The realpolitik of business activism

It is a sign of the times that companies in America are embracing hot-button political issues that divide the country.

So it is fitting to remember the advice most companies follow when they do business in troubled emerging markets: stay out of divisive politics, and keep a low profile. America is facing an era of hyper polarization where the same advice applies. Companies that take on political issues unrelated to the bottom line tread in equally dangerous ground than uncaring companies that harm others – both are extremes in a spectrum of political engagement.

Companies that ignore the externalities of their work, like pollution, become extremely unpopular, heavily regulated, and sometimes unprofitable. Those that become activists for one side of a controversial issue (regardless of its merits) naturally alienate other customers and stakeholders, can get caught up in the crosshairs of regulators, make political enemies, and incur losses too.

Do no wrong

In 2019, the Business Roundtable famously stated that the purpose of the corporation is to serve communities, employees, and customers, not just shareholders. In other words, be a good corporate citizen. But the goal is to do no wrong, not right every wrong.

The focus on environmental, social and governance issues (or ESG) is meant to ensure business does not damage the environment, hurt the social fabric, or contribute to corruption. Companies are not expected to fix those ills, because they can’t. In fact, most companies working in troubled nations quickly learn that they can certainly help development, but there is a limit to what they can do, and they cannot and should not replace the work of the state, NGO’s, community groups or activists. These stakeholders have their own role to play.

Activists from either political camp will always use shame or guilt to try to force business into embracing their causes. But it is precisely the stellar reputation of those companies that is in peril if they go along. Businesses must work to find a comfortable “do no wrong” middle ground, that allows them to avoid the political and reputational risks that come from activism.

Activist branding

Of course activism can sometimes help branding. Smart companies assess the tastes and desires of their workforce and customers, and decide if an activist stance helps the bottom line in the short and medium term. But what looks like today’s savvy marketing approach can backfire tomorrow. Political climate changes, and the pendulum can sometimes swing too far in either direction, leaving the activist company exposed to criticism.

Take Major League Baseball’s decision to pull the All-Star Game out of Georgia over voting rights. The MLB has come under criticism because it was willing to do business with Cuba’s dictatorship (there are no voting rights there, for sure) in its drive to recruit players. The MLB could claim that dealing with dictators is the cost of getting talented players (an admittedly debatable argument), but then activism unrelated to the bottom line becomes tougher to justify.

Companies must learn to pick their battles, favoring the ones that more directly affect their business. A politically charged issue that divides almost half the country is not yet mature enough for companies to comfortably embrace. Let the battle rage and settle before you step into the field. Remember: companies want to come out of an activist era stronger, more transparent, more diverse and wiser, but not politically damaged.

Thankfully, history shows that periods of political fanaticism can last long but are ultimately not sustainable. The era of McCarthyism for instance, during which people were blacklisted and accused of communist collaboration, lasted from the late 1940s through the 1950s, but ended with acrimonious lawsuits and high court decisions. So, keep your wits about you until the storm passes.

Focus on improving your product or service in times of extremist politics. Your business should be defined by your product, not the noise going on outside. The age old lesson about business still holds true: the business of business is to stay in business.

What I’m (Re) Reading

The whole issue of activist companies has made me think of the book Pre-suasion (Simon & Schuster 2016), written by the communications guru Robert Cialdini. The book is a great tract on techniques regular people, politicians and businesses use to persuade others to do their bidding.

A key lesson from the book is that we tend to believe that what is salient is important, and that is not always the case. If there is a set of issues being rehashed over and over again by the news, social media and, say, your conversations with your neighbors and friends, you come to believe they are more important than anything else (more important than your work even). That is a common mistake, and a technique often used by those seeking to persuade us of an idea.

Cialdini also warns: “Modern life is becoming more and more like that bus hurtling down the highway: speedy, turbulent, stimulus saturated, and mobile. As a result, we are all becoming less and less able to think hard and well about what is best to do in many situations.”

Another good kernel from the book is that asking for advice is good advice. Before allowing what is salient (politics, activism, etc.) to divert you from your goals, ask for the advice of an impartial third party that can ground you and bring needed perspective.