Out of all the momentous changes brought on by Covid-19, the most important might be what’s happening between business and politics, says Ian Woods
It starts with a letter. In August of 2019 the Business Roundtable, an association of top American CEOs, released a statement redefining the purpose of the corporation, signed by 181 of its members. The letter stated that shareholder value could no longer be a firm’s sole concern. It specified creating value for customers and employees, generating long-term value for stakeholders, and dealing fairly and ethically with suppliers as equally necessary goals. The signatories included CEOs Jamie Dimon, Jeff Bezos, and Tim Cook.
That letter, in one page, redefined decades of orthodoxy about the nature of the firm and with it, Market Capitalism. It was seen as Business’s response to the multitude of social pressures which have built up since shareholder value began its reign last century. That’s why the new goals enumerated by the statement sound so socially-minded; they’re a tacit admission that companies cannot function in isolation from politics or their host societies.
What, then, are these pressures?
Employees at top firms have more agency than ever before. In the tech sector especially, a tight labour pool and politically engaged workers mean that dissatisfied employees can and will walk, leaving a difficult to plug hole.
Amazon found this out when 450 of its non-warehouse employees signed a letter to Jeff Bezos demanding that the company stop selling facial recognition software to police departments, because of its high rate of false matches for people with dark skin tones.
Similarly, Google had 3000 of its workers protest project Maven, a contract with the Pentagon to analyse drone footage with AI.
Almost a dozen engineers resigned over the perceived unethical use of AI, causing Google to allow the contract to expire. A similar incident scuttled Dragonfly, its censored search engine for China. The power and willingness of tech workers to pressure their executives lets them, in effect, shape the use of the whole sector’s enormous influence.
Customers are starting to employ similar tactics on the demand side. Recently, Nike waded into deeply divisive American political row by hiring professional athlete Colin Kaepernick for a series of ads.
Kaepernick was blacklisted from the NFL for protesting police brutality during the national anthem played before American football games. His protests became a massive political flashpoint with clear demographic divides. Nike’s decision to support him with their brand prompted both massive support from major segments of their customer base and countless videos of former customers burning their Nike products and vowing to boycott the company.
Market pressures play a role as well. Facebook dealt with an advertiser boycott earlier this year, a huge problem for a largely ad-based company, when Unilever, Coca-Cola and others pledged not to advertise on the site. The companies were driven by their own employees to boycott Facebook over its perceived monetisation of division within American politics. An example of non-commercial concerns directly affecting markets.
Finally, social media itself has been an accelerant to all these pressures. Information about the dealings of even the largest organisations has never been easier to access and the algorithms employed by tech firms to boost engagement naturally select the most inflammatory content, propelling it to virality. Content becomes inflammatory when it appears to show some flagrant violation of ethics or common sense. In a world where data on problems like climate change and equity in hiring is so readily available, any company caught on the wrong side of such issues risks a flash-scaling PR disaster, at minimum.
What’s driving the sudden spate of economic activism?
Global problems like climate change have drawn attention to the interconnectedness of the world’s economy. The far more immediate threat of Covid-19 has thrown a spotlight on this to a much greater degree than the slow-burning danger of rising-sea levels and drifting farm belts.
Both globe-spanning problems operate at a scale where the traditional separation of commercial and political issues simply dissolves. Of course, Business and politics have never really been siloed. Politics are how societies make choices and business was never separate from society. Commerce is, after all, a prerequisite to civilisation. It just took a pandemic to remind us.
That reminder has hit hardest in the United States where a year of protests, pandemic, and recession have uncovered just how central businesses are to political issues. From pandemic response to equity in hiring, Business handles a staggering array of social issues at the exact point where they change phase from conceptual to concrete. Companies are too central to commerce and commerce too central to life for the frontlines to be anywhere else, placing tremendous responsibility on executives.
In the presence of strong government leadership, the vacuum that business leaders now find themselves in wouldn’t exist. The problem is, political leadership takes cues from business leadership far better than they do from epidemiologists. This creates a situation where governments are incentivised to rush people back to work, prolonging the pandemic, and everyone is aware that executives were whispering encouragement from the sidelines. When the public sector cedes leadership to the private sector, companies become the new political battlegrounds and the obvious points on which to exert influence.
All of this can be seen as a new phase in the competition between Shareholders and Stakeholders. The reign of ‘shareholders are all that matter’ management necessarily elevated shareholders above everyone else. This worked out very well for the shareholders in the short term while doing quite a lot of damage to stakeholders and the societies we all share in the long term. Climate change is one facet of this, rushing people back to work during a plague is another. What we’re seeing now is simply the stakeholders pushing back.
We can think of this more specifically as a convergence of values between companies, their employees, and their customers. In meteorology, a convergence zone is where different airflows meet. They’re characterised by initially intense, chaotic weather conditions that eventually reach equilibrium. The value convergence we’re seeing in business will produce a similarly volatile environment full of potential threats and opportunities, before the new equilibrium is reached.
How should we respond?
First, it’s important to understand the geography of this problem. The examples cited are all American, but this is very much a problem for business interests the world over.
The US economy is still one of the largest markets in the world, home to many of the largest companies, a massive force in finance, and a proving ground for myriad commercial strategies. Even if citizens of other nations don’t pressure their domestic firms as employees and consumers, or for some reason feel no need to do so, the outsized influence of the US economy still makes this a trend of global import.
That said, the response should be, as always, to listen to the customers.
We’ll need to take action on issues like the environment, diversity, and even pandemic response; Whatever our customers care about. In order to do that well, we’ll need to adapt our market research skills to figure out just what it is our customers want politically, as well as how best to meet those desires when they inevitably conflict.
Next, the globe-spanning problems employees and consumers now care about will require more than tepid promises to look into an issue. We’ll need measurable progress on clearly defined goals to show off when recruiting the best talent and wooing new buyers.
Which brings up the issue of market dynamics. Your company’s position on traditionally political issues like the environment will ultimately be made commercial by competitive pressure. We’re now de facto representatives for two groups beyond the shareholders: customers and employees. Whatever they care about will now determine our capacity to make a profit. If the competition can do it better, they’ll siphon off your talent and market share. If you can advertise their support of a political cause toxic within your market, that threat has become an opportunity. The measurables discussed before are how you’ll verify your brand and conquer market share.
This brings us to the bottom line: these changes have been happening and their frequency is only increasing. All that’s left to do is get ahead of them. Yes, investors will put up a fight. At the end of the day they’ll follow the profit, so our only concern is staying profitable in the new, information-saturated game. It will broadly sort businesses into two groups: Those that don’t grow well in sunlight and those that do; mushrooms and marigolds.
Our future’s bright, so it’s obvious who to bet on.
Ian Woods is an Analyst at Goods Unite Us, a firm that gives buyers and sellers a platform to discuss the political influence of money.
He has a BA in Economics from the University of Georgia and an MBA from Mercer University.