David Ryan leads the financial communications practice for Edelman in Canada. Over the past 20 years, he has provided corporate and financial communications counsel on range of complex mandates, including acute reputational challenges, operational crises, litigation, hostile and friendly takeovers, shareholder activism, restructurings and insolvency proceedings, and management changes, as well as normal course corporate profile building.
Christopher P. Skroupa: What is CEO Activism?
David Ryan: It’s first important to differentiate what we now refer to as “CEO activism” from traditional corporate social responsibility (CSR); while CSR typically involves social activity with an obvious connection to a company’s business strategy, CEO activism involves chief executives taking a stand on critical, social issues that are not necessarily related to their business. There’s a number of examples of CEO activism, particularly in the United States, where iconic CEOs have taken a position on prominent social issues. For example, Howard Schultz took a stand on racial inequality, an issue not directly related to his business strategy, but nonetheless an important social issue.
Skroupa: What are the underlying drivers of CEO Activism?
Ryan: Politically, we’re witnessing extreme polarization amongst partisan groups on everything from gender equality and inclusiveness to gun control. And people are increasingly looking for businesses to lead and are less reliant on or expectant of governments to stand up for what they believe is right. As part of this, corporate leaders are stepping forward and taking a position on important, and often divisive, social issues. On one hand, this presents opportunity: CEOs can create tremendous brand allegiance with consumer, employee and other stakeholders that share their views on an issue; it also presents considerable risk when stakeholder interests don’t align with a CEO’s political positions. In a hyperpolarized environment, taking a political stance can create both fast friends and bitter enemies. It can deepen relationships with one group while opening the door for criticism from others, providing opportunity for detractors to retaliate against a CEO and a brand regardless of their own politics.
As prominent social issues continue to demand the attention of corporate leaders, we’re seeing more and more business leaders step forward, and with that the continued rise in CEO activism. This trend is attributable, at least in part, to millennials (and subsequent generations) and their evolving expectations of business, brands and corporate leaders. In general, we have come to understand that millennials want to see companies recognize that good business is no longer just about the bottom line. Rather than looking to government to solve social problems, millennials increasingly expect large corporations and the leaders of those corporations to play a meaningful role in society beyond basic economic contributions. They want to see business leading from the front and being a force for positive social change.
The idea that the business of business is no longer just business is not exclusive property of millennials. When Larry Fink from Blackrock came out with his letter to CEOs in Q2 of 2018, it made a very clear point: society demands that companies serve a social purpose and corporate leaders need to ask themselves, what role do we play in the community?
Every year Edelman issues what we call the “Trust Barometer,” measuring trust in four key institutions: media, government, NGOs and business. Edelman has a survey team with 18 years of data examining how trust evolves over time. Last year, we augmented our trust research by looking at what key measures of trust institutional investors have in the companies they’re investing in. Our survey found that 76% of investors expect companies to take a stand on social issues, such as the environment, gender equality, diversity and globalization. Institutional investors have an expectation that CEOs take a stand on issues beyond making money and creating jobs. Larry Fink is not alone in that this expectation extends broadly across the investment community.
Skroupa: How does CEO activism build a brand or place it under scrutiny?
Ryan: There’s a certain risk and reward associated with CEO activism. While research suggests a heightened expectation for CEO’s to take a stand on social issues, research also demonstrates that if you don’t agree with a CEO on a particular issue, you are less inclined to purchase their product or have a greater affinity to that brand. Taking a stance on either side of an issue can help to bolster the brand or drive a wedge with consumers – both can affect the bottom line.
While racial equality is a topic Schultz feels passionately about, it should not be a polarizing issue, making it easier for Schultz to step forward and declare that both his business and society as a whole need to come together to solve it. There are other examples of CEOs who have stepped forward and faced a more challenging debate; especially regarding issues where the two sides are completely polarized.
Chick-fil-A’s CEO, Dan Cathy, for example, proclaimed his opposition to gay marriage, and he continues to be vilified for it. That said, there are (sadly) those who celebrated his view: Former governor of Arkansas, Mike Huckabee, went so far as to pronounce Chick-fil-A Appreciation Day in that state, which emboldened a certain segment of the population in support of Cathy’s position.
A better example is Ed Stack from Dick’s Sporting Goods, who stopped selling AR15’s after the Parkland, Florida school shooting. This was a big move for the company, one that came with considerable business risk. Dick’s sells a considerable number of firearms, and Stack took on very powerful special interest groups like the NRA. In doing so, there is a complex calculation that needs to be made regarding risk and reward, primarily because there are those who support his position and those, more conservative parties, who do not. With that calculation comes the questions: what are the limitations of CEO activism from a corporate governance perspective? When does the board step in and say “enough is enough” or conversely, you are being too passive and need to take a stand on this issue? How much is this driven by the CEO’s personality?
There are many different variables in play here. But ultimately, a CEO needs to maintain focus on executing on strategy and creating value for company owners. When CEO activism interferes with either of those priorities, things get complicated. To this end, the relationship between CEO activism and shareholder activism will eventually have an intersection and it will be very interesting to see how that plays out.
Skroupa: What are some examples of CEO activism in the Canadian context?
Ryan: In Canada there aren’t as many clear-cut examples of CEO activism; CEO activism surfaces in a different way according to Canadian culture and its political environment, which is historically, not as divisive or polarized in nature. While there are less examples of CEO activism in Canada, one example particularly stands out. Several years ago, Mark Wisemen, the former head of the Canada Pension Plan Investment Board, took a very strong stand for focusing capital on the long term. His position was effectively that short termism, in the context of investment strategy, can have an overall negative affect on society, advocating for a more long-term view. There are social and economic consequences of looking at the world on a quarterly basis and Mark recognized that. The Focusing Capital on the Long Term initiative has since received broad support across the global investment community.
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