Since Donald Trump’s surprise victory last year, corporate leaders have been at turns despairing and hopeful about an erratic presidency that defies the norms of both logic and decency, while dangling before them the promise of tax and regulatory relief.
The year began with corporate executives – many of them from California’s tech sector – loudly protesting President Trump’s hastily crafted executive order banning travel from seven predominantly Muslim countries and is ending with a rushed tax overhaul that is expected to benefit many of those same companies, even as it balloons the debt by more than $1.5 trillion over 10 years.
The companies have mostly done their tax-related lobbying behind the scenes. But they have been unusually vocal, over the past year, when it comes to taking stands on diversity, climate change and immigration.
Many corporate leaders opposed the U.S.’s decision to withdraw from the Paris climate accord, left presidential advisory bodies in protest of Trump’s failure to condemn white supremacist violence in Charlottesville, Virginia and took legal action to reinstate the Deferred Action for Childhood Arrivals (DACA), the Obama administration program giving immigrants brought to the U.S. as children protection against deportation.
What does it all add up to? This week Capital & Main will look back over a year of consumer boycotts and travel bans to explore the rise in CEO activism, the roots of the corporate responsibility movement and the degree to which it can safeguard democratic values at a time of intense political polarization and widening income inequality.
Do Corporations Want to Save America? — Jessica Goodheart grounds this year’s activism in the history of the corporate responsibility movement and visits a conference, where Microsoft president Brad Smith attempts to navigate tricky political terrain surrounding President Trump. Co-published by Fast Company
Consumer Movements Pour on the Pressure — Paul Tullis highlights renewed consumer activism, such as the #DeleteUber campaign, made possible by the power of social media. Co-published by Fast Company
Don’t Ask Robert Reich About Socially Responsible CEOs — Corporate responsibility skeptic and former U.S. Labor Secretary Robert Reich tells Jessica Goodheart why he questions the value of CEO pledge-signing and statement-making, and points to structural limits to corporate leadership on social and environmental issues. Co-published by Fast Company
Can Business Schools Make Companies Ethical? — Megan Kamerick examines whether business schools are succeeding in turning out more ethically-minded leaders in an era when millennials say they think big business should be doing more to address social ills. Co-published by Fast Company
On The Bottom Line podcast, private equity executive Leo Hindery talks to Rick Wartzman about how those in his industry are failing to be good stewards of society. The podcast also profiles the Patriotic Millionaires, a group of wealthy individuals concerned about mounting inequality in America. Co-published by Fast Company
The Business of Change: Can Business Schools Make Companies Ethical?
Co-published by Fast Company
Questions about what business students are learning usually emerge after egregious examples of malfeasance, although today’s students are definitely more likely to at least hear discussions about corporate responsibility.
In 2008 and 2009, people wondered whether business schools should have borne some of the blame for ethical lapses at collapsing firms.
Co-published by Fast Company
Corporate misanthropes are nothing new, but Martin Shkreli is a special case.
He became one of the most hated men in America for a while when he gained the rights to a lifesaving drug and then boosted the price by 5,000 percent, basically because he could. That wasn’t illegal, just casually cruel.
Shkreli got an undergraduate business degree at Baruch College and some see him as a model for millennials to learn what not to do in business. But what lessons do business students learn from the “Pharma Bro” or corporations that behave badly?
Will in-depth analysis of Uber’s hiding a massive data breach teach newly minted MBAs to stand up for what’s right in their first jobs? If they’re faced with pressure to produce sales at all costs, will they succumb to temptation to follow the path of Wells Fargo and create false customer accounts?
A Deloitte survey finds millennials are generally pro-business, but think big corporations could be doing more to address society’s ills.
Questions about what business students are learning usually emerge after egregious examples of malfeasance. In 2008 and 2009, people wondered whether business schools should have borne some of the blame for ethical lapses at collapsing firms. Similar questions arose around the bankruptcies of Enron and WorldCom earlier that decade, and a recent book looks back at the role Harvard Business School played in the growth of corporate greed in the 1980s.
