The pressure that US companies are facing from different stakeholders and social activists to take sides on cultural and political issues is growing. In Europe, CEOs do not get as involved in politics as their American counterparts, but European companies also face political pressure. Progressive media outlets had urged companies to step into the fray, but after recent negative backlash in conservative states, governance experts are telling companies to be less vocal on divisive issues unrelated to their business. Boards may need to step in so that CEOs do not impose their own political agendas on their organizations.
The recent US boards’ experience suggests some principles that could help boards of directors guide political engagement to the extent it occurs at all.
Companies are not a world unto themselves. They are part of society and should contribute to it. They have a vested interest in the sustainability of society, and it is understandable that they express concern about issues such as climate change and social injustice.
Businesses have a specific contribution to make to society that is different from NGOs, governments and political parties. Companies are not a substitute for effective government. According to the Economist, “the only legitimate way to mediate America’s bitter divisions and protect its fundamental rights is through the political process and the courts—not the executive suite”.
Playing politics from the C-Suite could be risky, ineffective, and contribute to the growing polarization of society. Political engagement should be strategic. An article in Harvard Business Review recommends companies to ask three questions to guide political involvement. First, does the issue align with your company strategy? Second, can you meaningfully influence the issue? Third, will your constituencies agree with speaking out?
CEOs and senior managers should be humble. How do they know that their political agenda is the right one for society? Most CEOs or board members are not smarter about these issues than average citizens.
While companies should be cautious about getting involved in politics, they can help dial down the level of polarization, which may be especially important for the sustainability of societies. Here are some guidelines from highly respected scholars to help companies make a difference.
In Love Your Enemies, Arthur Brooks argues for a more understanding approach to engaging with those who hold opposing views. Leaders could help create contexts that emphasize listening, respect, openness, understanding, and where everyone's opinions are welcomed and considered. Narrow political engagement can sometimes get in the way of this goal.
In Think Again, Adam Grant promotes the concept of rethinking, by being open to updating one’s beliefs and opinions. In pluralistic environments, a scientific mindset that leads one to ask "how could I be wrong" is needed to learn, improve, and move forward. Business leaders would gain in credibility if they acknowledged the complexity of social issues and were more aware of a range of perspectives, rather than siding with one limited view.
In Both/And Thinking, Wendy Smith and Marianne Lewis argue that by embracing the creative tensions of conflicting values and ideas, business leaders can avoid polarized thinking and inspire social engagement and more inclusive, collaborative and sustainable solutions.
In sum, corporate leaders are not (primarily) in the business of fixing society. As Brendan Whitworth, CEO of Anheuser-Busch, wisely put it after the Bud Light incident, "We never intended to be part of a discussion that divides people. We are in the business of bringing people together over a beer."
The 2024 IESE-ECGI conference will take place in Madrid on April 15, 2024. This year's conference theme will be "Towards a New Model of Boards of Directors"and will focus on the following topics:
The role of strategy in the board’s effectiveness
Board dynamics and the board as an effective team
Interactions between the board and the firm’s shareholders
How the board should deal with new disruptive realities such as climate change, digital transformation and geopolitical risks
An important pillar of governance for the past years in different countries has been the successive generation of corporate governance codes. The UK Corporate Governance Code was updated recently but only a small number of the initially proposed changes have been taken forward to avoid excessive reporting requirements and burdens. The main changes have focused on risk management and internal controls. Read more here.
Boards of directors should understand the benefits, the effects and risks of implementing new technologies in their companies. Two recent surveys provide interesting insights on where firms stand in the implementation of AI, data transformation and challenges ahead. Read the full State Street report based on a survey of more than 500 financial institutions, here and the Russell Reynolds report, based on a survey of more than 2.500 global leaders here.
According to Lazard’s annual review of shareholder activism of 2023, activist investor campaigns in Europe increased, particularly in Germany, with a focus on challenging M&A transactions and advocating for divestitures.
Although boards of directors may be composed of competent professionals, the ability to function as an effective institution is challenging and requires the consideration of many elements, including internal dynamics. PwC has published an interesting article that discusses factors that can undermine boards of directors' effectiveness and culture. Read more here.
VIDEO.
Executive compensation fairness has become a highly debated topic following the invalidation of Elon Musk's compensation package by a Delaware court, after approval by Tesla's board of directors. Various interesting reflections on CEO pay were made during the session "Executive Compensation: Evidence from the Field and Implications for Corporate Culture" at the 2022 edition of the IESE-ECGI Corporate Governance Conference.
