The 2010s Were the Decade That Forced CEOs to Get Political

Starbucks Howard Schultz-Race Together
Howard Schultz of Starbucks tried to improve race relations by having baristas write “Race Together” on coffee cups. Courtesy of Starbucks

 

It might not be obvious that an electric utility in Oregon, an online payments service, or a consumer rating app would have much to say about Georgia’s and Alabama’s antiabortion laws enacted this spring. It isn’t just that there’s no apparent connection. Research by the Weber Shandwick communications firm has found that of all the topics on which Americans think CEOs should opine, the hot-button issue of abortion ranked last. Nonetheless, the CEOs of Portland General Electric, Square, and Yelp—all publicly traded companies—joined 184 other CEOs in signing a full-page ad in the New York Times, stating that “Restricting access to comprehensive reproductive care, including abortion, threatens the health, independence and economic stability of our employees and customers. Simply put, it goes against our values, and is bad for business.”

This is the disorienting new role of corporations in society, a role that elevates the corporation’s stature. In the old world, commenting on controversial issues unrelated to a company’s business was all downside, no upside; you’re guaranteed to make people mad, so don’t do it. In the new world, consumers, shareholders, and especially employees expect companies to take a stand on high-profile issues. It’s still true that if you do so, you’ll make people mad. But now, if you don’t do so, you’ll also make people mad. It’s hard to win. The best you can do is try to win more than you lose.

In the case of the anti-antiabortion screed, bloggers across the political spectrum applauded or condemned the participating companies, but revenues didn’t deviate noticeably up or down. The shares of Portland General Electric, Square, and Yelp rose, but so did the market. The CEOs were betting that in the long term, declaring their values would be good for business. And maybe they’re right.

Hundreds of companies have taken a stand on many of today’s most divisive issues—barring transgender service members from the military, the Parkland school shooting, sexual harassment in the workplace, and the Charlottesville protests. Disney CEO Bob Iger opposed the U.S. withdrawal from the Paris climate agreement. Howard Schultz of Starbucks tried to improve race relations by having baristas write “Race Together” on coffee cups. Chick-fil-A CEO Dan Cathy spoke out against same-sex marriage. Patagonia CEO Rose Macario denounced President Trump’s shrinking two national monuments in Utah. Apple CEO Tim Cook, in a recent Supreme Court filing, argued against President Trump’s immigration policy. These stances were all unthinkable just a few years ago.

Two big changes help account for the new environment. Around the globe, people, especially millennials and Gen Zers, are disenchanted with government and expect business to solve more of the world’s problems. At the same time, social media gives them the power to compel businesses to respond to what they want. Combine those factors, and even CEOs who would rather not comment on touchy issues feel that they must.

Society’s new attitude elevates the role of CEOs, though it’s definitely a mixed blessing. The Edelman communications firm finds that 76% of adults surveyed in 25 countries say “CEOs should take the lead on change rather than waiting for government to impose it,” and large proportions of those respondents want CEOs to change things for the better on global megaproblems: prejudice and discrimination, the environment, sexual harassment, and more. It’s a big assignment and not what most CEOs signed up for. But the pressure is on.

Giving employees purpose

Much of the pressure comes from employees. Consumers obviously count, saying they’re more loyal to companies that take stands they agree with on social issues, and at least some investors favor such companies. But no one pays as much attention to a company as its employees do, and in a world where human capital is the most valuable asset, and also the hardest to acquire and keep in this ultra-tight labor market, CEOs obsess over what employees think. (That’s a big reason employers are competing to offer up-to-the-minute employee benefits, some of them in such potentially controversial areas as transgender transition-related treatment.)

“There’s a new contract between employer and employee,” says Richard Edelman, summarizing his firm’s research. Employees think, “I want to work for a company with values, that has a purpose, that’s answering societal needs. I want a CEO to speak up about diversity or sustainability.” That is, employees want an employer to give them more than good pay and benefits. Now, they want an employer to give purpose to their work and even to their lives.