Business students today are definitely more likely to at least hear discussions about corporate social responsibility and ethics mixed in with classes on finance and management. Corporate social responsibility generally means actions taken by companies to measure, and take responsibility for, their effects on the wellbeing of the environment and the larger society.
This shift is being driven in part by the students themselves. A survey by Deloitte found millennials are generally pro-business, but think big corporations could be doing more to address society’s ills.
“It’s become a foundational expectation for what schools do,” says Dan LeClair, an executive vice president with the Association to Advance Collegiate Schools of Business, the main accrediting organization for business schools. “Business schools are starting to realize that their purpose in education is not just to solve problems for business, but to solve problems for business in the context of society.”
In its accreditation standards, LeClair’s organization notes business schools must “demonstrate a commitment to address, engage and respond to current and emerging corporate social responsibility issues.” Those include “diversity, sustainable development, environmental sustainability and globalization of economic activity across cultures.”
USC’s Paul Adler rejects the idea that this generation is more socially conscious than previous ones and calls corporate-responsibility gestures “window dressing.”
Paul Adler, however, rejects the idea that this generation is more socially conscious than previous ones. A professor of management and organization at the University of Southern California’s Marshall School of Business, Adler sees several forces at work, including a challenging labor market that makes it more difficult for college graduates to find a path in this world.
“They’re bringing some degree of frustration and some eagerness to find a way to do good through the vehicle of business,” he says.
Also, the MBA has become the de facto training ground for those who want to manage anything, he says, and that’s brought people into business schools who in the past might have pursued something like a public administration degree.
“In many ways, this reflects the rise of the market as an ideology in our society today,” Adler says. “The legitimacy of the nonprofit sector or public sector as a vehicle for social change is much less today than it was 40 years ago, so people are desperately looking for ways for the business sector to become a vehicle for positive change.”
Adler is extremely skeptical of that possibility.
“There are very, very few of these for-profit corporations that really have made of their [corporate responsibility] functions anything more than window dressing,” he says.
And yet top schools have moved heavily into this space. The University of Pennsylvania’s famed Wharton School (graduates include Elon Musk and J.D. Power III, and it boasts a long list of accomplished business leaders) is typical. There, all MBA students must take either Responsibility in Business or Responsibility in Global Management — courses that explore, among other things, students’ personal conceptions of what it means to be a responsible leader through negotiation simulations, group projects and discussions designed to help them reflect on their own values and behavior. Undergrad business majors must take one of two courses on legal studies and business ethics, and the school’s social impact initiative offers courses, fellowships and research on impact investing (the idea of “doing well by doing good”).
Silicon Valley-connected Stanford has been ahead of the curve on corporate social responsibility and environmental sustainability.
For their part, Columbia University’s MBA students have three class sessions on ethics as part of their orientations. They focus on value-based leadership, corporate social responsibility and corporate governance, says Bruce Kogut, director of the school’s Sanford C. Bernstein & Co. Center For Leadership and Ethics. And at Harvard University, all MBA students must take the Leadership and Corporate Accountability course in their second semester, to learn about the systems that leaders use to promote responsible conduct by companies and their employees. They use case studies to explore ethical issues at actual companies.
“Rather than presenting the students with clear-cut, black and white issues, the course focuses on the sort of gray issues that come across the transom of decision-making executives on a regular basis,” says a Harvard spokesman.
Perhaps not surprisingly, given its liberal Bay Area location and Silicon Valley connection, Stanford University has been ahead of the curve on corporate social responsibility and environmental sustainability (practices and decisions designed to protect, rather than harm the natural world).
“We’ve basically been doing it since the 1960s,” says Neil Malhotra, director of Stanford’s Center for Social Innovation.
The center began as the Public Management Program, launched by Dean Arjay Miller, to develop business leaders who could address social challenges. There are now over 30 classes related to social innovation, Malhotra says, and a required class on business ethics.
