Remaining vigilant to the purpose of business

Hello this Saturday morning. Thank you for joining us.

A year ago in a piece titled The Purpose of Business, we asked, “To what end do companies exist – to earn profits or to use their power to mold society?”

Stakeholder capitalism had arguably reached a crescendo, just two years after industry titans in 2020 formalized their commitment to “lead their companies for the benefit of all stakeholders” and “push for an economy that serves all Americans.” Or in the words of BlackRock’s Larry Fink, each company must “show how it makes a positive contribution to society.”

Implicit in that commitment was corporate America’s reorientation toward political and social issues, not strictly business.

But who decides what a better world means, and what happens when activists pressure companies to adopt views that clash with the will of voters, we asked.

Just 13 months later, we have for more information available to answer those questions.

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Start with “who decides what a better world means.”

In the three years since corporate leaders released their 2020 commitment to stakeholder capitalism, the answer has been them – or, more precisely, their marketing and DEI (“diversity, equity, and inclusion”) executives under pressure from social activists.

Recall Coca-Cola’s foray into Georgia’s 2021 election law. A handful of political activists threatened the company with a boycott if it didn’t condemn Georgia’s election reforms.

Though polling showed broad support for the law, Coca-Cola CEO James Quincey publicly took sides in the debate, saying the company was “disappointed in the outcome of the Georgia voting legislation” and supported “federal legislation that protects voting access and address voter suppression.”

Recall now-former Disney CEO Bob Chapek’s decision to oppose Florida legislation limiting discussion of gender and sexuality for third graders, a policy which enjoys broad public support.

Consider also Bud Light’s foray into the transgender debate. And Target’s move into child gender expression.

In all these cases (and there are more), a corporation waded into political debates well outside its core competency, presumably in a bid to “make a positive contribution to society.” But corporate views of how society should function clashed with the views of voters (and consumers).

Backlash began building against the practice of politically charged special interest groups using corporations to fight their policy battles. 

Who decides what political action will make a better world? In a democracy like ours, the majority does.

And what happens when activists pressure companies to adopt political views that clash with the will of voters? Bad things.

Disney has a new CEO, is still at war with Florida’s state government, and has a brand problem with a significant subset of the public.

Bud Light’s sales are down 25% in what increasingly looks to be a semipermanent brand collapse.

Target’s stock is down 10% and only time will tell whether the trend continues downward.

The pendulum, then, has swung in the other direction. It was fashionable in 2020 and 2021 to trumpet social justice values. It’s unclear what upside that produced for companies, but it surely at the time produced little downside.

Like most things in politics, though, the mood changed, and some companies didn’t sense it quickly enough.

Perhaps that’s because the executives at Bud Light and Target and elsewhere, nestled in offices in some of the nation’s biggest cities and surrounded by people with big city political affiliations, couldn’t read the pulse elsewhere in the country.

Their proper role, after all, is operating a business, not reading the political tea leaves.

But when a company enters an arena unrelated to its core competency, it risks misreading the situation. That’s the problem Bud Light and Target and others find themselves in right now.

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The next question is, who’s next? That’s impossible to say, but considering a hypothetical offers some instruction on why exactly companies that enter the sociocultural fray invite backlash.

We’ll use the NFL for this hypothetical. Commissioner Roger Goodell positioned the league as one of the more aggressive social justice proponents in the months following the George Floyd protests.

Slogans like “End Racism” and “It Starts With Us” adorned the player helmets and football fields of all 32 teams.

One would be hard pressed to find any reasonable person objecting to those slogans on their face. Who, after all, would oppose an end to racism?

But as political debate evolves, activists often launder more divisive policy prescriptions through agreeable catch-phrases. The slogan “Black Lives Matter” comes to mind – of course the lives of Black people matter, yet that slogan became a rallying cry for aggressive policy goals like defunding police departments – so much so that some left leaning media defended Democratic candidates who distanced themselves from these groups during the elections. 

So too with “antiracism” – sure, decent people define themselves as antiracists because they oppose racism. But “antiracism” became its own political philosophy to advance concepts like “the only remedy for past discrimination is present discrimination.”

That is how slogans like those pressed by Goodell lose their original meaning and instead turn into signals for a more divisive and sweeping set of principles. Consumers act on those signals, not on the phrase’s meaning that may have existed at the outset.

Organizations then have to grapple with the fallout as consumer opposition mounts. Consumers don’t object to ending racism. They object to what they perceive the phrase “end racism” now means: hiring and college admissions decisions based largely on skin color; new and divisive methods of teaching children about history; viciously targeting those who dissent; and any other number of hot-button issues woven into the “woke” mantle.

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We’ll leave you today as we left you last year: Businesses are up for the challenge of addressing societal problems within their core competencies, but the “stakeholder capitalism” movement we see today pushes companies to weigh in on complex political questions, sometimes to counter prevailing public sentiment. Companies that decline faced punishment and attempts at destruction, and now companies that assent face the same.

Successfully navigating this minefield starts with having a firm understanding of the purpose of one’s business, and that comes from within.