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Knowledge at Wharton

Management

The Rise of CEOs As Social Activists

Societal challenges of our time are mounting, and a growing number of corporations are confronting them

Published: Wednesday, June 26, 2019 - 12:01

CEOs are stepping forward to confront public policy issues that often extend beyond their core business, in part at the urging of their employees, write Caroline Kaeb and David Scheffer in this opinion piece. Kaeb is co-chair of the Business and Human Rights Pillar and a senior fellow of the Zicklin Center for Business Ethics Research at Wharton. David Scheffer is the Mayer Brown/Robert A. Helman professor of law at Northwestern University’s Pritzker School of Law.

It was not that long ago—less than two years—when The New York Times put a spotlight on “the moral voice of corporate America.” Little did we know how prominent the interventions of CEOs and companies would become in the public square to confront extremism, polarization, discrimination, and governance gaps. True, CEOs and corporations are still beholden to more conventional metrics of corporate success. But a growing number of corporate leaders are publicly taking a stand on policy issues that were formerly the province of politicians alone.

As the global challenges keep piling up, CEOs are becoming the bullhorns of democracy. Indeed, when there is corporate silence on a major public policy issue, such as the continued assault on Yemini civilians by American-made munitions despite Congressional opposition, many would view this as the exception to the growing norm of corporate engagement, as there is an overwhelming expectation that CEOs should lead change and “respond to challenging times,” including national crises and political events.

In May, the CEOs of 13 U.S. and Global Fortune 500 corporations joined with four environmental organizations to launch the CEO Climate Dialogue in a major push to move government policies toward more effective responses, including carbon pricing, to climate change. The governance gap on climate change, widened by the regressive policies of the Trump Administration, compelled these CEOs to demand change following a U.N. assessment’s dire verdict a week earlier of the mass extinction of species on earth.

Essentially, business is advocating a surcharge on its own operations. Amanda Sourry, president of Unilever North America, spoke of the Dialogue’s value: “There is an urgent need for action on climate change, and no one person or company can solve it in isolation. It will require systemic change and cooperation from governments, companies, and individuals. I am proud to join with U.S. business leaders from different sectors to support policy action, including carbon pricing.”

This is yet another example of CEOs and their corporations stepping forward to confront public policy issues that often extend beyond their core business operations and confront the most serious national and global challenges of our time. In late May, Netflix was the first U.S. studio to push back hard on Georgia’s new draconian heartbeat law denying women their reproductive freedom and joined with legal advocacy groups to challenge the law in the courts. The company stated it would “rethink our entire investment in Georgia” if the law is fully activated at the end of the year. Netflix was followed by the major Hollywood production companies essentially threatening to pull their productions from Georgia if the law goes into effect.

Employees expect their companies and CEOs to take bold leadership on societal issues.

It also is instructive that Nike’s shock and awe advertising campaign featuring former NFL quarterback Colin Kaepernick unleased howls of plaudits and protests across America last September. The former San Francisco 49er had inspired a multitude of kneeling revolts during the national anthem to protest police brutality against African-Americans. The company not only fully recovered from the brief drop in its stock price, but also generated a publicity buzz, which was valued at $163 million just a few days after the launch of the ad campaign.

Employees expect their companies and CEOs to take bold leadership on societal issues. They too are putting a marker down while consumers react with strong opinions and vote with their dollars in the marketplace.

A recent study suggests that companies taking a public stand on a polarizing public policy issue, such as gun violence, by cutting their ties with the NRA, saw a significant increase of “word of mouth” as well as “buzz” indices, signaling a clear change in the pre- and post-announcement perception. Yet, it has not been clearly established in a data-driven manner whether this buzz ultimately leads to a significant and lasting change in public perception—either positive or negative—of those companies proactively and vocally engaging in prominent public policy issues.

While political extremism has swamped western governments, including the United States and Europe, this new spirit of democracy has gained traction in key multinational corporations. During the last year, employees, often led internally by personal champions of key societal issues, have pressed management to uphold moral values they strongly believe in.

Bottom-up pressure

Activist employees, for example, have opposed contracting with the Pentagon on drone warfare, facilitating an unbridled use of facial recognition in software, or aiding Immigration and Customs Enforcement to tear apart immigrant families. Google hit fever pitch late last year when employees reportedly signed a letter expressing ethical and moral concerns about the company secretly developing a search engine with censorship capabilities for the Chinese market.