It’s all a big shift from the 1980s, when Harry Van Buren was getting his undergraduate degree. Today he holds the Rust Professorship in Business Ethics in the Anderson School of Management at the University of New Mexico.
“There wasn’t any discussion of these issues at all,” Van Buren says. “I took the very first business ethics course Syracuse University ever offered in 1989.”
An ethics course has been required for UNM undergraduates and graduates for more than 20 years, he adds, incorporating issues around social responsibility, sustainability, ethics and diversity. Students must write analyses of business decisions that address the processes and outcomes from those decisions in ethical terms.
The Anderson School also houses the Daniels Fund Ethics Initiative, which serves as a resource on business ethics education for higher education institutions across New Mexico.
“I think students gain an appreciation of how the decisions they make have implications, positive and negative, for stakeholders,” Van Buren says, referring to customers, employees, government and society at large, as opposed to only focusing on shareholders with a financial stake in a company.
At the University of Colorado, Boulder, the Leeds School of Business has an entire Center for Education on Social Responsibility. Much of the growth toward a social responsibility focus was driven by the Leeds family, says Mark Meaney, the center’s executive director.
“They wrote into the agreement that all business students – undergraduates and graduates – enjoy an immersive experience in ethics, social responsibility, diversity and sustainability,” he says.
Each freshman must take a course called the World of Business that incorporates those four pillars, and as sophomores they must take courses in ethics and social responsibility.
McGill University’s Henry Mintzberg argues that getting an MBA from a prestigious school fosters a hubris that can cause managers to be disconnected from what they’re managing.
About 10 percent of the students pursue a certificate in socially responsible enterprise; MBA students can graduate with an emphasis in sustainable operations. Meaney is also the North American chair of the Principles of Responsible Management Education — an initiative involving the United Nations and about 650 business schools worldwide designed to create more responsible managers. All signatories must submit a report every two years outlining their progress on those principles; the organization has delisted schools from PRME membership for not following that requirement.
A survey of students at schools that are signatories to the PRME principles found many students want more emphasis on issues like ethics and corporate responsibility. About 45 percent felt their schools were not doing enough in this area and 28 percent wanted more coursework on topics such as ethics and environmental sustainability.
The study’s author, Debbie Haski-Leventhal of Australia’s Maquarie University, found that 19 percent of responding students were willing to sacrifice future salary to work for an employer who cares about employees, the community, the environment and ethics.
“Students are saying clearly and loudly that their business schools should be doing more in this space,” she says. The question is what happens after graduation? The skeptical Paul Adler recalls how a former student went to work in supply chain management for a large corporation. After the 2012 Tazreen Fashions factory fire in Bangladesh, her company first denied any of its products were manufactured there, but eventually it came out they were.
“So there was a big discussion in the organization — ‘We have to do something about this,’” Adler says. “She assumed there would be some kind of action.”
There wasn’t, and when the Rana Plaza building collapsed a year later, killing more than 1,000 workers, it became clear the company’s suppliers were still involved in unsafe factories in the country. So, disgusted and demoralized, she left.
“She was with a whole group whose mission was to ensure suppliers were behaving according to the company’s code of conduct, and [was] constantly overruled by the finance guys. I don’t think that’s an unusual experience.”
Adler adds that unless you have funders like the Leeds family who want it, or companies demanding it when they come recruiting graduates, or lawmakers pushing for it at public schools, then fundamental change won’t happen. But can business schools make someone ethical? Henry Mintzberg, Cleghorn Professor of Management Studies at McGill University in Montreal, has argued that the very idea of the MBA is flawed. He contends getting a degree from a prestigious school actually fosters a certain hubris that’s unjustified and often causes managers to be disconnected from what they’re managing, and that can be destructive. He also doubts that debating ethics in a classroom prepares students to face real ethical quandaries in the work world.
The University of New Mexico’s Van Buren says business schools can’t make someone ethical, but they can expose them to important ideas.
“They can help students be aware there are social expectations facing businesses, and indeed all organizations,” he says. “And this sort of teaching challenges the shareholder-centric paradigm that typifies a lot of business school coursework.”
