The Importance of Corporate Political Responsibility

[This appeared in MIT Sloan Management Review last month. It’s co-authored with Elizabeth Doty and Prof. Tom Lyon, both from University of Michigan Ross School of Business and the Erb Institute. They have developed an excellent framework on how companies should think about their political influence. Glad to help promote it and connect it to the idea of “net positive advocacy” from my work with Paul Polman. Lots of collaborating on this one!]

The business world is increasingly and genuinely inspired by the idea of building more sustainable businesses. Organizations are motivated by pressure from their employees, their customers, their investors, other stakeholders, and their own values — as well as growing clarity about the opportunities (and requirements) of the big economic and tech transitions already underway (like, say, decarbonizing the whole world).

The true leaders are looking beyond the reactive exercise of checking off the boxes of an environmental, social, and governance (ESG) initiative and looking to build something better — a business that thrives by serving the world. These businesses will have a net positive impact on the planet and its people by, among other things, taking responsibility for their full impacts, intended or not; serving all stakeholders, not just shareholders; helping to solve society’s biggest challenges; and enabling the shift to a thriving, regenerative economy. Yet often these same leaders miss something critical to building a better, more positive business: the question of what they stand for and act on when they step into the public sphere.

Most companies rely on a dated model of engagement on policy with governments and civil society, compartmentalizing their political influence activities into an organizational silo, just as they used to do with their supply chains. (By “political influence,” we mean actions intended to influence the electoral, governing, or civic affairs processes of a nation, state, or municipality, directly or via third parties, including political spending, lobbying and advocacy, employee communication, and external communication and other influence on civic discourse.) Their trade associations — and often their own government relations departments — default to fighting all regulations, including those that would realign private interests with the public good.

That can put them on the wrong side of policy changes needed to bring about the more sustainable world they often have publicly committed to building. This inconsistency leaves them in the crosshairs of many stakeholders and vulnerable to attack, either for failure to back up their social and environmental commitments with political action or, at the other end of the spectrum, for daring to make those societal commitments at all. Companies are managing conflicting views about when and how they should use their voices and their political influence.

A recent example is BP’s roller-coaster ride of engagement on climate policy in the state of Washington. A couple of years ago, the company spent nearly $13 million to defeat a state ballot measure to impose a carbon price. It’s easy to interpret the action as prioritizing BP’s narrow, short-term interests. But more recently, BP supported a Washington state bill that would place an overall cap on state carbon emissions. We can debate the merits of a cap or a tax, but at least BP supported new rules of the game to align market incentives with the broader public good of doing something about climate change, thus better aligning the company with its own sustainability commitments that aim to help the world get to net zero.

Acting with responsibility in engaging on policy can require courage if it goes against industry dogma or if it wades into important social issues, where companies face the rising threat of political retaliation. The experience of Disney in its efforts in Florida to support LGBTQ employees and customers — and the subsequent attacks from Florida’s governor — offers a cautionary tale of the challenges of doing the right thing.

In today’s contentious political environment, any company’s political spending can put it in tough spots, where its values or stated priorities (and what its vocal employees may want) are at odds with the people it has donated to. In the aggregate, these spending practices can also contribute to a political environment in which government retaliation against critics — a hallmark of authoritarianism — becomes routine. This is precisely why executives must recognize what is at stake and weigh their responsibilities thoughtfully.

Navigating to a New Normal of Political Engagement

Understandably, corporate leaders worry about political gridlock and whether their countries will align on the stable policy and regulatory frameworks they need in order to thrive and follow through on their sustainability commitments. But it’s disingenuous for companies to pretend they are passive observers of regulations, laws, or the political climate. Many have purposely contributed to the gridlock they bemoan, through conflicting messages, donations, and third-party affiliations. Political spending helps companies elect leaders who represent their interests and gain access when they need it. Social media, advertising, philanthropy, and public relations can shape civic discourse and cultural beliefs, influencing voting and behavior. And with direct lobbying, companies are not just playing by the rules of the game, they are shaping those rules and how they are enforced.

Clearly, companies need broad principles and guidelines to navigate these tricky political waters and exercise more consistency and responsibility in their influence. At a minimum, organizations should recognize the need for more principled, proactive, and integrated governance and frameworks to guide their decisions about when and how to engage in political affairs. Much of this discussion falls into the seemingly least sexy part of ESG — the governance component, which can shape how well a company manages the rest.

Most of the limited attention to corporate political action thus far has been about transparency. In the U.S., the vast majority of citizens (including most executives and investors) support political spending disclosure, and two-thirds of the S&P 500 voluntarily disclose their election-related spending. More recently, we have seen a gradual expansion of attention from transparency to accountability. Employees, investors, customers, and third-party watchdogs now regularly scrutinize whether a company’s political influences align with its stated commitments to purpose, values, sustainability, stakeholders, and business goals.

Companies that strive for accountability are struggling with increasingly complex trade-offs as they confront the realities of the current U.S. political system and the hypocrisy traps it creates. They wonder, “How do I align our spending with our company values? Which values do I prioritize? How do I promote policies to enable our net zero commitments while navigating the risk of lawmakers damaging our businesses with the stroke of a pen?”

Happily, recognizing these challenges begins to suggest a way out. Companies need to take a broader view of their interests and shift from constantly chasing individual issues to focusing on the health of the larger systems on which business and humanity depend. This still means reacting to and addressing crises as they occur, but also taking a proactive stance and helping to strengthen the foundational systems that generate civic trust, social cohesion, and broad-based prosperity. It also means addressing the breakdowns that are generating distrust. As we have engaged with decision makers on these challenges over the past year, we have found more and more leaders who are convinced of the need go beyond transparency and accountability to explore corporate political responsibility, or CPR. This is an idea developed by Tom and expanded by Elizabeth in her work at the University of Michigan Corporate Political Responsibility Taskforce.

Working Toward Corporate Political Responsibility

CPR is a broader take on old-school corporate social responsibility, or CSR. CPR focuses on how business influences four key systems: the rules of the game (markets, laws, and regulations), civic institutions and representation (for instance, protecting democracy), civil society and public discourse, and natural systems and societal shared resources. (See “Putting Corporate Political Responsibility Into Action.”) These four systems can help leaders think about their impacts and how they can defend and build capacity in these critical societal foundations.