When CEOs Wade into Controversy

Stanford study sees outspokenness as a "double-edged sword" - and a risk requiring proactive attention

Friday, January 4, 2019

By Katherine Heires


Corporate chief executives do not regularly speak out on public issues, but when they do, their comments are magnified by news media, and there can be consequences for the companies and their shareholders. CEOs, boards, and their risk management teams would be wise to assess and plan for the possible pros and cons of controversy.

That's the finding of The Double-Edged Sword of CEO Activism, a paper published in November by David Larcker, director of the Stanford Graduate School of Business Corporate Governance Research Initiative (CGRI), along with researcher Brian Tayan and consultants Stephen Miles and Kim Wright-Violich. Miles is CEO of The Miles Group, which advises on talent strategies, while Wright-Violich is a managing partner of impact-investing strategy firm Tideline.

David F. Larcker Headshot
Boards and risk managers “ought to have discussions with the CEO about whether being personally active is a good idea or not,” says Stanford professor David F. Larcker.

Larcker, who is James Irvin Miller Professor of Accounting at Stanford, says that instances of CEO activism “are far less prevalent than the press portrays it.” But when a CEO does express strong opinions on a controversial topic, the risks can have “serious ramifications.” For example. customers and key employees may take offense and shift their allegiance - whether in terms of dollars or loyalty - elsewhere.

Even if the executive takes pains to state that views are personal and not those of the company, Larcker points out, employees and the public will often closely associate a CEO with his or her company. That “can have serious ramifications on company performance” and send the stock price up or down, Larcker says.

According to his analysis of activist statements made by S&P 500 company CEOs that appeared in national media and corporate transcripts between January 1, 2000 and July 31, 2018, 138 CEOs, or 28%, commented publicly about social, environmental or political issues either personally or on behalf of the company. Only 48, or 10%, clearly made these statements on a personal basis.

When extended out to the S&P 1500 universe, 175, or 12%, of CEOs made activist statements either personally or on behalf of the company; 63, or 4%, made these statements on a personal basis.

Chosen Causes and Reactions

The most frequent topic of CEO outspokenness is diversity, with 50% of the activist CEOs advocating for greater gender, racial or sexual-orientation diversity or equality. Environmental issues come next, addressed by 41% percent of activist CEOs, followed by immigration and human rights (23%); other social issues (19%), and political issues (17%).

Only a small number of CEOs speak out on multiple issues; they are referred to as “repeat activists.” Most will take positions on no more than one or two.

Among the repeat-activist CEOs are Marc Benioff of Salesforce (and recent acquirer of Fortune magazine), Lloyd Blankfein of Goldman Sachs Group (recently retired), Tim Cook of Apple, Michael Corbat of Citigroup, Howard Schultz of Starbucks (now executive chairman, who has hinted at a possible run for president), and Mark Zuckerberg of Facebook.

The “double-edged sword” aspect was on stark display when sports apparel company Nike launched an advertising campaign featuring former National Football League quarterback Colin Kaepernick, who caused controversy by kneeling in protest when the national anthem was played. Nike's ads included the words “Believe in something, even if it means sacrificing everything.”

The CGRI paper notes that although Nike experienced an initial, temporary spike in online sales, a Morning Consult report found that in reaction to the advertising, the brand's favorability and purchase-consideration ratings fell across all demographic groups, even when segmented by age, race, and political affiliation. In addition, Nike's stock price dropped 3% on the news of the ad campaign, though the price subsequently recovered, according to Larcker's research.

The CGRI paper cites a 2018 survey of 3,544 individuals by the Rock Center for Corporate Governance at Stanford University, which found that the public has a generally positive view of CEO activism. But views can vary depending on the issue. The public is most in favor of CEO activism about environmental issues such as clean air or water (78%), health care (69%), renewable energy (68%), and income inequality (66%).

Reactions are more mixed on diversity and equality: 54% support CEO activism about racial issues, and 29% do not (the rest have no opinion). On gun control, 45% are favorable and 39% not. On abortion, 37% are for, 38% against.

Negativity Lingers

Survey respondents are more likely to remember products they stopped using, or use far less, because of reactions to CEO positions: 35% recalled a product or service they use less, while only 20% could think of one they use more because of CEO activism.

Therefore, Larcker concludes, there is potential to build loyalty with employees, customers or constituents, while inadvertently alienating important segments of those populations.

As a result, he says, “Corporate boards and company risk managers ought to have discussions with the CEO about whether being personally active is a good idea or not, as it can have a sizable and long-lasting impact on a company's sales, can increase the volatility of corporate performance, and the ability of the company to attract top people.”

Wright-Violich of Tideline suggests that boards' risk committees discuss CEO activism before it actually happens. These discussions should address whether or not activism should be limited to issues directly related to the business - as in an energy company CEO speaking about the dangers of oil spills - versus comments on topics that are not core to the business, which she says can be “a much more loaded situation.”

“Having a CEO activism policy in place can create clear guidance for a CEO, letting them know the rules of the road in advance,” Wright-Violich says.

Larcker says it is important for boards and management “to think through how activist statements will resonate and percolate through their customer base and employee set,” because the public response can be unpredictable.

Proactive Framework

The CGRI director also suggests developing a “thoughtful framework for thinking about the issues of the day and how - or whether - the company wants to be positioned.”

Miles of The Miles Group says there are three types of activist scenarios that CEOs should prepare for:

- A crisis event due to the fault of the company that requires an “authentic” response from the CEO.

- A societal issue that almost forces companies and CEOs “to pick a lane” and express a point of view. Example: gun violence in the aftermath of the Parkland, Florida, school shooting.

- Business-related issues that are simmering as part of a public conversation, such as the build-up of plastic waste or the use of fur in clothing.

According to Larcker, frameworks for issues management will become increasingly important, as CEO activism will not be going away.

“Younger CEOs are more prone to taking activist stances and see the goal of their organizations in a far broader way,” he says. “For them, it's not just about increasing company value in monetary terms, and so, over time, we can expect to see more of a push to take into account - and address - these activist issues.”

Katherine Heires is a freelance business journalist and founder of MediaKat llc.


BylawsCode of ConductPrivacy NoticeTerms of Use © 2023 Global Association of Risk Professionals