Corporate America’s favorite type of activity

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Over the past few years, CEOs have tackled a variety of issues that previous generation business leaders may have avoided altogether. Some have promised money or reassessed the company’s political contributions. But most of the time, they wrote and signed countless public letters.

Anti-LGBTQ law, police atrocities against black Americans, violence against Asian Americans, and Restrict voting access Prompted a strong verbal statement from some of the most prominent business figures in all countries. In some cases Hundreds of them I signed the letter together.

You can easily dismiss the importance of letters as a tool of change. The signed statement is literally all discussion and does not guarantee any further action. However, these letters also show changes in the relationships between companies and their employees and customers, as well as the range of roles that CEOs are expected to play in social and political situations.

“The turning point was really the 2016 election,” said Meike Eilert, who recently studied corporate and consumer behavior at the University of Kentucky.

As politics became more divided, Generation Z joined the workforce and gained power as a consumer. “Digital natives, especially Gen Z, are putting a lot of pressure on businesses to stand up and demonstrate their value,” she said.

The nature of the problems at the core of these conversations has also changed. For example, a recent CEO’s letter against the voting bill is a case of claiming democratic rights that were stipulated by law decades ago, rather than demanding changes.

“You’re looking at the CEO who owns the center,” said Professor Michael Tofell of Harvard Business School, who studies the activities of the CEO. Ten years ago, securing voting rights was not considered “liberal,” he added, “it would have been a sort of American thing.”

So why turn to an open letter? Companies want to balance changing consumer and employee expectations with pressure from investors, who have historically tended to frown on any effort that could divert resources from shareholder value. I am. Writing a letter is a relatively safe way to do that, Proposed a treatise At last year’s Journal of Marketing. Signing a group letter is even safer.

In this survey, we analyzed the impact of corporate activities on corporate value. We have found that investors tend to be more critical of actions (such as pulling products and canceling events) than statements. Political positions that clashed with the political positions of companies that acted alone, not as part of a coalition, and of a significant proportion of customers (for example, products that Walmart raised the Battle Ensign of the South Army in 2015) Decided to stop selling).

There was one important exception to the contempt that investors often have for CEO activism. That is, investors are much more likely to participate if their social stance drives business gains.

As a result, Nusin Warren, an assistant professor of marketing at the University of Arizona and co-author of the treatise, hopes for more of these official statements, she said. The more consumers expect companies to focus on issues that are important to them, the more investors see such activism as an extension of the company’s profits rather than diversion from them. Probably.

Consumers and employees “no longer accept silence as neutral,” Warren said.

The company issuing the statement is also responding to the activities of its competitors, Warren said. “When you talk and I stay quiet, my silence now looks like I’m on the other side,” she said.

In the future, a more interesting dichotomy could be between companies that speak on behalf of the values ​​they actually hold and those that simply adopt the position that consumers hold.

“One of two things needs to happen: you need to be truly value-focused, or you really need to really understand who your consumers are and not keep changing your strategy. Then people will find this to be just a fake, “Warren said. “And that will definitely backfire.”

Most research on corporate activity focuses on the impact on businesses, such as keeping investors away, creating brand loyalty, or causing boycotts. There is not much insight into the power of letters to the problems they address.

The most important thing the letter does is to publicly promise changes to individuals or businesses, said Maria Raz, a lecturer at MIT Sloan School of Business and head of the Raz Group Consulting Company.A signed statement of the CEO’s commitment to the matter “gives those who want to make the company accountable for the IOU,” she said.

The promise is why some CEOs shy away from such statements, and some CEOs haven’t tried to go beyond words yet.

Several companies asked to sign an April statement in favor of voting rights Requested that the letter omit the sentence It promised them “against discriminatory laws or measures that limit or prevent voters from having equal and fair opportunities to vote.” (Former CEO of American Express organizer Kenneth Schnaud and CEO of Merck Kenneth Frazier refused to do so, and some companies opposed this line. I signed the letter anyway.)

Words are important because consumers and potential employees are paying attention to whether the company keeps its promises. A year after companies flooded social media with a nominal show in favor of Black Lives Matter, many activists noted that these promises didn’t come into action.

According to Creative Investment Research, a Washington consulting firm, US companies have been about 65 billion towards racial equality since last year’s demonstration, including donations to civil rights groups and investment in training programs for employees of color. I promise a dollar. William Michael Cunningham, founder, chief executive officer and adjunct professor at Georgetown University, said he had spent only $ 500 million so far.

May, Mr. Cunningham Submitted a petition To the Securities and Exchange Commission, which demands rules requiring companies to disclose activities surrounding the Black Lives Matter pledge.

Without the rules, “Can you really trust a company to honestly report what it’s doing in this controversial area?” He asked. “We say no.”

It’s hard to say whether this kind of scrutiny will lead companies and their investors to embrace business activities that go beyond writing letters.

“Some companies are trying, but it’s hard to turn a ship,” Raz said. “Now that the brilliance of companies that make these promises has diminished, let’s take a look at the behavior of companies next year.”

Consumer attempts to punish a company for its leader’s political beliefs are often denied by additional support from customers approving its position.Nike’s decision to make quarterback social activist Colin Kaepernick the brand ambassador may have prompted some angry customers to burn gear they’ve already purchased, but in the end. Increased both sales and company reputation With consumers. Disciplinary action from more organized opposition, such as the Georgia Parliament’s proposal to strip Delta Air Lines of millions of dollars in tax credits, has a greater impact on CEO activity. You may even apply the brakes. Mr. Toffel of Harvard Business School mentioned above.

“It can go in either direction,” he said. “The CEO can double. That repulsion can help because it reinforces the message. And sometimes that repulsion is harmful because it undermines your trust in you or you. Because it reduces the base of employment candidates. “

What do you think? Does your business stay here? Should companies do more than write letters? Please let me know:

Corporate America’s favorite type of activity

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