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Do Corporations Want To Save America?

In “The Business of Change,” a new series, Capital & Main looks at the rise in CEO activism in response to the Trump administration.

Do Corporations Want To Save America?
[Photo: Define Urban]

Capital & Main is an award-winning publication that reports from California on economic, political, and social issues.

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In August the New York Times celebrated CEO leadership after white supremacist violence erupted in Charlottesville, Virginia, in a story headlined “The Moral Voice of Corporate America.” One of those CEOs, General Motors chairman Mary T. Barra, called on the country to come together “and reinforce values and ideals that unite us–tolerance, inclusion, and diversity.” Breitbart News, the radical-right voice of aggrieved whites, meanwhile, was lamenting a “corporate antifa,” evoking the unlikely pairing of power ties and black bandannas.

What’s really going on? In the era of Trump, are CEOs the new vanguard for upholding progressive ideals?

This past year, hundreds of corporate leaders have tweeted, signed letters, gone to court, sent out internal employee memos, and quit presidential advisory councils in reaction to President Trump’s racially charged statements and his actions on climate change, refugees, immigration, and the right of transgender people to serve in the military.

“It’s a very big sea change in the world of CEOs that [they] would publicly speak out and take stands on issues that are not necessarily tied to their bottom line,” says Leslie Gaines-Ross, a reputation consultant for Weber-Shandwick, a New York public relations firm.

If Trump has been the most visible cause of CEO outspokenness over the past year, he is certainly not the only cause for C-suite consternation. Nationalist and anti-free-trade leaders–notably Marine Le Pen in France and Geert Wilders in the Netherlands–have been gaining ground in Europe as well. Britain’s Brexit vote last year was propelled by anti-immigrant and anti-free-trade sentiment that is anathema to corporate leaders who generally favor free flows of capital and labor.

“When governments are not effective or not reliable, that means that businesses often have to step in and play a role,” says Aron Cramer, whose group BSR (formerly Businesses for Social Responsibility) advocates for progressive business practices. He adds, however, that it’s critical that they not “overstep” that role.

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The pressure to pay attention to social issues is not just coming from the nativist movements that have propelled the rise of right-wing leaders. It is also coming from political and social progressives. Tech companies, for instance, once media darlings, are being reviled as gentrifiers that are pricing working-class families out of some West Coast cities. Congressional leaders recently berated Google, Facebook, and Twitter for failing to protect the public from Russian meddling during the 2016 presidential election. And Bernie Sanders’s insurgent 2016 presidential campaign made unchecked corporate power its prime target.

Grounded in a longer tradition of engagement on social and environmental issues, CEO activism has no doubt been invigorated by Trump’s erratic and divisive leadership, observers say. But skeptics note that executives’ response to Trump will only go so far to advance the public interest in an era when companies are increasingly focused on short-term returns.

CEOs began agitating soon after Trump was elected. More than 100 U.S. technology companies went to court in February to oppose the president’s ban on immigration from seven majority Muslim countries. Hundreds of businesses–including tech companies, energy firms, and automakers–advocated staying in the Paris climate accords after Trump announced in June that the U.S. was pulling out. More than 1,700 companies and investors have signed a pledge to support climate action to meet the Paris targets.

Widespread CEO condemnation of Trump’s response to the deadly violence in Charlottesville led to an exodus of executives from his business advisory councils in August and the councils being dissolved in what many observers thought would be a pivotal moment for the presidency.

Less than a month later, more than 400 CEOs and business leaders signed a letter urging Trump to reinstate the Deferred Action for Childhood Arrivals (DACA), an Obama administration program giving thousands of immigrants brought to this country as children protection against deportation. Brad Smith, Microsoft’s president and chief legal officer, told NPR last August that in order for federal officials to deport any DACA recipients in the company’s employ, it would “have to go through us.” In early November, Google, Microsoft and Facebook joined 100-plus other tech companies to mount a legal challenge to President Trump’s effort to end DACA.

The outspokenness of CEOs on race, immigration, climate, and diversity this year may have been aided by the groundwork laid by the corporate social responsibility movement, says Allen White of the Tellus Institute, a Cambridge, Massachusetts non-profit research and policy organization.

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How The Movement Gained Momentum

Corporate social responsibility can be traced to the late 1800s, but it is largely a 20th century phenomenon that has gained momentum since the 1950s. The current movement was once the dominion of a few mission-driven companies like Ben & Jerry’s and the Body Shop, but it is now incorporated into the operating practices of most multinational firms, which regularly set environmental goals, produce sustainability reports on meeting current needs without compromising the ability to meet future ones, and establish codes of conduct governing their practices in far-flung factories.

The genesis of the contemporary movement was reactive, says White, and came in the wake of the Exxon Valdez oil spill in Alaska and the Bhopal toxic gas leak at a Union Carbide pesticide plant in India that led to thousands of deaths. But other more recent developments have propelled the movement.
Recent research shows that consumers–especially millennials–are more purpose-driven. They want to work for companies that share their values.

Consumers also want to buy from brands that offer sustainable products, although research suggests that there is a limit to their willingness to pay more for that privilege. An increasing share of U.S. assets are under management that incorporates sustainability investment strategies. And CEOs spend time and resources trying to foster work cultures that value diversity and inclusion. Google invested $265 million in diversity programs in 2014 and 2015.

