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

Corporations have always been involved in politics, but today is different. They are publicly taking positions, either directly or indirectly, on contested political and social issues unrelated to their businesses. In contrast to the conventional wisdom, we argue that this practice, which we term “corporate political posturing,” is problematic. First, it is of dubious value to the corporation and its stakeholders. Corporate political posturing often backfires, it does so unpredictably and potentially catastrophically, and it is particularly susceptible to agency costs. Second, it is harmful to society. The fundamental problem is that corporations are institutionally ill-equipped to take center stage in policy debates. They are inherently self-interested economic actors with goals that often conflict with those of society. This manifests in statements that tend to polarize rather than enlighten and actions that undermine the positions that they back publicly.



We surmise that corporations themselves are ambivalent about taking policy positions but are caught in a feedback loop in which customers, employees, and investors demand political involvement. Corporations thus engage in response to competitive pressure, which normalizes the conduct and leads to escalating expectations for further engagement. We see several ways to break this cycle. One possibility, which we consider and reject, is to subject political posturing to distinctive governance rules. A second option is voluntary disarmament. Borrowing from the Business Roundtable Statement on Corporate Purpose, we suggest that corporations could voluntarily and publicly commit to refrain from political posturing. A third option is for corporations to provide greater transparency, either voluntarily or in response to regulatory requirements. If corporations disclosed the extent to which their actions were consistent with their public positions, we predict that fewer corporations would engage in posturing and those that do would back their statements with conduct that matches.