Purpose isn’t new; interest in corporate purpose has waxed and waned for decades. But right now, it’s bigger than ever as people seek meaning from their work.

“Interest has increased exponentially in the past five years,” said Cathy Carlisi, the Americas president for BrightHouse, Boston Consulting’s firm that calls itself “the founders of purpose consulting.”

“Early societies looked to religion for meaning,” she says. “Then governments could take care of people. Now the world’s needs are so great—business is the only thing that touches every element of our lives and has to play this role.”

CEOs realize, above all, that they must speak up in order to attract the best workers. “Millennials are one of the top reasons for increased interest in purpose,” says Carlisi. “Leaders come to us saying, ‘We can’t get the best talent.’”

The problem is that many CEOs have never thought deeply about their company’s larger purpose. “As this conversation gets hotter, many of the folks who are perceived to be leaders are having an emperor-has-no-clothes feeling—‘We’re making this up as we go along,’” says Lynn Taliento, a former senior partner at McKinsey who’s now an adviser to the firm’s practice focused on purpose.

This has resulted in a raft of grand yet bland corporate purposes. Can you guess the company whose stated purpose is to “unleash the world’s creative energy by designing a more enlightened way of working”? Or to “unlock the potential of human creativity”? Or to “improve the way people live and communicate”? The answers are Dropbox, Spotify, and Snap, respectively, but how would anyone know? Their purposes are entirely generic.

Bruce Simpson, who oversees McKinsey’s work on purpose, says his team surveyed over 1,000 employees and leaders, and found “over 82% believe that it’s important to have a purpose at their organization. Unfortunately, only about 40% believe they have a purpose statement and strategy that drives real impact.”

The CEOs seeking their company’s purpose are onto something, if only they could get it right. For an example of the power of an authentic purpose, properly managed, consider Medtronic, the Minneapolis-based maker of pacemakers, stents, and other medical devices. The company didn’t need a consultant to find its purpose, which was written by cofounder Earl Bakken in 1960: “To contribute to human welfare by application of biomedical engineering…” it begins. Nothing generic about that.

Medtronic keeps its purpose alive in many ways, most notably with its annual holiday program in December. This year, as usual, some 5,000 employees and retirees gathered for dinner at its headquarters, where patients with Medtronic devices stood up, told their stories, and said thank you. As usual, nearly everyone ended up crying. If you wonder whether such a seemingly touchy-feely company can perform, consider that Medtronic stock has delivered an astounding 15.6% compound annual return over the past 30 years.

Medtronic’s example remains atypical. The failure of most CEOs to enunciate an effective purpose exposes the risks companies face as they try to assume their new role and fall short. Many employees and other constituents will roll their eyes at a grandiose purpose, and if the company falters financially, it will be accused of too much focus on saving the world and not enough on saving the business. The most egregious recent example: WeWork and its widely mocked purpose, “To elevate the world’s consciousness.”

Risks aplenty

Broadly speaking, a company taking stands on social issues will almost inevitably be accused of hypocrisy or grandstanding. “The biggest risk is not having your own house in order,” says Leslie Gaines-Ross, chief reputation strategist at Weber Shandwick.

For example, Howard Schultz’s Race Together initiative at Starbucks, launched with noble intentions, almost instantly “unified the public in ways I did not foresee, which was against us,” he later wrote. People on Twitter noted that the company’s top team wasn’t very diverse. In addition, “We were accused of overstepping acceptable bounds for a corporation, seizing upon a moment of national crisis to promote our brand, and preaching through the company megaphone,” Schultz recalled. Many employees were not happy with the initiative, he wrote in his book, and the company quickly ended it.

Tim Cook has often declared Apple’s support of human rights and civil rights but drew scathing criticism when Apple removed an app that enabled Hong Kong protesters to track the locations of police; the company said the app “has been used in ways that endanger law enforcement and residents in Hong Kong.” Alphabet CEO Sundar Pichai, when he was CEO of Alphabet’s Google, said last year that “getting access to information is an important human right” but was attacked for Google’s since-canceled Project Dragonfly, which was reportedly developing a censored version of Google for use in China.

