The Swing to Corporations Expressing Social Stances

Kristie P. Paskvan, CPA, MBA Board Director and Leadership Fellow
Strategies for Today's Corporate Finance Leaders

Today’s consumers consider more than price when shopping for a product or service, and job candidates consider more than pay when seeking employment. Consumers and workers have seemingly evolved toward supporting brands and working for organizations that align with their values and beliefs, exhibiting a new level of social awareness.

Some experts attribute this major cultural shift over time to cutthroat business leaders who put competition and profitability above all else. Recently, I’ve been reading David Gelles’ book, “The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America—and How to Undo His Legacy.” As you can guess from the title, Welch, the former chairman and CEO of General Electric, known simply as GE, took a controversial approach to business. During his tenure from 1981 to 2001, Welch changed the cultural corporate climate in America, shifting the focus from growing the middle class through worker benefits and retirement plans to short-term stock performance and shareholder value.

I remember talking to a GE business manager who worked during Welch’s leadership, and he recounted that the annual incentive goal was to make your budget by any means necessary. Generally, that took the form of layoffs, intercompany sales between divisions, contracted outsourcing, buybacks, and a performance review metric whereby every year the bottom-rated 10% of employees were fired. Welch’s strategy of maximizing profits over people and acquiring competitors became a roadmap for other companies at that time.

In a review of Gelles’ book, author Kurt Andersen writes, “Welch oversaw the acquisition, on average, of one $130 million company every week for 20 years and sold a business off every two weeks.” That’s a lot for a company to absorb and manage, as well as for a board of directors to oversee from a strategy, risk, operations, and succession perspective. During those 20 years, boards then rarely found themselves taking sides in political or social matters.

Today, however, boards are increasingly spending more time on environmental, social, and governance matters and collaborating with executive leadership teams to create corporate cultures that reflect stakeholders’ social concerns. The precedent to “do the right thing” for board directors includes not only fiduciary responsibility to the organizations they serve, but also a duty of care and loyalty. Therefore, there is much to consider before taking a social or political position.

SOCIALLY AWARE COMPANIES MAKE THEIR MARK

Research indicates that most employees and other stakeholders want companies to lead on social and environmental issues as their distrust in government and media grows, and younger generations, like millennials and Gen Z, prefer doing business with socially responsible companies. In fact, according to the 2022 Edelman Trust Barometer survey:

• 52% of respondents say business isn’t doing enough to address climate change.
• 60% of respondents indicate they’ll choose a job based on shared beliefs and values.
• 80% of respondents will invest in businesses based on their beliefs and values.

Taking notice of this growing, socially conscious consumer market are companies like Ben & Jerry’s and The North Face, who’ve been open and clear about their progressive values, especially in recent years. For example, Ben & Jerry’s has an entire section on its website dedicated to the company’s values and social justice efforts, and The North Face’s website puts its sustainability efforts right at the forefront.

Additionally, many companies took positions on politicized pandemic-related issues, such as mask and vaccine mandates. More recently, following the U.S. Supreme Court’s decision on Dobbs v. Jackson, which overturned Roe v. Wade, companies like J.P. Morgan, Citi, Goldman Sachs, and Bank of America pledged to pay for their employees to cross state lines to obtain legal, alternative reproductive health care.

READY TO TAKE A STAND?

For organizations considering a similar path, it’s important to remember your stakeholders and recognize not everyone feels similarly about social and environmental issues. Here are some steps to consider before taking a stand on a political or social matter:

1. Be aware of all stakeholder positions: Management and the board should understand all stakeholder positions to ensure ready communications. This includes proxy advisors, employees, investors, customers, and vendors.
2. Evaluate the risks: Chart out the various risks associated with a wide range of reactions that can come from all stakeholders.
3. Involve the board: CEOs are frequently called on to make individual statements of support for their company’s position, which can also include statements on politicized matters. At a minimum, a CEO should have a conversation with the board chair, and potentially the entire board, before taking any position on an issue.
4. Notify internal constituents: Prior to an external statement on a social or environmental matter, internal constituents should be notified and have an opportunity for feedback.
5. Form partnerships: Companies should investigate opportunities to partner with organizations or other industry leaders to further strengthen the overall statement. One company that’s considered to have missed this opportunity is Disney, who only reacted to Florida’s Parental Rights in Education law once it was enacted.

In today’s politically charged and socially aware climate, it’s imperative for board directors to not only know where they stand but where their stakeholders stand. I believe boards must establish the trust to encourage individuals to speak freely on difficult issues. And further, great board governance demands a process be put in place for evaluating risks and creating clear communication plans. After all, a time will likely come when your organization must address the social matters aligned with its values and mission.

Related Content:

• The Business Case for ESG Reporting: With social and regulatory momentum building behind environmental, social, and governance reporting, business leaders and their advisors should make meaningful ESG practices an immediate priority.
• The Ethics of ESG Investing: As ESG investing grows in popularity, those looking to invest in purpose-driven organizations should think through the ethical considerations.
• The Business of Making a Social Impact: Corporations, communities, and careerists can all do better by doing good.