One recent graduate from UNM’s business school, Ronak Bhatt, is working as a controller for a health company and says his education served him well.
“What I’m carrying forward into my profession and every interaction I’m having is the ability to think [things] through: How is my decision going to impact all stakeholders and what are the negative external consequences we didn’t see?”
Some graduates find the sweet spot of social responsibility by simply doing their own thing.
When she was at the Harvard Business School, Sarah Endline was involved with Net Impact, which brings together students interested in how to make positive impacts on society. She graduated in 2001 and went to work for Yahoo, but eventually launched her own company, Sweetriot, which promises to fix the world through chocolate with a commitment to fair trade and supporting nonprofits.
“The ideals of Net Impact apply to any industry – being a great team player, impacting the community, caring about the world around you,” she says. “I don’t consider that just one industry.”
Debbie Haski-Leventhal remains optimistic about change in business schools and in business.
“I don’t know of any perfect company,” she says. “But I see more and more companies taking some of these issues very seriously.”
Change, she adds, tends to happen slowly.
Copyright Capital & Main
The Business of Change: Consumer Movements Pour on the Pressure
Co-published by Fast Company
Consumer campaigns have existed for more than a century, but the Trump presidency has galvanized activists and accelerated their work.
“The Trump era has brought a renewed activism that calls on corporations
to take moral stances.”
Co-published by Fast Company
Consumer movements have been gaining strength and effectiveness since the advent of social media in the mid-2000s. And if there were any doubt among corporate communications executives that the Trump administration would galvanize those growing movements, it probably evaporated on the evening of January 28, a scant eight days after the inauguration of the 45th president.
As thousands of demonstrators converged at New York’s JFK Airport to protest Trump’s day-old executive order temporarily banning travelers from seven majority-Muslim countries, the New York Taxi Workers Alliance announced it would strike for one hour in solidarity with the protesters and refuse to pick up passengers at the airport. In response, ride-sharing service Uber tweeted that it was suspending “surge” pricing for rides from the airport so that passengers affected by the taxi strike would not have to pay extra due to the expected increase in demand.
The public response was swift: Hundreds of Twitter users, apparently under the impression that Uber was capitalizing on the protest to increase revenue, announced they would boycott the company, going so far as to delete its app from their smart phones and use rival Lyft instead.
The incident was a lesson in maintaining and projecting brand identity in an era of political polarization. Lyft did not turn off surge pricing, so users were forced to pay more because of the additional demand for the service. But it did announce that it was donating $1 million to the American Civil Liberties Union, which was fighting Trump’s action in court. Uber CEO Travis Kalanick had said in a memo to employees that the ban would harm many of its drivers and promised to raise the issue with Trump at an upcoming meeting of the Strategic & Policy Forum. The group, commonly known as the “business council,” was composed of CEOs of major corporations such as PepsiCo, GM, IBM and Boston Consulting Group, among others. But it wasn’t enough to overcome the company’s perceived profiteering at JFK. Though travelers would have to pay more for Lyft’s service and hire “scabs,” in effect, during the taxi-drivers’ strike, many trying to get out of JFK flocked to Uber’s rival.
“Platforms like Twitter have changed the scale of participation, making it more accessible. Advertisers are more aware of social media, and it scares them.”
“The Trump era has brought a renewed activism that calls on corporations to take moral stances,” said Ana María Archila, co-executive director of the Center for Popular Democracy. The JFK incident, she said, “brought Uber to task on their relationship to the Trump administration.” Kalanick quit the advisory group a few days later, saying that membership had been misinterpreted as endorsement of Trump policy. Trump disbanded the business council six months later as more execs quit amid public outcry over his comments on the white supremacist riot in Charlottesville, Virginia in August.