The speed at which bad publicity can travel the internet is also a motivating force. “The cost and the penalty for being a bad company has gone up radically,” Mats Lederhausen told an October BSR conference in Huntington Beach. He is a self-described “concerned and confused capitalist” and founder of BE-CAUSE, a purpose-driven investment fund. “We live in a Clark Kent economy where everybody has X-ray vision,” he says.

BSR is one of the organizations that has helped establish the corporate responsibility movement. When it started organizing in the early 1990s, it was made up of social entrepreneurs and known to some as a collection of “candle makers and sandal makers.”

Twenty-five years later, BSR—a membership organization with offices on three continents—can bring together 21st century capitalism’s major players—McDonald’s, Microsoft, Walmart, the big boys and girls of tech, pharma, energy, food, and retail.

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“A lot of CEOs have spoken up loud and clear at a time when that has been so badly needed,” said BSR’s Cramer. He was warming up a dinner-time crowd for former Vice President Al Gore and a power point featuring climate refugees, the devastating super-storms of 2017, and an urgent call to action.

Hundreds of people filled the Hyatt Regency banquet room, many of them sustainability and compliance officers responsible for carrying out the day-to-day work of meeting environmental and social goals. Two days later, Planned Parenthood’s Cecile Richards capped off the conference with a plea to make women’s issues more central to the corporate agenda.

From Profit To Purpose

Meanwhile, Milton Friedman, conservative economist and corporate responsibility skeptic, was likely turning over in his grave. The only social responsibility of business is to “increase its profits,” Friedman famously wrote in 1962. But eight years later, Paul Samuelson, a Nobel laureate in economics, said, “A large corporation these days not only may engage in social responsibility, it had damn well better try to do so.” Critics on the left, like former U.S. Labor Secretary Robert Reich, though, argue that too many corporate responsibility initiatives merely constitute savvy marketing or, at worst, an attempt to avoid public scrutiny and needed regulations.

Joanne Bauer, a human rights advocate who teaches corporate social responsibility at Columbia University, questions whether energized consumers can serve as a check on corporations, given that their own desires for well-made, low-priced goods can often stand in conflict with ethical concerns for how those products are made.

“This notion that consumers can be at once citizen-regulators, as well as consumers, is kind of impossible,” says Bauer, who would sooner see the human rights agenda centered on the concerns of communities impacted by companies.

Another weakness of the corporate responsibility movement, critics say, is its inability to address the rising inequality that may be fueling right-wing movements sweeping the U.S. and Europe.

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Tackling wealth inequality is a “no-go zone” for most executives, says the Tellus Institute’s White. “Their success and their tenure are rooted in share prices,” he says. White leads an initiative that seeks to remake the 21st century corporation in a way that would make a social purpose integral to its mission.

The BSR’s Cramer is not giving up on the idea that companies, as they are currently configured, can help to address an economy where Intuit research projects nearly half of the jobs will be contingent — part-time or with independent contractors — by 2020.

Companies—working with partners–will increasingly need to figure out how “to create new models of employment” and “new ways of establishing lifelong learning” in order to adapt to the changing nature of work, Cramer told his Huntington Beach audience. The next day, at a session on the fraying social contract, participants floated such ideas as portable benefits and a universal basic income.

Corporations will never be the vanguard of the resistance to Trump, argues White, who points out that many administration proposals– from reduced corporate tax rates to the easing of environmental and financial regulations – are central to business leaders’ agendas.

Many executives have tried to avoid making their disagreements with Trump personal. Fewer than 35 percent of CEOs mention Trump by name when discussing the Muslim travel ban and Charlottesville, according to an analysis of CEO responses conducted by Weber Shandwick’s Gaines-Ross.

Microsoft’s Smith performed that delicate dance as he spoke at the BSR conference. He credited the Trump administration for continuing an Obama-era initiative to fund computer science education and pointedly included a slide that pictured Smith in a Virginia classroom alongside Ivanka Trump. Smith said Microsoft will “partner whenever we can” and “stand apart when we should.”

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Microsoft, currently working to bring broadband to rural parts of the country, is performing well, beating Wall Street revenue expectations in all but one of the last nine quarters. But CEOs who invest in corporate responsibility initiatives do not last as long if their companies are faring poorly, according to a recent study by Tim Hubbard of Notre Dame’s business school. This may also be true for those CEOs who speak out on controversial issues at a time when the country is so divided.

As Congress moved to repeal Obamacare—a central pledge of the Trump campaign— J. Mario Molina, of Long Beach-based Molina Healthcare, was the only insurance company executive who protested loudly. The company serves a mostly low-income clientele, including more than a million people through the Affordable Care Act exchanges.

Molina spoke critically of the Republican healthcare legislation to the media and, in late April, wrote a letter to Congressional leaders projecting repeal would cause as many as 700,000 people to lose coverage in 2017.

In May, Molina and his brother, also an executive at the company, were abruptly fired from the firm their father founded. However, Molina’s criticism of the proposed Republican health insurance overhaul may not have been the only reason for his ouster. The company also had “short-term problems,” according to Chris Jennings, a Washington D.C.-based healthcare policy consultant.

But if the company, which was profitable in the first quarter of 2017, was “doing extremely well across the board in all markets,” his board would likely have kept him in place, Jennings said.

The day Molina was fired, the company’s shares rose 20%.

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