SHOULD CORPORATIONS TAKE SOCIO POLITICAL POSITIONS?
Recent developments show an increasing number of corporations taking positions on socio political issues whether linked to the correct response to the dangers posed by Covid infections, gender neutrality, education of young children in Kindergarten or school, BLM, crime in large cities, defunding police, immigration to name a few. What is behind this relatively new development and is this something corporations should do?
Corporate policies have developed over the last 200 years. Initially, corporations were founded and operated to supply goods and services to the public. Corporate objectives were almost exclusively aligned with the vision and aims of owners. This drove the industrial revolution and had a significant impact on the social structure of societies. As demand for workers developed, young people left their agrarian families and moved to towns and cities where factories opened.
As corporate objectives were primarily profit driven and the supply of workers from a predominantly agrarian society seemed almost unlimited, workers were underpaid and exploited working 12 hour shifts, at least six days a week. This led to the birth of socialism and communism during the second half of the 19th century and resulted in political changes to the prevailing systems of monarchy, dominant land ownership of the aristocracy and actual or quasi serfdom.
The two world wars showed the weakness of the system — supply of materials and logistics became a major factor and started to influence corporate strategies and objectives. It also changed the role of women; the absorption of young and middle aged males by the military brought the need to accept women as a stop gap in production and gave women a first taste of independent living, earning an income, organising themselves with others to take care of children and housework. Corporations did accept this not to take a political position but from a position of securing the procurement of workers and safeguard production. Once the wars were over and males returned corporations mostly reverted to their pre-war positions and employed male workers in preference.
During the last 50 years technology became a more and more important factor. As economies grew fast product innovation and development became key areas in an increasingly competitive environment. Manual work was more and more replaced by a fast growing number of highly skilled employees driven by the needs of research, product development, supply and logistics, even marketing.
The awareness of the key role played by highly educated workers in the success of corporations changed strategies and planning and made recruitment of talent a more central issue. It also broadened corporate objectives accepting the important role played by employees and suppliers. Corporate policies now started to take in the objectives of these stakeholders and moved from a predominant focus on owners (shareholders) objectives to incorporation of the aims of these other stakeholders. Whilst a conflict of interest was acknowledged it became increasingly clear that a more diversified set of corporate objectives had to be applied to secure future success.
However, at the end corporations were still systems focused on producing and providing goods and services in the best possible way to consumers. Accepting a more diversified set of objectives reflecting the needs and desires of other stakeholders was still adapted to the core objectives — to produce and provide goods and services at the best quality to achieve volumes and revenues allowing corporations to generate profits and win against competitors. This seems consistent with the purpose of corporations and the role corporations play in society. Corporations balancing the objectives of their stakeholders, attracting and retaining highly skilled employees, driving innovation aimed at increasing the quality of the product and services they supply and doing all that more productively than others was and is the base for success in business.
Recently corporations started to change; in an increasingly politically split society standing for and promoting different socio political positions on important issues have led to situations where corporate executives felt obliged to take a stand for one side or the other. Recent positions taken by Disney (opposing Florida laws barring sexual education of young children in Kindergartens and schools), by tech companies deciding which postings they accept and which they decide to bar from their platforms, by corporations supporting openly one political party and particular candidates, show that a new trend is being set by taking side on socio political issues which are not linked to their key corporate goals — producing and supplying goods and services and balancing the objectives of all stakeholders.
As we pointed out, corporate objectives and policies have developed over a long period of time. However, changes which took place were always linked to the core role corporations are playing. Accepting objectives outside the aim to generate maximum profits by incorporating and balancing the aims and needs of different stakeholders was highly beneficial and delivered unparalleled success for many companies. It accepted that seniority driven structures were outdated and replaced it with a meritocratic systems which accepted the promotion of young people, women and talented people from other countries. Companies and consumers benefitted from that, as did the State through a growing economy, larger tax revenues allowing the development of a modern welfare state.
The question is whether corporations should take socio political positions on issues which have directly (and often even indirectly) nothing to do with their objectives and those of key stakeholders — suppliers, employees, shareholders. The answer seems to be negative. The reason is that a successful corporate system is and has to be focused on achieving corporate goals by integrating the general position and needs of stakeholders but still extrapolating it and subordinating it to the most important objective — the survival and progression of the corporation. Stakeholders who believe that their views and values are not fulfilled always have the choice of moving away — shares can be sold, employees can find another job, suppliers can work with others.
Taking an open and publicised position on socio political issues or taking sides in political battles will always find agreement with some stakeholders but risks to ignore the opinions, views and positions of a great number of other stakeholders. This can and will lead to some stakeholders being dismayed, feeling disenfranchised and moving away and thus undermining the principal objectives of a corporation — to be successful, to attract and retain great talent, to secure supply chains and adequate funding.
There is a lot of talk of “culture” as an important factor in the success of corporations. However, culture in a company can’t mean that stakeholders with different views when it comes to political or socio political issues are alienated and feel disenfranchised. Culture in companies has to be build based on corporate objectives, not political ones; culture has to focus on creating a work environment where everyone is working towards the same aim and that is the success of the corporation in developing, producing and supplying its products and services at a competitive quality and achieving financial success. Corporate culture cannot be based on matters which are part of the private life and opinions of a stakeholder — that is the views and positions an individual holds when it comes to his/her views of policies and socio political views. Corporate policy or action promoting certain socio political views is likely to isolate individuals because his/her views are not shared by the board, the management. This is not only inappropriate but it potentially weakens a corporation and its core objectives. If the trend to create an uniform culture in corporations continues we will see companies becoming political systems which less and less tolerate anything which runs against their political position.
Corporations should not take and publicly announce positions on political and socio political issues. Stakeholders should accept that their personal views are their own and should not be promoted inside the corporation and to other stakeholders. Whilst views of different people on issues which have nothing to do with their corporate objectives may differ, and sometimes even differ fundamentally, this is a private matter; discussing these views at work is in today’s polarised world dangerous and can lead to conflict. This should be avoided as conflicts amongst stakeholders ultimately undermine the success of any company. There was a time when asking people which religion they belong to was considered inappropriate. It was seen as a private matter which had nothing to do with the role someone played in working for or supplying a company. This should also apply to questions about politics and socio political issues. If this principal applies it means that board, management and employees should refrain from taking political positions openly, making political or socio political announcements pretending to talk on behalf of all stakeholders.
This would not mean that a corporation cannot play a responsible role in, for example, fighting climate change. But actions have to be directly linked to its production and logistics and are primarily responding to regulations coming from the State. For corporations to become champions in the fight against climate change, setting an agenda of far greater consequence than those set by the public and the governments will have an impact on the strategy and the fundamental objectives of a corporation unless a company changes its role and sees its principal role in being a driving force in the fight against climate change. This would also mean that stakeholders can decide whether they wish to be part of a climate change fighting corporation instead of the corporation and corporate objectives they thought they were attached to and leave.