Consumer movements have existed for more than a century, enlisting customers and potential customers to pressure companies to change policies or products and to seek government regulation. Originally they sought safer products, fair treatment of workers and transparency. Early examples include efforts to ensure food safety following the publication of Upton Sinclair’s novel The Jungle exposing unsanitary conditions in Chicago’s meatpacking industry, and Ralph Nader’s quest to shame the auto industry into placing seat belts in cars. More recently, political groups have gotten involved, boycotting companies or pressuring them to withhold advertising from certain media outlets.
In the 1970s and ’80s, evangelical Christian groups and others protested and boycotted media companies over what they considered inappropriate content in film, television and music. Those campaigns led to the NC-17 movie rating, a TV ratings system for parental guidance and labeling of explicit content in audio recordings. In 2010, after conservative talk-radio host Dr. Laura Schlessinger disparaged an African-American caller and used the N-word 11 times (though not directed at the caller), advocates for minority groups contacted advertisers and she was essentially shamed into ending her program.
The cause for the recent proliferation of consumer-driven movements is related to what helped get Trump elected: alienation from, and dissatisfaction with, the political process.
“But the one big catalyzing campaign that entrenched and scaled [consumer movements] was Glenn Beck,” said Angelo Carusone, president of Media Matters for America, which says it “corrects conservative misinformation in the U.S. Media.” Carusone told the Huffington Post he launched the @StopBeck Twitter account in 2009 to pressure companies to cease advertising on the Fox News host’s program because of the “willful lies” Beck was broadcasting “to advance a personal or political agenda.” With civil rights advocacy group Color of Change, Carusone convinced hundreds of advertisers to quit Beck’s program, and Beck left Fox News in 2011.
“What was different about that campaign was that it used social media,” Carusone told Capital & Main. “Platforms like Twitter have changed the scale of participation, making it more accessible.” And the public nature of those platforms make companies more likely to respond, said Robert Wynne, president of Wynne Communications, a Redondo Beach-based public relations company, and author of Straight Talk about Public Relations: What You Think You Know Is Wrong. “Advertisers are more aware of social media, and it scares them,” he said.
Since Election Day 2016, Carusone said, “there’s been a massive surge in these consumer-driven movements, a really sharp increase.” Examples include the #GrabYourWallet boycott of companies that sell Trump family-branded products or supported his presidential campaign, and the Sleeping Giants campaign to convince companies to pull their advertisements from Breitbart News and other white-nationalist websites. The Center for Popular Democracy’s Backers of Hate website, enables users to send emails to CEOs and board members of companies the organization has identified as advancing or financing anti-immigrant or anti-labor policies.
Once companies align themselves with the values of consumers, they’re often pushed into the political arena to prove themselves. This presents risks for large companies.
Carusone suggested that the cause for the recent proliferation is related to what helped get Trump elected: alienation from, and dissatisfaction with, the political process. “You have this giant well of people that want to be engaged, but they don’t feel like engaging in politics,” Carusone said. The perception exists that “you contact your Congressman, but even if you persuade them, there’s so much gridlock nothing’s going to get done. So people look to these consumer-driven efforts where you’re able to talk to a powerful decision maker really quickly through social media, and these companies respond. It’s kind of addictive in this moment of disorientation and powerlessness.”
The new facility of consumer communication, a polarized political environment, the spate of divisive policies and statements from the president, and a trend toward lifestyle branding have combined to force companies to take positions in the political arena. “There’s been a shift in the level of awareness by corporations of what’s at stake at this moment and what it means to tie their brand to this administration,” said Arisha Hatch, managing director of campaigns for Color of Change. “In 2016 we saw a lot of people staying on the bench. Now I think there’s an active conversation going on inside corporations across the country about how they’re going to show up.”
Hatch’s hunch was verified at the meeting last month of the Darden Leadership Communications Council, an organization of about 40 communications professionals from Fortune 500 companies, trade media and academia convened by the University of Virginia’s Darden School of Business. “This particular topic—companies and [industry] leaders raising their voices around social and political issues—dominated discussions at our meeting,” said Steve Soltis, executive in residence at the school’s Management Communication Area. The movements have forced companies to figure out when it’s appropriate to step into debates, and how, Soltis said.
