Should A Company Speak Out on Social Issues?

I have noticed that there are more idealogical investors out there.  In Hollywood, it’s hard to come out of the closet against the mainstream and find work.  In the old days, if you were gay you kept it hidden.  Today, if you are Republican or conservative you keep it hidden.  Personally, I have had people choose not to do business with me purely because of politics.  It’s painful when people are discriminatory and not tolerant.

Over the past twenty years, funds have been established that invest only in companies that disassociate themselves with certain things.  There are sin funds too.  At Motif Investing, you can design your own ETF around your political beliefs.

More and more, companies are inserting themselves into social issues. Starbucks CEO Howard Schultz wanted baristas to lecture consumers on race.  It backfired, and they quickly reversed the policy.

In the latest flap over bathrooms, Paypal has decided not to locate an office in Charlotte, NC.  An aside, Charlotte has a big banking network and there probably would be positive network effects for Paypal by being there. A further aside, Paypal chooses to do business in countries that are highly discriminatory to one class of people.  Up to you to decide if this is consistent policy or not.

I remember when there was outrage over the Citizens United Supreme Court decision which reaffirmed corporate rights to free speech.  Now corporations are speaking.   I am glad to see people like Jeff ImmeltMarc Benioff and Lowell McAdam start to show their opinions.  It brings more knowledge and transparency.

They aren’t only speaking in favor of left wing causes.  There are corporations that choose to make a statement about right wing causes too.  For example, not being open on a Sunday and encouraging employees (and by default the community) to go to church is a statement.

In the past, shareholders have brought up things at corporate meetings to be voted on.  With the rise of social media, the pressure is different.  The internal pressure on employees is also different.

There are so many issues in this polarizing age.  They aren’t only gay issues.  Is Israel a terrorist nation and should a company invest there?  Are corporate inversions unpatriotic?  What about illegal aliens?  Refugees?  Legalized drugs? Health care?  Flex working? Minimum wage? For most of these issues there is no clear right and wrong answer to 100% of the population.  They are normative issues, and not solved through science based hypothesis testing or a math equation.

There are some things to consider when you are a corporation/startup and decide to pick a side.

  1.  In this politically polarized society, you are almost guaranteed to tick off 50% of the people. Can you afford ticking off 50% of people?  Are they in your target market?  Do you ever think your company will target them?
  2. If you are going to make a public statement, be sure to check out the law or regulation you are going to speak out against with a reputable attorney.  Popping off or acting on instinct will cost you.  Make sure that attorney knows how to interpret that law, and that in their explanation they give you both sides of potential interpretation.
  3. Know the history of why the law or regulation is being written so you have context around it.
  4. It’s important to remember many of the touchstone social justice causes are highly variable.  They also change over time.  What I mean by this is that different people will interpret them far differently.  The causes are also interpreted differently in different parts of the country.  There is a lot of gray area.  Many of the things today are not at all like the Jim Crow laws and discrimination that occurred all over the US until Martin Luther King.   Personally, I find it pretty funny that they are banning chalk on sidewalks at colleges.  But, others might not.
  5. If you are a public company, what will your shareholders think?  Will your action be long term detrimental to the shareholder value you are trying to build?
  6. Do you have competition?  Does your product have an easy substitute?
  7. If you decide to donate a portion of company profits to a particular cause, how will it affect your shareholders?  How will it affect your bottom line?  If you pick a particular cause, it’s probably better to pick one that will fit with your company mission statement and marketing goals.   For example, suppose Miller Beer decided to donate some money to Flint, MI over their water situation.  Right or wrong?
  8. Some of your employees might not appreciate the stance the company is taking. You might lose them.  You might not be able to recruit new employees.  The flip side is also true.
  9. Make sure what you are doing fits with very long term goals of the company.  Many of these decisions are irreversible, or very hard to undo.  Even when they are reversed, the memory of them remains.

For startups, I think it is really important to remember they are not GE, Verizon, Paypal or any of the other really huge companies that are starting to make political statements.  If a 10 person startup decides to make a statement, no one will care.

When it comes to companies like Facebook, Twitter and Google, it’s really key to make sure search and newsfeed algorithms are unbiased.  Putting in bias will cause them to wind up in a government regulatory nightmare.

I advise startup companies to tread very carefully and lightly when it comes to public political statements.  Employees certainly can have their own personal beliefs and act on them.  But, making a statement as a company is probably not a wise decision.

For me personally, I don’t care what a person’s politics are when I make a decision to invest in them.  For my whole career, I have been friends with and worked with people from almost all political persuasions.  I do care that they separate them from the company for reasons above.  Most of the people I have invested in probably don’t agree with me politically.  Yet, we still have a very good relationship.  Once I invest, I work my ass off for them.   I have their back.  I’d encourage anyone to speak with companies I have invested in to see what kind of investor I am.

  • JLM

    .
    In the end, this is a matter for the Board of Directors to decide as they employ the CEO on behalf of the shareholders.

    The CEO should have an Employment Agreement and it should spell out the CEO’s duties.

    Boards of Directors and CEOs of public companies (private companies also) have a fiduciary duty to operate the enterprise for the benefit of the shareholders. That catechism is the sum total of guidance a board should use to evaluate the wisdom of any CEO action.

    It is not the CEO’s company. It is not the Board’s company. It is the shareholders’ company.

    [OK, sometimes it IS the CEO’s company but not very often.]

    This clear duty — the fiduciary duty of a CEO and the Board to shareholders — is really all one needs to know.

    If Tim Cook or Howard Schultz desire to use their personal fame as a springboard on social issues, they should have the permission of their Board and the Board should be able to say it furthers the interests of the shareholders.

    Nothing more is necessary. Nothing less is necessary.

    Bottom line — I don’t drink corporate coffee or use Apple products, so it does have an impact.

    JLM
    http://www.themusingsofthebigredcar.com

    • I think you make a good point about the board. It puts a much finer point about startup CEOs using their board before they make policy. So, are we to assume that Immelt etc ran their statements by their BOD before going public?

      • JLM

        .
        You have to think that someone on that Board, hopefully the Chairman, has thought it through. This is EXACTLY why companies need independent directors and why they should meet separately from the balance of the Board.

        I think that most of this social commentary has to inure to the detriment of the company. Neutral is the best business place to be.

        The potential to do something truly boneheaded — SBUX and face being the poster child here — is enormous.

        JLM
        http://www.themusingsofthebigredcar.com

        • I think one thing a company has to consider in this day and age is the ability for an employee to be on social media at work, and inadvertently say something or bring down the social media hammer on the company when they were acting on their own behalf.

  • KIR

    I hate to plug my own company, but this issue is precisely why Jawbuck was created.

  • Pingback: Employees And Social Media | Points and Figures()

  • Ted Craig

    Another risk is fueling populism by making groups of people feel betrayed. Look at Monsanto’s stance in Missouri. I can’t think of a non-financial company more vilified by the left than Monsanto. But now the company is taking a very public stance against social conservatives, many of whom would have defended Monsanto just as a matter of principle.