Corporate Activism is on the Rise

and 07.06.15
Vivek Prakash/Fortune
Business /06 Jul 2015
and 07.06.15

Corporate Activism is on the Rise

Looking at the role of corporations in society, we have entered a new era. The model previously taken for granted, one guided by a philosophy of passive shareholder value creation, has increasingly been called into question and replaced by more activist models of corporate citizenship, such as corporate social responsibility (CSR) and triple-bottom-line economics, as well as newer models of an even more activist mode. In the previous model, a corporation’s good was seen to have been derived from its ability to enrich shareholders, whose wealth would in turn trickle down through the rest of society.

By contrast, corporate activism as we observe it uses the bedrock of company value systems to actively fight obstructions in the market and issues in society at large that run against these value systems, thus going even further than CSR and triple-bottom-line models, which seek to balance financial results with environmental and societal ones. Social equilibrium (especially on financial matters) is one thing; corporate activism, on the other hand, often puts otherwise rational economic firms at risk of eroding short-term shareholder value —hitherto their raison d’être, at least for those companies publicly-listed.

This new breed of corporation is driven as much by market forces, such as consumer consciousness and pressure, as it is by strong, value-based leaders. Thomas Friedman’s “hot, flat, and crowded” world, combined with hyper-transparency and market speed, creates conditions favorable to firms that stand for something, who are likely to enjoy a competitive social advantage that may translate into higher long-term returns and customer loyalty.

While the empirics of this assertion need to be tested, the maxim that “you either stand for something or you stand for nothing” is as true for companies as it is for people. The B Team, a corporate pressure group started by Richard Branson and Mo Ibrahim, among others, has as its sole purpose the creation of a consensual pathway for firms that wish to adopt an activist model where profits and purpose are not in conflict. The B Team’s vision is to catalyze a movement of business leaders to drive a better way of doing business for the well-being of people and planet.

Customers driving CSR and transparency

Should corporations focus on the current CSR trend to market their goodwill, or is there a way to focus marketing efforts on consumers who make individual decisions based on CSR? The U.S. Bureau of Labor Statistics reports that 90 million Americans identify themselves as “conscious consumers.” This fact, combined with average annual consumer spending, points to a conscious consumer market of $3.2 trillion in the United States alone. The vast majority of consumers — over 72 percent — have reported that they will actively seek a brand that aligns with their values if price and quality are equal. Matt Colbert, the CEO of Spend Consciously, a company building mobile applications to show consumers CSR data, says, “Consumers want to know more than whether a corporation is socially responsible. They want to make purchasing decisions based on their values and understand which companies are not aligned with their values.” Consumers require transparency from corporations that claim to practice CSR because their individual values determine their purchasing decisions. This new group of consumers will change companies’ top and bottom lines and force them to stand for something.

When companies stand for something

In observation, there appear to be two types of activist firms: reactive, and proactive. Neither type of company is merely paying lip service to social or value-based issues; they are genuinely investing capital, clout, and reputation in the drive for change. What distinguishes the reactive model, then, is the tendency to address issues of social and moral responsibility only as the response to a crisis, real or perceived. The garment industry’s response to the collapse of the Rana Plaza factory in Bangladesh is an example of reactive activism. Firms such as Benetton and Zara, whose garment tags were found in the rubble, quickly backed voluntary codes of conduct in their sub-supply chains. This is an extreme example of vicarious liability that is produced in a connected world where tragic images instantaneously influence consumer sentiment and stock prices. In short, some people are reluctant to truck and barter with an enterprise they deem to be “evil,” and in an increasingly transparent world, evil is “stickier” — the connections of a corporation to businesses, governments, or individuals operating in a criminal or immoral fashion are increasingly difficult to obscure.

Starbucks, under the leadership of Howard Shultz, has increasingly become a paragon of proactive corporate activism, at times to the detriment of shareholders and short-term economic value. During the paralytic fiscal cliff debacle in Washington, Mr. Schultz took a stance individually and under the firm’s banner against corporate campaign finance and political action committees (PACs). He controversially vowed that Starbucks would not support any political campaign and would lean on its peers and business partners to likewise abstain. More recently, in response to rising racial tension in the United States, Starbucks has launched its “Race Together” campaign with full-page ads, newspaper inserts, and in-store communication. While this campaign has drawn both ire and mirth, the authenticity of the effort and the fact that it shows the “tone at the top” at Starbucks are hard to question. While few people want their barista to talk to them about race relations, it is of broad public interest when large corporations take a stance on matters of national import.

Apple is perhaps the clearest example of a firm whose corporate activism is not only creating above-market shareholder value, but is also contributing materially to causes that Apple cares about. Its recent activist evolution has seen the firm move from reactive to proactive approaches. Several years ago, as news broke of poor workers’ standards and suicides at China’s Foxconn, Apple’s largest supply chain partner, Apple reacted by publishing a groundbreaking annual supply chain report. The report was uncharacteristically transparent, not only for Apple but for the tech industry as a whole, and it not only underscored standards throughout the supply chain, but also served as a model for the industry, thereby creating a first-mover advantage in supply chain corporate activism. Instead of being punished with falling share prices, Apple gained economic momentum. More recently and more proactively, Apple’s Tim Cook, the first openly gay CEO of a major public company, has openly taken on Indiana’s controversial religious freedom laws. His grounds for this open attack are not that Indiana’s legislation will harm Apple’s commercial activities in the market, but rather that it is inconsistent with the company’s value system; therefore, the company will take the unusual risk of potential harm by opposing the law. Similarly, Salesforce Inc. is paying for its Indiana-based employees to relocate if they choose. In the era of activist firms, company neutrality is decreasingly seen as a valid option.

Case studies in corporate activism are as plentiful on the political right as they are on the left. Chick-fil-A and Beretta, a gun manufacturer, have recently made seemingly illogical corporate choices in the name of company values on gay marriage and gun control, respectively. While the rise of corporate activism speaks to the inherent divisiveness in the American public, many activist firms are not merely pandering to their base, but rather standing for issues that are consistent with their company value systems. Ikea’s actions in Russia serve as a stark example of corporate values increasingly becoming immutable and penetrative, rather than remaining superficial marketing words on a wall. When faced with energy extortion, corruption, and bribery, Ikea went off the grid in Russia by installing its own power supplies for its stores. While quitting the market altogether would have been a Pyrrhic victory, Ikea forged a middle path where profit and purpose were in line.

The role of corporate activism in society as a whole will only become more relevant. In a time where we face a deep and increasingly intractable tragedy of the commons in infrastructure, intellectual capital, and investment flows, corporate activism can be an important change agent. However, firms and their leaders would be wise to remember that values matter most when they are least convenient, and that the perception of convenience or inauthenticity can greatly undermine the engendering of consumer goodwill. A tech company facing a shortfall of engineers would be right to take a stance on improving the quality of and access to education while working on immigration reform. Similarly, educational institutions would better uphold their often lofty values if they worked to bring tuition inflation in line with the market’s purchasing power. And as American companies shelter more than a trillion dollars overseas, one wonders if the rise in corporate activism will encourage self-initiated moves by corporations to repatriate this capital, in an effort to arrest the decline of American competitiveness.

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