What if your company’s health insurance plan (or your hiring and training practices, or your policy on guns in the workplace) violates a new state law? And what if your efforts to comply with fast-changing laws and regulations are met with condemnations from employees, customers, and investors?
These were not questions that business leaders were asking themselves even a few years ago.
Now they must. Worse, such questions are certain to increase in both quantity and importance. You need a political strategy — one that supports and complements your business strategy.
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One clear cause is the U.S. Supreme Court term that concluded in June 2022, which both revealed and reopened ugly scars in the social fabric of American society. Decisions on climate regulation, reproductive rights, and gun control, to pick just three, sparked immediate protests and generated swift backlash from multiple sources, as well as a new wave of legislation and additional court cases. The court’s agenda for its current term, which includes controversial issues such as affirmative action, will turn up the heat even more.
It’s not just the courts that are necessitating having a political strategy. As political polarization has made states more prone to one-party rule, the chasms between conservative and liberal legislatures are much deeper than in the past, making conflicting state laws more difficult to navigate.
Ordinarily, enterprises are understandably wary of wading into culture wars and other social upheavals. But judicial, legislative, and regulatory disruptions around these and other controversial topics, and their aftermaths, will have a direct impact on your business. You can’t avoid them.
The chasms between conservative and liberal legislatures are much deeper than in the past, making conflicting state laws more difficult to navigate.
In West Virginia v. Environmental Protection Agency, for example, the Supreme Court didn’t simply invalidate regulations aimed at combating climate change. The majority’s wide-ranging opinion also scaled back key precedents that for decades have kept the federal courts out of the business of second-guessing expert agency actions. The result will be a significant shift of power from federal agencies to the courts, and from uniform national rules to competing, and conflicting, state-level oversight of everything from the environment to public health to labor practices.
It will be years before we know all the impacts of the EPA case, or others, like Dobbs v. Jackson Women’s Health Organization, which overturned Roe v. Wade, and New York State Rifle and Pistol Association v. Bruen, which invalidated New York’s minimal concealed-weapon restrictions. But a frequently cited 2001 study by economists John J. Donohue III and Steven D. Levitt found that beyond the obvious benefits to women’s health, employment, and autonomy, there was a strong correlation between reproductive freedom and sharp declines in crime rates in the decades following Roe.1 Looser restrictions on concealed weapons, however, have been shown to increase firearm-related violence.2 This suggests that more crime will be a likely, if unintended, consequence of the court’s abortion and gun decisions — an outcome that’s clearly bad for business.
Enter Stakeholder Capitalism
There is a more fundamental and immediate motivation for business leaders to respond strategically to sudden policy changes. Over the past decade, many publicly traded companies have shifted from a singular focus on investors to serving a broader range of constituencies, a concept known as stakeholder value.
Stakeholder value encourages companies to adopt and advocate for wide-ranging public goals, including diversity and inclusion, environmental sustainability, trust and transparency, healthy work environments, and the responsible introduction of new technologies. Enterprises that focus on stakeholder value prioritize customers, employees, suppliers, and policy makers, embedding their aspirations into strategies and branding, just as they do to win the support of investors.
As social justice issues move to center stage in the political sphere, the stakeholder rubber has hit the strategy road. With key progressive agendas threatened by recent court decisions, companies that have reoriented their brands around stakeholder value are learning the hard way that commitments to the environment, diversity, and employee health and well-being, among other issues, require more than just artful statements and glossy ad campaigns. They require action.
In the wake of the Supreme Court’s recent rulings, for example, employees and other stakeholders are demanding measurable commitments from management on reducing carbon emissions, as well as explicit policies and benefits that support reproductive health, gender equality, and LGBTQ rights, regardless of those issues’ current or future legal status. Some stakeholders are even calling on companies to move out of jurisdictions that enthusiastically oppose those values.
Customers, likewise, want credible evidence that paying premium prices for eco- or employee-friendly products and services is justified by concrete evidence that corporate leaders are improving sustainability and expanding workers’ rights. And policy makers, as well as investors, are insisting on greater transparency in corporate decision-making.
Leading corporations act decisively when stakeholder agendas hit unexpected new legal roadblocks. Within weeks of the Dobbs decision, for example, several public companies, including Accenture, Bank of America, Disney, and Microsoft, had already implemented enhanced travel reimbursement policies for employees who need reproductive health care that is no longer available where they live. Since then, a growing list of other enterprises have been inspired or nudged into doing the same. And there’s more they can do.
Meanwhile, as efforts to improve federal privacy protections stall, a firestorm has reignited over how tech companies can and should respond to law enforcement requests for user data tied to reproductive health.