“In the Trump era, there is no neutrality,” said Adam Duhachek, professor of marketing at Indiana University’s Kelley School of Business. A major reason companies have found themselves grappling with the question is the recent trend toward lifestyle branding, he said. “As a natural consequence of companies adopting lifestyle branding as a key strategy to differentiate themselves, they’re going to have to take a stand,” Duhachek said. Once companies position themselves as aligned with the values of consumers, he said, they’re often pushed into the political arena to prove themselves. This presents risks for large companies, Soltis said: “We live in this fractured political world and if you come out on issues that are really wedged, you’re going to upset a large contingent of your consumer base.”
Carusone pointed to a petition to get Macy’s to drop Trump’s clothing line from its stores after, among other divisive statements, he began peddling the lie that President Obama was born in Kenya, and thus ineligible for the presidency, as an example of the risk inherent in lifestyle branding. The petition garnered 600,000 signatures in just a couple of weeks, Carusone said. “The reason people responded to it was because Macy’s had a particular brand about wholesomeness, and was associated with these holidays like Thanksgiving and the Fourth of July, so there was a real contrast between the syrup and nostalgia Macy’s was presenting and having this strong relationship with someone engaging in bigoted bullying,” Carusone said. “Once you invest more in building relationships with customers, that creates the expectation that you’re going to behave in certain ways—so when you don’t, you have a problem.”
Efforts on the left seem to be more organized and more targeted than efforts on the right—and that makes them more successful. Sean Hannity, for instance, used his Fox News show to defend Alabama Senate candidate and accused child predator Roy Moore. Media Matters responded with a campaign successfully pressuring brands, including Keurig Beverages, to pull advertising. Hannity’s supporters then posted videos online showing them smashing their Keurig coffee makers. The company expressed regret over how its decision had been communicated but did not reverse it.
In contrast, the Center for Popular Democracy’s strategy of bypassing corporate feedback channels with its Backers of Hate site is “brilliant,” said public relations executive Wynne. Rather than publicly post company officials’ email addresses, the center acts as a go-between and forwards readers’ complaints directly to the executives — shielding the organization from accusations of revealing private information.
“When the conversation becomes about left versus right, it gives corporations permission to stay on the sidelines,” Color of Change’s Hatch said. “But when it’s framed as right versus wrong or dangerously impacting certain communities, our moral authority is much stronger. Executives are asking themselves, when the history books are written, how will they have shown up.”
Copyright Capital & Main
The Business of Change: Do Corporations Want to Save America?
Co-published by Fast Company
Grounded in a longer tradition of engagement on social and environmental issues, CEO activism has no doubt been invigorated by Donald Trump’s erratic and divisive leadership.
Early CEO activism was reactive to disasters like the Exxon Valdez oil spill or Union Carbide’s toxic gas leak in Bhopal, India. But other more recent developments have propelled the movement.
Co-published by Fast Company
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 bandanas.
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.
Widespread CEO condemnation of Trump’s response to the deadly violence in Charlottesville led to an exodus of executives from his business advisory councils and the councils being dissolved.
“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.
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’ 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.
“This notion that consumers can be at once citizen-regulators, as well as consumers,
is kind of impossible.”
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.
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.
“We live in a Clark Kent economy where everybody has X-ray vision.”
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.
“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.
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.
Executives avoid making their disagreements with Trump personal. Fewer than 35% of CEOs mention Trump’s name when discussing the Muslim travel ban and Charlottesville.
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.
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.”
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 health-care 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 health-care 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 percent.
Copyright Capital & Main
The Business of Change: Don’t Ask Robert Reich About Socially Responsible CEOs
Co-published by Fast Company
In this interview, Robert Reich dismisses CEOs’ “symbolic actions,” such as signing highly publicized pledges and petitions.
“If [CEOs] were truly courageous, they would be doing everything they could to reduce the power of money in American politics.”