This growing phenomenon of CEO activism, often inspired by bottom-up pressures by employees on management, particularly in the major tech companies, to steer the company away from what employees view as antithetical to their values, challenges conventional thinking about corporate social responsibility (CSR). “[C]orporations... stepping up as advocates and problem-solvers” and “bringing CSR into the C-suite” as a matter of corporate leadership, was identified as one of the key CSR trends for 2018.

The democratic will of employees is taking hold organically, vying with international organizations, labor unions, and civil society as the driving wedge for corporate engagement on public policy issues. An increasing number of CEOs have answered the call, steered by their own moral imperative to speak out on issues as governance gaps widen, especially in the United States with Washington gridlocked over practically everything. As a result, corporate executives take on new duties as “reluctant statesmen.”

Corporate social responsibility—old and new

The old model of corporate social responsibility relies on external pressures to secure corporate pledges through highly visible participation, such as with the U.N. Global Compact. The new model increasingly draws values from within the company, at all levels, to help decide what to advocate. The UN High Commissioner for Human Rights underscored the promise of corporate actors to function as human rights advocates, while other voices have cautioned against companies being too outspoken and involved on public policy issues, fearing the risk of corporate capture.

In early 2018, Wharton launched the Leadership Initiative on Corporate Engagement with Public Policy, which started as closed-door discussions with senior corporate officers in New York and Geneva, and then with civil society in Washington. Building upon the U.N. Guiding Principles on Business and Human Rights, the initiative aims to craft voluntary guidelines for how companies and their chief executive officers can determine when and how to effectively engage publicly or through private diplomacy on the most pressing public policy issues of our day. We take for granted that one CEO’s view about how society should be governed could be another’s Armageddon.  Our report, “Corporate Engagement with Public Policy: A Framework Based on Multi-Stakeholder Consultations,” provides a detailed description of these discussions. The Leadership Initiative is now part of the Zicklin Center’s portfolio of activities.

Over the last year, employees… have pressed management to uphold moral values they strongly believe in.

These leapfrogs into contentious issues have focused on LGBTI rights, climate change, gun violence, police brutality, refugees, immigration, racism, freedom of expression, privacy rights, sexual harassment, and gender bias. They are not necessarily linked to a company’s core business operations and typically have little to do with quarterly reports but are “larger than self” issues. Of course, caution is required when companies are contributing money to exert influence in elections, which raises fundamental issues regarding political accountability and the role of business, especially in today’s polarized political environment. This article and the referenced consultations do not deal with a company’s engagement through monetary contributions, but rather through public statements or actions as well as private diplomacy, where appropriate.

While CEOs intervene aggressively on public policy issues, employees are the backbone of the company. Their voices shake C-suite rafters. Employees claim ownership in shaping the values of their company, and they expect corporate management, which focuses on shareholder interests, to represent employees’ values as well.

The growing trend of CEOs publicly engaging in public policy issues has been more prominent in the United States. In Europe, the CEO typically has focused more on working the issue internally for a decision on how the company engages with a corporate voice. Yet, recent developments have shown that the phenomenon of CEO activism also is increasingly taking hold in Europe, where CEOs of major German companies have taken a rare public stand on a pressing public policy issue.

The then-chairman of Daimler’s board of management, Dieter Zetsche, reacted in September 2018 to far-right extremist events in Europe, as did other CEOs of major German companies, with a statement published in DER SPIEGEL: “There is no place for racism or discrimination of any kind here.... Everyone is now called upon to stand united against radicalization in our society.... because radicalization has never led to viable solutions.” Almost all of the largest publicly listed German companies joined together in a collective campaign against racism and for diversity, and in endorsing a Charter for Diversity within their organizations.

On both continents, strong corporate and civic leadership is increasingly expected of the CEO. A global survey has confirmed that business is perceived as “the last retaining wall” in a worldwide climate of distrust in all sectors of society, in particular government. This increasing convergence between Europe and the United States has an important signaling effect about the role of business in society, especially in the face of growing governance gaps and retrogression of fundamental rights.

While engagement by politically conservative as well as progressive voices is fair game, there has been a discernible increase in recent years on the liberal side of corporate advocacy as prominent CEOs of the largest multinationals seek to hold the line against regressive efforts to erode civil liberties and promote divisive politics.