While the challenges of today’s culture wars are unique, this is hardly the first time businesses have been called upon to take the lead in improving social conditions far from their core products and services. During the civil rights movement of the 1960s, for instance, many businesses found themselves similarly forced to take a stand.
Some did so willingly, even passionately. Others did so only out of necessity. Consumer boycotts organized in response to the segregationist policies of the American South, for example, substantially reduced outside business investment, encouraging local leaders to soften and ultimately reverse their stances.
By and large, however, businesses embraced the civil rights agenda slowly and passively, in part out of fear that coordinated efforts, pro or con, could be grounds for prosecution under federal law. For instance, some believed that boycotts could be seen as “a conspiracy in restraint of trade,” to quote the Sherman Act, thus representing an antitrust violation.
Today, for better and for worse, the legal constraints on private enterprises in matters of politics and social policy have substantially loosened. Coupled with the amplifying effect of social media in publicizing the actions (or inaction) of senior executives, weighing in on the most contentious political issues of the day has become inescapable.
Your company’s specific response to political upheavals will depend on the nature and location of your business, as well as the pledges you have already made to stakeholders. But sitting on the sidelines and hoping that the next crisis will quickly blow over is anything but safe.
Instead, every enterprise should start by developing an actionable political strategy, using the familiar tools of competitive analysis and disruptive innovation. Here are the five principles we encourage the companies we work with to embrace:
Be fast. Social, cultural, and political disruptions are arriving at an accelerating pace. To protect your brand and markets, you need a process to rapidly evaluate the impact of court decisions, legislation, and regulatory upsets on your stakeholders’ values — and the capacity to respond quickly and decisively. The longer you wait, the more you risk being torn apart by escalating and incompatible demands.
Be consistent. Fueled by digital technologies, stakeholders can quickly weigh your responses and compare them across enterprises, industries, and geographies. So pay close attention to how other enterprises respond to sudden shifts in policy, and learn from their successes and mistakes. Your most critical task is to create and execute specific tactics that align with the promises now wrapped up in your brand.
Be honest. No stakeholder will be satisfied with all of your responses to public policy disruptions. Even those who disagree strongly, however, appreciate corporate communications that are clearly stated, candid, and timely. Hedging, equivocating, and straining to balance opposing values that simply can’t be rationalized, as music service Spotify recently learned when it supported a controversial podcast host, will only make things worse. Transparency won’t eliminate all risk of damage to your brand, but it will minimize the harm.
Be organized. There is strength in numbers. Trade associations, chambers of commerce, and business roundtables can be excellent partners in formulating unified and effective responses to political upheaval. As the civil rights era demonstrated, business coalitions can be a potent weapon for social change. Then as now, moreover, outlier enterprises may be targeted for attack, whether by advocacy groups pushing for change or politicians determined to turn back the clock.
Be proactive. Develop and support litigation strategies that align with your stakeholder values. Consider Florida, which last March passed a law that would have made some employee diversity training illegal — going against the First Amendment, which bans government restrictions on private speech. Responding to a challenge from several businesses, a federal court quickly invalidated the law.
In implementing these principles, always prioritize employees, customers, and other stakeholders over the increasingly short-term or even contradictory goals of elected officials. For heavily regulated industries, that may require a difficult realignment of lobbying efforts and resources. For every enterprise, however, the failure to respond quickly and decisively to the inevitable next crisis will expose empty promises and erase more brand equity than was gained by raising the social policy flag when it was relatively easy to do so.
Research shows that consumers worldwide increasingly want CEOs to engage politically and, indeed, that they trust businesses more than other institutions, including governments, the media, or even nongovernmental organizations.3
That trust creates both an opportunity and a responsibility when it comes to formulating and executing a political strategy. The stakes are high. How your organization responds to cascading policy challenges will determine not only whether your embrace of stakeholder value translates to an asset or a liability, but the future we create for succeeding generations.
1. J.J. Donohue III and S.D. Levitt, “The Impact of Legalized Abortion on Crime,” Quarterly Journal of Economics 116, no. 2 (May 2001): 379-420.
2. J.J. Donohue, S.V. Cai, M.V. Bondy, et al., “More Guns, More Unintended Consequences: The Effects of Right-to-Carry on Criminal Behavior and Policing in U.S. Cities,” working paper 30190, National Bureau of Economic Research, Washington, D.C., June 2022.
3. “Edelman Trust Barometer 2022,” PDF file (Chicago: Edelman, January 2022), www.edelman.com.