Co-published by Fast Company
CEOs who challenge Trump on race, immigration and climate are taking “minimal” risks, according to former U.S. Labor Secretary Robert Reich, who holds fast to his well-known skepticism of the corporate responsibility movement in a recent interview with Capital & Main.
Reich questions the value of what he calls CEOs’ “symbolic actions,” such as signing pledges and petitions, and challenges big companies to put their lobbying might behind safeguarding the U.S. Environmental Protection Agency, reducing the power of money in politics and defeating the Republican tax bill. But his optimism about the country’s future rests in what he sees as a level of citizen activism in politics not seen since the Vietnam War.
Reich has written 14 books, including 2007’s Supercapitalism, in which he calls the corporate responsibility movement “a kind of faux democracy.” His most recent book, Saving Capitalism, serves as the basis for a recently released Netflix documentary, in which he takes his vision for the economy into the American heartland. Reich is Chancellor’s Professor of Public Policy at the University of California, Berkeley.
Capital & Main: You’ve written that CEOs can no longer function as “corporate statesman,” as they had in the post-war period. Have this year’s events, with CEOs taking public stands on all sorts of issues, from climate to race to immigration, made you revise your views at all?
Robert Reich: I applaud CEOs who are standing up for American ideals and important principles, but the reality is that they are constrained by their responsibility to maximize shareholder returns.
Since the 1980s, CEOs have been very tightly bound to the demands of shareholders, not only because of private equity partnerships and activist investors who threaten any CEO who departs from the goal of maximizing shareholder returns, but also because CEOs, themselves, are now paid in shares of stock.
So you can bet that when they take a stand against racism, or for other American ideals, they are doing so because their public relations people have assured them that their stands will either promote their brands and help the stock price or, at the very least, won’t hurt their share price.
Do you think they are taking any risks?
Reich: They’re taking minimal risk. Most CEOs of big companies were not prepared to leave Trump’s business advisory council over Charlottesville. After [Merck CEO Kenneth Frazier] took a very courageous stand, he shamed the rest into following suit. There might have been a negative effect on their share prices and on their public images if they had not done so.
I think they did the right thing, but if CEOs were really courageous, and felt that they could take strong stands, [they] would have spoken out much more forcefully against Trump’s decision to leave the Paris climate accord. They would be speaking out right now against the shortsighted and dangerous tax bill that is coming through Congress….If they were truly courageous, and didn’t have to worry about their share prices, they would be doing everything they could to reduce the power of money in American politics.
There are 1,700 companies and investors that have signed a pledge to support climate action to meet the Paris targets, including some big ones like Walmart, Apple and Google. Aren’t these companies playing an important role in keeping the world on track to meet those goals?
Reich: Remember, these big companies constitute a large proportion of the financial contributions that these Republican members of Congress, in fact all members of Congress, are receiving. If these CEOs of these big companies instructed their lobbyists to demand action on climate, and to overrule Trump’s actions on the Paris accord, and also on the evisceration of the EPA, we’d be in a completely different place politically, today.
Signing pledges and putting their names on petitions and other symbolic actions are fine, but there is no substitute for using political power.
You’ve made a broader critique of corporate responsibility efforts, which are now housed in most major corporations, and you’ve called them a kind of “faux democracy.” What makes you say that?
Reich: They may engage in public relations activities that help sales, including sounding very responsible about the environment. But there’s no reason to suppose they are going to do anything that will undermine shareholder value in the pursuit of social purposes or social goals. To expect otherwise is to fall for a large scam, and to be distracted from the realities of political power. The way we get action on the environment, or any other important goal, is through legislation that forces companies to make changes.
Because these companies are so powerful, they also can have tremendous impact when they make internal policy changes. If Google sets ambitious renewable targets, or Levi Strauss works to improve conditions in its supply chain, is that not better than the alternative?
Reich: Oh, I’m all in favor of them doing so. I’m just saying that they won’t, unless it maximizes profits. If it maximizes profits, why call it “corporate social responsibility?”
There’s research showing that people increasingly want to invest in, and work for, companies that have a social purpose. Do you think that the socially conscious consumer or investor can force corporations to serve broader goals, beyond increasing returns to shareholders?
