What Drives Corporate Activism?

At first glance, it might seem like publicly traded corporations have little incentive to take a stand on hot-button political topics like these. After all, such stances are often not related to the company’s products and could alienate shareholders and employees, potentially affecting the bottom line.

And yet, within the past 10 years, public companies have taken stances on several progressive political issues, including transgender rights, immigration, and climate change.

Activism expert and Kellogg professor Brayden King was intrigued.

A common view of activism is that social movements act as an external force that shapes the corporate world through influence and high-pressure tactics. But in new research, King and his former graduate student Anna McKean (now with the University of Utah) find that the push for corporate activism may just as often come from within.

King and McKean reviewed four corporate letter-signing campaigns, where public companies expressed their collective support for a progressive cause in a letter to elected officials. And indeed, they found that companies were more likely to engage in this form of corporate activism when their top management and general employees were aligned in their political ideology.

“Corporate activism is a new phenomenon that did not exist twenty years ago,” King says. “There are a lot of reasons why it’s not a great idea for companies to take political stances. So when companies do take a stand, it makes it clear that they are not only money-making machines. They are collectives of people who have political views and want their companies to take a stance on issues that matter to them.”

A new kind of corporate activism

To be sure, corporations aren’t apolitical entities—they often work to influence politicians through lobbying efforts that secure them benefits, reduce taxes, or further their core business interests.

But the corporate activism that has emerged within the past decade has a different flavor. First, it is often ideologically progressive, focusing on structural inequalities of class, race, or gender, and on environmental impact. These progressive issues often directly contrast the usual corporate lobbying issues.

Also, this kind of activism frequently involves several firms taking the same stance together, as in letter-signing campaigns. That sort of collective action has characteristics of a social movement.

Some prior research argues that this activism is a response to outside pressures or a strategic move to increase employee retention.

Even so, where within the company does this decision originate? Some researchers have argued that this trend comes from the top, with CEOsusing their power to take a political stand. Others have argued that it results from the bottom up, stemming from a motivated employee base.

Tracking progressive letter-writing campaigns

King and McKean weren’t convinced that either of these answers was correct. “CEOs alone aren’t likely willing to take the risk of a stance on behalf of the company that could be unpopular,” King says. “And it is naïve to think companies would give in to employees on issues like this.”

To find out, they compiled a dataset of 1,328 U.S.-based public companies across a variety of industries and tracked their involvement in four letter campaigns in 2016–2017. Of these companies, 118 signed at least one of these letters.

The letters protested a variety of politically conservative actions.

The first letter campaign, which was led by the Human Rights Campaign in late 2016, opposed a North Carolina bill requiring individuals to use the restroom that corresponds to the sex on their birth certificate. The campaign gathered signatures from 212 organizations and individuals.

The second campaign was orchestrated by Low-Carbon USA, which gathered the signatures of companies and investors in support of U.S. participation in the Paris Climate Agreement. By late 2016, the letter had more than 1,000 signatures.

The third campaign supported a suit against President Donald Trump’s travel ban into the U.S. In February 2017, 127 organizations signed the letter.

The fourth campaign supported the preservation of the DACA program and included a request for Congress to pass the DREAM Act. A total of 753 organizations signed the letter.

“Each letter represents collective action with a similar ideological angle,” King says. “It was a push for a change in society or against a proposed policy.”

In addition to information about which companies signed which letters, the team’s dataset included information on companies’ performance; characteristics (such as industry and number of employees); and environmental, social, and governance (ESG) performance. They derived the political ideologies of the companies’ CEOs, top management team, and employees through Federal Election Commission donation filings.

Researchers controlled for CEO power (based on a CEO’s tenure, founder status, and compensation) to account for whether a CEO might have a disproportionate influence on the decision to sign a letter. They also controlled for a firm’s industry, size, board diversity, and organizational values. Finally, the researchers used companies’ ESG performance to control for companies that were already engaged on social-responsibility issues.

Decision does not come from the CEO alone

When they analyzed the data and controlled for all these variables, a few findings became evident. CEO ideology alone wasn’t independently correlated with letter signing. The top management team (C-suite) ideology was also not independently correlated with letter signing. Nor was employee ideology.

“This shows that CEOs alone aren’t likely to take a stand on behalf of their company that could ultimately be unpopular,” King says. “And it goes against the criticism that companies cave to what their employees want.”

In fact, there was only one scenario that was linked to corporate activism: when the top management team and employees both had a progressive political ideology. In this scenario, the company was 14 percent more likely to participate in at least one letter campaign.

Notably, participation did not increase if the CEO and employees (but not the top management team) had a liberal political alignment. The only scenario associated with progressive corporate activism was a liberal alignment between the top management team and employees, suggesting that CEOs rely heavily on their top management team on these issues. (King and McKean found only one example of companies taking public conservative stances during the period of their study.)

“We can’t say definitively that it is this aligned ideology that causes companies to take this political position, but it is positively correlated after we account for a lot of other variables,” King says. “That means this alignment between top management and employees is likely part of the conversation when companies are considering whether to take a stand.”

Is corporate activism dead?

Even if the top management team and employees are ideologically aligned, why take the risk? King proposes that it helps create employee engagement and loyalty, while reinforcing the values held by employees and top management.

When King and McKean started to look at corporate activism for their study, they wondered if they were seeing a new phenomenon take hold. But companies have since realized that taking a political stand can open them up to criticism, as Disney has found. And so, though letter-writing campaigns were common in 2016–2019, they seem to have cooled off today.

“It seems as if companies in the last four years have been far less willing to take a stand on controversial political issues,” King says. “It has less to do with what is happening inside companies and more to do with the criticisms these companies have faced for engaging in corporate activism.”

The political environment today is even more polarized than it was in 2016, so it will be interesting to see what happens after this year’s presidential election, King says.

“Will we see a resurgence of corporate activism? I don’t know,” he says. “It might be that companies have grown wary of the costs associated with activism.”