States Capitol led several companies to announce that they would be discontinue or revise their political giving activity.
Why do so many people expect companies to take a stand on social issues? It may be a function of declining trust in other institutions that society has traditionally relied on. The 2022 Edelman Trust Barometer reports that nearly half of respondents believe that a growing lack of trust in the media and government is fueling a cycle of mistrust. The Roman Catholic Church has faced a crisis of sex abuse scandals. Allegations of electoral fraud have mine confidence in our political process. And now the leak of the Supreme Court’s draft opinion has heightened concerns about the politicization of our highest court.
Or perhaps we look to the places where we work and buy goods and services to take action because we believe they will address our collective concerns.
Whatever the causes, pressure on businesses to respond to political and social issues has increased. Trends in corporate governance emphasizing a company’s responsibility to a set of stakeholders– employees, community members, customers – beyond just shareholders have increased control over how companies engage beyond core business issues. Businesses raised the bar for themselves in August 2019 with The Business Roundtable’s revised statement corporate purpose for its signatories to “create value for customers, invest in employees, deal fairly and ethically with suppliers, support the communities in which they work” while “generating long-term value term for the shareholders”.
The voices of employees, customers and investors contributed to the calls to action. In a tight labor market, defending the interests of employees forced Google to reconsider selling artificial intelligence technology to the US Department of Defense. Wayfair faced a the employee leaves whether its products would be used in a federal immigration detention center near the US-Mexico border. Global brands have been forced to react the conflicting concerns of Chinese and Western markets regarding the use of forced labor in China. Large institutional investors such as black rock and State Street have issued detailed proxy voting guidelines for the election of corporate directors to measure corporate action and disclosure on environmental, social and governance issues ranging from diversity to sustainability.
Businesses face challenges in this area. Disney’s lack of initial commitment on Florida legislation limiting classroom instruction on gender identity and sexuality caused an uproar among employees and advocates. Disney backtracked and became embroiled in a public political dispute over its special tax status. Other companies have actively tackled the most difficult problems. Following Texas’ passage of a tough abortion law last fall, Lyft immediately announced that it would pay its drivers’ legal fees if they were sued under the new law. Some companies choose an affirmative refusal to engage in social and political issues. Coinbase CEO Brian Armstrong blogged about his company mission objective and plan not to engage in broader societal issues unrelated to the company’s core mission. All choices have consequences. What should boards and corporations do?
Forward-thinking corporate boards and leadership teams should have a process and be prepared. First, be prepared for reactive issues. Leaders need to identify current issues and events to which they are likely to respond and have a plan. The current landscape of difficult political and social issues and the experiences of their competitors provide a roadmap. Second, companies should reflect on their values and determine where engagement on social issues would enhance their impact. Business priorities such as investor engagement, customer loyalty, or employee retention and culture can help decide which political and social issues to proactively engage with. Third, business leaders need to be transparent about their process for deciding which issues warrant engagement and why.
With a highly polarized political environment in the United States, employee activism, engaged institutional investors, and instant awareness via social media of corporate action or inaction, business leaders must s ‘expect to upset half of their stakeholders, whichever route they take. It may not be possible to foster consensus. Building trust through a transparent process may be the best way forward.
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