Personal champions

Leadership, though, is not confined to CEOs. A powerful change agent often is a “personal champion” within the company, increasingly empowered by civil society to speak up for universal values that are the bedrock of a free and democratic society. This person can rise from the broader workforce, among middle management, or within the C-suite to compel engagement on public policy issues. Although silence may be the natural default preference of corporate officers fearful of how any intervention affects profitability, we were told that there is a growing awareness in the C-suite and particularly among employees that silence no longer is accepted as a neutral position on matters of grave public concern.

This does not mean that companies must scream out daily about every breaking news story. Companies and their leadership are still lost at sea trying to navigate toward a formula identifying when and how to engage, and when to take a pass. Engaging on issues about which they can have most impact is logical. The playing field for companies, however, is growing, particularly when a major societal crisis tugs at a government’s will to act. Sometimes the raw morality of a societal crisis demands corporate attention.

Employees can break the habit of silence out of sincere concern about how the company’s products may be used in pursuit of war, repression or, so visibly, forcible separations within families fleeing for their lives from violent societies. Employee affinity groups are effectively advancing LGBTI rights in different industry sectors because personal champions among such groups are leading the charge.

There also is a new dynamic unfolding for the company to look to its employees to identify policy priorities for the company, shape its engagement agenda and strategy through focus groups, and have this all fed into a regular process of consultation with management.

Credibility and legitimacy

The practice of deciding how to engage nonetheless remains ad hoc in each corporation. No systemic methodology or single decision tree has emerged to guide CEOs, the companies they lead, or employees and their personal champions. At the roundtable discussions we convened, stakeholder representatives and corporate participants confirmed that a bottom-up approach (in addition to high-level leadership on the issues), and efforts to identify and empower personal champions within companies to engage on public policy issues, have proven particularly effective. Participants shared the view that companies (and their executives) should engage on issues where they have credibility and legitimacy, and when they can speak with authenticity. A bottom-up approach would offer one way to establish legitimacy for a company’s engagement through its employees.

The practice of deciding how to engage nonetheless remains ad hoc in each corporation.

Participants also agreed on the importance of collective action, arguing that it is essentially more about leveling the playing field than promoting a first-mover mentality among companies. At the same time, it is hard for stakeholders to view corporate engagement on various public policy issues as credible if the company is reluctant to recognize the elephant in the room in its own operations—for example, systemic organizational issues that could entail income inequality or gender discrimination, or sexual harassment. The paradox is that this is exactly where companies can have meaningful impact.

This tension reared its head when Facebook employees reacted forcefully to the company’s vice president for global public policy sitting behind Supreme Court nominee Brett M. Kavanaugh during his Senate confirmation hearing. The widely published photograph and video stream conveyed the impression to Facebook’s workforce of a public demonstration of solidarity by company leadership with an individual accused of multiple sexual assaults, which obviously are directly antithetical to the employees’ and presumably company’s values. Civil society and other stakeholder representatives see a central role for themselves in helping to set the agenda and driving the issues for attention and engagement by corporations.

Private corporate diplomacy with the local government has been stressed as a viable option, which in some cases has proven more effective than public statements or action. Another prominent takeaway from the roundtable discussions pointed to the lack of clearly established operational guidance for managerial decision making on whether, when, and how to engage. Such guidance would be critical to inform companies about how they can leverage their commercial power to intervene on public policy issues. This is particularly true for issues that are not necessarily in a company’s value chain, when such guidance could help corporate management be prepared to exercise fearless moral inventory and function as safeguards of the fundamental values that bind us all.

The pressures on CEOs and corporate management to speak up likely will increase in the months ahead, and employees, as the vanguard of democracy, will weigh in as never before. Often, they are positioning themselves on the right side of history and the future. What other option do they have if governments continue to evade the toughest challenges of humankind?

The great societal challenges of our time are only mounting, and a growing number of corporations are confronting them, particularly when governments fail to exercise the political will to develop effective solutions while they perpetuate regressive policies. We strongly believe there is a legitimate role for CEOs and their corporations, often spurred by employees, to fulfill in these turbulent times, with a clear voice and the mandate to act.

First published June 6, 2019, on the Knowlege@Wharton blog.

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Knowledge@Wharton is the web-based research and business analysis journal of the Wharton School of the University of Pennsylvania. Launched in May 1999, its goal is to disseminate business knowledge and insights to readers around the world. The Knowledge@Wharton Network offers free access to analysis of current business trends; interviews with industry leaders and Wharton faculty; articles based on the most recent business research; conference overviews, book reviews, and links to relevant content; and a searchable database of more than 1,500 articles and research abstracts.