We hear a lot about companies taking public positions on political issues—as well as the backlash that many experience as a result. Whether you think corporate participation in politics is a good thing or a bad thing, you might be interested in this thought-provoking paper from the University of Pennsylvania Institute for Law & Economics, How Did Corporations Get Stuck in Politics and Can They Escape?,© by Professors Jill Fisch and Jeff Schwartz (All rights reserved, 2024).  In their paper, the authors observe that, while, historically, companies have long engaged in politics and lobbying, something seems quite different today. How? The difference is that companies seem to be taking public positions on any number of hot political issues, even if those issues are not connected to the conduct of their businesses. That is, while companies may take these positions “for business reasons—to appeal to their customers, employees, or investors”—these issues are not necessarily intrinsic to their business operations. The authors contend that this type of corporate behavior, which they call “corporate political posturing,” is “problematic,” creating potential risks for the company, its shareholders and for society. The authors suggest some ways for companies to depoliticize, including through coordinated “voluntary disarmament.” Certainly, some ideas to think about.

The authors acknowledge that corporations have had a “deep and longstanding relationship with politics”—think, the New Deal, the civil rights era. And, in some cases, political lobbying is essential to the conduct of their businesses, such as political lobbying to affect legislative or regulatory decisions.  But the authors identify a type of activity that they view as new and different—responses to current events that have no inherent relationship to the companies’ business operations. Examples might be statements in support of racial justice and voting rights after the killing of George Floyd, support for reproductive rights after Dobbs or various “anti-woke” statements.  The authors also contend—with exceptions for a few companies that “explicitly identify themselves with specific social or political issues,” and thus are not viewed by the authors to be engaging in political posturing—that the “political and social causes addressed in these corporate statements do not appear to reflect a corporation’s underlying commitment to a particular social or political identify.”

The authors attribute the increase in corporate political posturing to three related factors: “(i) increasing politicization and polarization in society, partly driven by social media; (ii) demand for corporate involvement from consumers, employees, and investors, leveraged by social activists; and (iii) the potential to further the interests of the corporation and its executives by responding to such demand.” On the last point, the authors argue—an argument that some might consider a bit cynical—that political posturing can be a new avenue for competition for both customers and employees as companies can increase brand awareness and brand loyalty through controversy and “gain a competitive edge by selling moral indignation.”  In addition, they suggest that companies may also take political positions to advance the personal political preferences of their management, perhaps influenced by their peers in examples of “groupthink.” Although the decision to issue statements on political issues probably reflects many factors, in the end, the authors assert, it is “also a strategic decision, where a corporation weighs the risk of significant blowback against the benefits of being somewhat controversial.” 

While the authors acknowledge that these public statements can have positive effects, such as galvanizing support for important issues, that is not always the case. Companies are sometimes inconsistent in their positions, which could undermine a company’s public stance as well as the cause itself. And then there’s the frequent dissonance between some of the public statements made by companies and their political spending—donations often contributed to persons or entities that embrace views antithetical to those public statements.  (For example, companies may make contributions directly to a candidate or to third-party groups that support candidates with conflicting values.  See, e.g., this PubCo post.) That kind of conduct, the authors contend, can adversely affect the causes that the companies profess publicly to champion.

In addition, the authors identify other “substantial risks” to  companies and shareholders.  For example, companies engaging in political posturing face the possibility of political backlash and consumer boycotts, which could outweigh any reputational benefits, especially if the company were ultimately to be viewed as disingenuous. In light of the increases in politicization of society, conduct that companies may have engaged in as a regular practice for many years may now have the effect of painting a target on these companies’ backs.  The authors attribute some of the responsibility for this politicization to the businesses themselves: “Political posturing invites stakeholders to view everything they do through a political lens.”  And, the authors point out, there can also be backlash from politicians (see, e.g., this PubCo post).  These issues are problematic, the authors assert, even when the company acts in good faith that its conduct will enhance shareholder value. And, of course, there is the risk of potential litigation.

Even more intriguing questions arise out of the lack of clarity surrounding the “source of the values that corporations espouse,” as well as the deeper question of what that source should be. While the authors seem to be skeptical of claims by companies that the positions taken are values-motivated, even if they assume that they are, “it is unclear where corporations are getting these values from or where they should be getting them from. There is undoubtedly a plurality of views within the corporation on such topics and no way for corporations to legitimately prioritize the views of one group over the other.”

But that’s not even the main reason that “political posturing is not good for society.  The core problem is that corporations are not designed to be political thought leaders. They engage to serve their own interests, or those of their executives, and these interests may not align with the interests of society.” Because companies are “inherently self-interested economic actors,” and not motivated principally by “public welfare,” they contend, they “should not be looked to as saviors from dysfunctional public governance.” The authors believe that political posturing has a corrosive effect, polarizing the public and exacerbating partisan splits—down to where each side buys its coffee. This politicization of brands and companies, the authors maintain, creates divides within workplaces and elsewhere in society, generating a “tribal” feeling around political ideology that, for a substantial segment of the population, can be alienating and cause resentments that could have political impact.  

To mitigate this problem, the authors advocate, stakeholders should stop pushing companies to get involved, and executives should start resisting this pressure. That may already be happening to some extent, the authors suggest. Beyond that, the authors consider several approaches to reining in political posturing. One of the ideas frequently offered is the application of more rigorous governance, such as mandated independent director oversight, or other distinctive treatment under corporate law.  But the authors reject that concept, asserting that it fails to address the “broader societal problems” associated with this conduct, and contending that these decisions are ordinary business decisions that should be protected under the business judgment rule. Certainly, they allow, companies could adopt voluntary governance procedures.

A better approach for companies, the authors suggest, is “voluntary disarmament, reducing their engagement in political posturing through voluntary collective action.” Companies should just decide to refrain.  To support that effort, the authors advocate that “corporations commit to depoliticization through a pledge akin to the Business Roundtable Statement on Corporate Purpose. Such a commitment would strengthen the ability of corporate decisionmakers to withstand the significant pressure from stakeholders to take a stance on public debates.” A pledge of that kind would “offer easy accountability,” while helping companies “resist the political arms race with the knowledge that their competitors would not be able to take advantage of their choice to remain neutral.” This commitment, they suggest, should be formally adopted by the companies’ boards of directors.

Second, the authors recommend increased transparency as a way to deter companies from engaging in political posturing, advocating that companies disclose the nature of their commitments regarding their public political positions, how they came to those positions—the process, parties involved (board, senior executive or marketing team), whether stakeholders had advocated the position and “any empirical basis for believing that the statement is consistent with either corporate or societal interests.” Companies could also disclose “the extent to which their actions match their posturing,” both through political contributions and internal implementation (e.g., diversity policies or dollars spent on abortion-related travel.) The disclosure could be voluntary, the result of pressure from shareholders through shareholder proposals or otherwise. (See, e.g., this PubCo post.) Or, they suggest, the SEC could adopt rules requiring disclosure about political activity or at least issue guidance “indicating that political posturing that is inconsistent with corporate behavior could constitute securities fraud. It could back up this guidance with enforcement actions against corporations engaged in political hypocrisy.”  This transparency, the authors believe, might lead some companies to refrain from political posturing or to engage in a more authentic way.