How Did Corporations Get Stuck in Politics and Can They Escape?

Corporations have long sought to promote their business interests through political engagement. Today, however, corporations are increasingly taking high-profile positions – through advertisements and public statements – that are unrelated to their business operations.  In our article, How Did Corporations Get Stuck in Politics and Can They Escape? (forthcoming University of Chicago Business Law Review), co-authored with Jeff Schwartz, the Hugh B. Brown Presidential Professor of Law at the University of Utah S.J. Quinney College of Law, we challenge this practice. We argue that what we term “corporate political posturing” is bad for both corporations and society. We then offer suggestions for how corporations can get “unstuck” from this new form of political engagement. 

Examples of corporations taking a stand on politically contentious issues abound. They include Coca-Cola’s “crystal clear” opposition to Georgia’s 2021 legislation to restrict voting access, Gillette’s campaign against “toxic masculinity,” and Disney’s statement opposing Florida’s “Don’t Say Gay” law. Corporations take political positions for a variety of reasons – to market their products, to appease stakeholder groups including customers and employees, and to respond to the demands of activists. Social media heightens the pressure on corporations to conform by empowering critics to denounce any failure to speak as complicity. 

Many welcome greater corporate engagement in controversial political and social issues. They argue that corporations are powerful and wealthy, that they can bring increased attention to important issues, and that they can amplify the voices of corporate stakeholders. Public statements also enable stakeholders to identify and support those corporations that share their political views. 

We argue, however, that corporate political posturing creates significant business risks. Political engagement is fraught, and many corporations lack a formal process to oversee the decision to engage in politics. As a result, a corporation’s speech may not reflect the multiple and often conflicting political viewpoints of its shareholders and other stakeholders. Corporate decisionmakers may also misperceive the potential consequences of political posturing, which can generate backlash from shareholders, customers, and politicians. We see examples of such backlash in the consumer boycott of Bud Light following the company’s advertising campaign featuring transgender influencer Dylan Mulvaney from which the company’s stock price has yet to recover. Disney faced similar backlash from Florida Governor Ron DeSantis, who implemented adverse legal changes following the company’s opposition to the state’s new education statute.  

More problematic are the risks that corporate political posturing poses to society. Corporations are designed to pursue the objectives of their shareholders and other stakeholders, not to serve as moral stewards, and corporate leaders lack the training and tools necessary to determine how best to pursue difficult societal and political objectives. In addition, because political posturing can threaten profits, corporations are often hypocritical – they may openly advocate one position while providing financial support to political campaigns that take the opposite side. Their political statements may be empty virtue-washing, unsupported by their actions. And they may flip flop, shifting their positions based on the public’s response. At the same time, political posturing increasingly portrays corporations as political actors, making it unappealing for those with different views to engage with them as shareholders, customers and employees, and leading to an increasingly polarized society. 

Given these concerns, we advocate that corporations stop their political posturing. Although some commentators have sought to use traditional governance tools, such as heightened fiduciary duties, to hold corporations more accountable for their political engagement, we question the efficacy of such an approach. Instead, we advocate a combination of voluntary disarmament and transparency. We recognize that peer pressure, political activists and other collective action problems, make it difficult for corporations to resist the temptation to speak out on political issues. In response, we suggest that corporations publicly and collectively pledge to refrain from engaging in political posturing. We advocate an “Anti-Political Posturing Pledge” akin to the Business Roundtable Statement on Corporate Purpose, saying something like:

We believe that our role as leaders of Corporate America is to serve our stakeholders by providing quality goods and services in an ethical and sustainable manner.  Because we do not believe that taking stands on political issues furthers these goals, neither the corporation nor its executives will do so, nor will we engage in politically explicit marketing and promotional activities.

Our proposal would offer accountability and assist corporations in resisting the political arms race. Shareholders could use the shareholder proposal process to urge corporations to adopt the pledge.

To further enhance corporate accountability for their political statements, we argue that corporations should disclose the extent to which their actions match their posturing. If a corporation publicly endorses the BlackLivesMatter movement, for instance, it should disclose its diversity practices. If a corporation takes a public stand on a political issue, it should disclose any lobbying or political expenditures that are in opposition to that issue. Corporations should also disclose the process by which they decide to take political positions, providing shareholders with information about the extent to which the corporation is properly managing political risk. 

As with our proposed pledge, we would prefer that corporations make these disclosures voluntarily. Indeed, a number of recent shareholder proposals ask corporations to disclose their political engagement or the extent to which their political contributions are aligned with their public statements. Alternatively, the Securities & Exchange Commission could adopt rules or informal guidance requiring such transparency. The SEC could also take the position that a material misalignment between a corporation’s political posturing and its actions could potentially subject it to liability for securities fraud. Greater transparency and the threat of litigation would incentivize companies to align their words with their actions or reduce their political posturing. We believe that shareholders, stakeholders, and society would be better off as a result.

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By Jill E. Fisch (University of Pennsylvania Carey Law School)

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