The danger extends beyond hypocritical action—companies are also being attacked for hypocritical inaction. Dozens of companies have declared their dedication to a cleaner environment, for example. So when President Trump withdrew the U.S. from the Paris climate agreement in 2017, the New York Times compiled a list with photos of self-proclaimed eco-friendly CEOs who were on Trump’s business councils and who hadn’t resigned in protest. They included Johnson & Johnson’s Alex Gorsky, Walmart’s Doug McMillon, IBM’s Ginni Rometty, and many others. Tesla CEO Elon Musk and Disney’s Iger did resign.

And companies face political risk. After the 2018 shooting at Marjory Stoneman Douglas High School in Parkland, Fla., Delta Air Lines ended its discount program for members of the National Rifle Association. In response, angry state lawmakers in Georgia, where Delta is based, voted to cancel the exemption of jet fuel from sales tax. (Political wrangling since has so far kept the fuel untaxed.)

A further risk is that employees of companies that have taken a stand will become activists themselves—in opposition to the company. In September, Amazon CEO Jeff Bezos announced several environmental initiatives, including a plan to make Amazon carbon-neutral by 2040. Some 1,500 employees walked out the next day, joining a global climate strike because they wanted Amazon to be carbon-neutral 10 years sooner. Hundreds of employees at Wayfair, a Boston-based online furniture retailer that has long proclaimed its social responsibility, walked out in June after discovering that the company had sold $200,000 of furniture to a Texas center detaining migrant children. Wayfair quickly donated $100,000 to the Red Cross for use in the border crisis, but employees said that wasn’t enough.

Why would CEOs risk putting their companies through all this? Only because they feel it’s their best alternative. Weber Shandwick’s Gaines-Ross, citing the firm’s research, notes that 61% of Americans say CEOs run a risk by staying silent. “Otherwise they think you must agree with what’s going on. CEOs are being forced into speaking up. Silence is no longer a good default.”

And then there are rare cases of companies winning big by taking strong stances on divisive issues. Exhibit A is Patagonia, which has been extraordinarily outspoken in support of its purpose, “to save our home planet.” When the Trump administration reduced the size of two national monuments in Utah by nearly 2 million acres last summer, Patagonia sued the administration, and CEO Rose Macario called the orders “illegal” and attacked “this administration’s reckless agenda.” On the day when Amazon employees walked out to join the global climate strike, Patagonia closed all its stores and offices worldwide so employees could join the strike too.

The result of this seemingly extreme behavior: “The more activist we’ve been, the better we do,” says vice president Rick Ridgeway. “Patagonia punches above its weight,” he notes, with brand strength far greater than the company’s modest size would suggest. The recruiting benefits of taking a stance may be even greater. “We get hundreds or thousands of applicants for every job we have,” says Ridgeway. “Last summer we had a dozen internships and got just over 10,000 applicants. We get to pick and choose.”

Other executives might object that Patagonia has an advantage in being privately owned, mostly by the family of founder Yvon Chouinard, so the company doesn’t have to answer to shareholders. “That makes a difference,” Ridgeway acknowledges. “It’s easier for us. But it’s getting easier for everybody.”

It might be getting easier, but it’s not easy. “Purpose can bring huge benefits to society and the company. However, the more you talk about your purpose, the more scrutiny you come under,” says McKinsey’s Simpson. “You raise the bar on yourself. A mining company found that as they increased their investments in society and their external communications, the number of negative hits they got increased because it put a new lens on the company.”

By announcing their stance on social issues, by declaring a noble purpose, CEOs are taking risks with which they’re unfamiliar in hopes of rewards they can’t easily measure. Nonetheless, many CEOs seem to feel certain the rewards more than justify the risks. Any doubters need to realize this is all part of a deeper shift in business’s role in culture. Mainstream society has decided companies should take on far more responsibility for improving the world. It’s an assignment they can’t afford to decline.

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