About the author: Mike Callahan is professor of the practice of law at Stanford Law School and executive director of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University. He is formerly the general counsel of LinkedIn and Yahoo! The views in this commentary are his own and do not reflect the views of any organization with which he is affiliated.
The leak of the draft Supreme Court opinion that purports to overturn Roe v. Wade has thrown corporations into the fray of one of the most polarizing issues in American society.
Expectations on corporations and CEOs to pick a side are rising. Just this week Amazon and Citigroup announced plans to cover travel expenses for employee medical treatments including abortion. Recent events have similarly put corporations on the spot to speak out. The Russian invasion of Ukraine brought corporate condemnation and the severing of business ties in Russia even beyond the requirements of government sanctions. The events of Jan. 6, 2021 at the U.S. Capitol resulted in several corporations announcing they would be discontinuing or reviewing their political donations activity.
Why do so many expect corporations to take a position on social issues? Perhaps it is a function of declining trust in other institutions that society has traditionally relied on. The 2022 Edelman Trust Barometer signals that nearly half of respondents believe a growing lack of faith in media and government are fueling a cycle of distrust. The Roman Catholic Church has faced a crisis of sexual abuse scandals. Allegations of election fraud have undermined trust in our political process. And now, the leak of the draft Supreme Court opinion has enhanced concerns about the politicization of our highest court.
Or maybe we look to the places we work and purchase goods and services to act because we trust they will respond to our collective concerns.
Regardless of the causes, pressure on corporations to react to political and social issues has increased. Trends in corporate governance emphasizing a corporation’s accountability to a set of stakeholders—employees, community members, customers—beyond only shareholders have heightened scrutiny on how corporations engage beyond core business issues. Corporations raised the bar for themselves in August 2019 with The Business Roundtable’s revised statement of corporate purpose for its signatories to “deliver value to customers, invest in employees, deal fairly and ethically with suppliers, support the communities in which they work” all while “generating long-term value for shareholders.”
Employee, customer, and investor voices have contributed to the calls for action. In a tight labor market, employee advocacy forced Google to reconsider the sale of artificial intelligence technology to the U.S. defense department. Wayfair faced an employee walk out over whether its products would be used at a federal detention center for migrants near the U.S.-Mexico border. Global brands have been compelled to react to conflicting concerns in Chinese and Western markets about the use of forced labor in China. Major institutional investors such as BlackRock and State Street have published detailed proxy voting guidelines for the election of corporate directors to measure company action and disclosure on environmental, social, and governance issues ranging from diversity to sustainability.
Corporations face pitfalls in this area. Disney’s initial lack of engagement on Florida legislation limiting classroom instruction on gender identity and sexuality caused an outcry among employees and advocates. Disney backtracked and found itself embroiled in a public political dispute regarding its special tax status. Other corporations have actively jumped into the toughest issues. Following Texas’s adoption of a strict abortion law last fall, Lyft immediately announced it would pay legal fees for its drivers if they were sued under the new law. Some corporations choose an affirmative refusal to engage in social and political issues. Coinbase CEO Brian Armstrong blogged about his company’s mission focus and plan to not engage in broader societal issues unrelated to the company’s core mission. All choices have consequences. What should boards and corporations do?
Forward-thinking boards and corporate leadership teams should have a process and be prepared. First, be ready for the reactive issues. Leaders should determine which current issues and events they are likely to be called upon to react to and have a plan. The current landscape of challenging political and social issues and the experiences of their competitors provide a road map. Second, corporations should reflect on their values and where engagement on social issues would reinforce their impact. Business priorities such as investor engagement, customer loyalty, or employee retention and culture may help decide which political and social issues to proactively engage on. Third, corporate leaders should 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 through social media of corporate action or inaction, corporate leaders should expect to upset half of their stakeholders whichever road they take. Fostering consensus may be impossible. Building trust through a transparent process may be the best path forward.
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