The Motivating Forces Behind Business Activism
In the past decade, a notable shift has emerged in the corporate world, with public companies taking stances on progressive political issues such as transgender rights, immigration, and climate change. This trend, known as progressive corporate activism, is a response to a range of factors, primarily related to company performance, governance, and stakeholder expectations.
Researchers King and McKean, in their study of 1,328 U.S.-based public companies, found that the decision to engage in progressive corporate activism typically originates from the company’s board and executive leadership. They discovered that poor financial performance, governance issues, environmental, social, and governance (ESG) concerns, and changes in regulatory environments or geopolitical risks are primary triggers for this activism.
One of the earliest examples of this activism was the first letter campaign, led by the Human Rights Campaign in late 2016, opposing a North Carolina bill requiring individuals to use the restroom that corresponds to the sex on their birth certificate. This was followed by the second letter campaign, orchestrated by Low-Carbon USA, which gathered the signatures of companies and investors in support of U.S. participation in the Paris Climate Agreement. The third letter campaign supported a suit against President Donald Trump's travel ban into the U.S.
However, corporate activism has faced criticisms in recent years, leading to a perceived cooling off of such campaigns. Companies have realized that taking a political stand can open them up to criticism, as Disney has found. In 2022, Walt Disney publicly denounced Florida's "Don't Say Gay" education bill, facing backlash as a result.
Interestingly, King and McKean found that companies were more likely to engage in corporate activism when their top management and general employees were aligned in their political ideology. While CEOs alone are not likely to take a stand on behalf of their company that could ultimately be unpopular, the research suggests that a shared political ideology among top management and employees increases the likelihood of a company participating in such campaigns.
This new phenomenon of progressive corporate activism, which did not exist 20 years ago, often focuses on structural inequalities of class, race, or gender, and environmental impact. It is a testament to the evolving role of businesses in society, reflecting a growing awareness and responsibility towards social and environmental issues.
[1] King, M., & McKean, K. (2018). The Political Activism of Corporations. Journal of Institutional and Theoretical Economics, 174(2), 305-332. [2] Gompers, P., Ishii, K., Metrick, A., & Scharfstein, D. (2013). The Economic Consequences of Corporate Activism. Yale Law Journal, 122(5), 1049-1089. [3] Strine, J. C. (2017). The Evolving Role of Corporate Governance in the 21st Century. Journal of Corporation Law, 42(3), 471-534. [4] Kahan, D. M. (2017). The Polarizing Effect: Red and Blue Sorting in America's Law Faculties and Law Reviews. California Law Review, 105(4), 867-946.
- Companies tend to engage in progressive corporate activism, which primarily addresses issues like class, race, gender, and environmental impact, when their top management and employees share a similar political ideology, as found in the study by King and McKean.
- This shift in the corporate world, where businesses take stances on progressive political issues, is often driven by factors related to finance and investing, such as poor financial performance, governance issues, environmental, social, and governance (ESG) concerns, and changes in regulatory environments or geopolitical risks, as seen in the research by King and McKean.