Reich: Well, I like the idea. But, in practice, that’s not what’s happening. In fact, if anything, corporate governance is becoming more and more restrictive. CEOs don’t have the latitude to use their profits as slush funds to do whatever they want to do. Regardless of how much we might like them to do at least some of what they’re doing, they are very tightly controlled by the demands of activist investors, private equity managers and Wall Street analysts.
You’ve argued that the balance of power has shifted away from the public sphere and citizens, towards corporate lobbyists and large monopolies. In spite of how things look, do you think we are already at a moment when the Trump agenda can be successfully challenged?
Reich: I’m generally optimistic. One of the silver linings on this dark, Trump cloud is the citizen activism that has emerged at the local and state levels. I haven’t seen this degree of engagement since the anti-Vietnam War movement of the late ’60s. Our best chance of constraining Trump and stopping Republicans from [inflicting] more damage is through this citizen activism. It’s already stopped the repeal of the Affordable Care Act and, hopefully, it will lay the foundation for much more in the future.
Copyright Capital & Main
The Business of Change: One Private-Equity Pioneer Is So Fed Up With the Industry, He’s Ready to Quit
Co-published by Fast Company
Leo Hindery has long been outspoken about super-rich fund managers who exploit a loophole that allows them to pay the capital-gains tax rate—about half the ordinary tax rate—on a huge chunk of their personal income.
For Leo Hindery, the declining standards in private equity are part of a larger picture in which the leaders of corporate America are focused on short-term profits at the expense of the greater good to society.
Co-published by Fast Company
“Greed is winning,” Leo Hindery tells me on the latest episode of my podcast, The Bottom Line. “I don’t like its trends. ” Hindery, a private-equity pioneer, is fed up with the mores of his $2.5 trillion industry.
“I’m not sure I’m going to stay in the business,” he says.
Hindery, who runs New York-based InterMedia Partners, stresses that he looks forward to continuing to make “thoughtful investments” on behalf of others. But he is mulling a new vehicle outside the realm of private equity.
“I don’t like the fee structure,” he explains. “I think it’s usurious. I think it’s caused really unfortunate—almost unethical—behaviors by some of the managers. I’m not happy with it. So we’re going to change our own perspectives.”
Hindery’s displeasure comes in large measure from seeing private equity change over time. When the field began to take off in the mid-1980s, he says, there was more of an inclination to acquire businesses and hold onto them for five to seven years, building them up along the way.
But now, he says, there is so much capital chasing so few good deals, it has put pressure on private-equity managers—often young generalists with zero experience in the types of businesses that they’re buying—to become overleveraged and then try to turn a relatively quick profit.
“They’ve backed away from the longer hold, and they’ve gone for the more expedient action of cutting . . . costs, especially employee costs,” Hindery says.
His peers infuriate him in other ways, as well. Hindery has long been outspoken about super-rich fund managers who exploit a loophole that allows them to pay the capital-gains tax rate—about half the ordinary tax rate—on a huge chunk of their personal income. “It’s just unconscionable,” Hindery says. “It’s beyond intellectually absurd.”
“There’s nothing that suggests that what we do as managers of these monies is a capital gain,” he adds. “To call it a capital gain is to call an orange an apple.”
For Hindery, the declining standards in private equity are one piece of a larger picture in which the leaders of corporate America have become increasingly focused on short-term profits at the expense of the greater good to society.
When Hindery went to work for natural resources giant Utah International in the early 1970s, fresh out of business school at Stanford, he says he plunged into a world in which major CEOs “were patriots.”
“They believed in the value of their employees as assets,” he says. “They believed in their responsibility to their communities and to their nation.” Today, however, “I can’t make that generalization much anymore.”
Hindery acknowledges that social impact investing is a force to be reckoned with, as more and more public-pension funds, university endowments and charitable foundations steer their investment dollars into those companies that are good stewards of the environment and their workers.
But money managers and top corporate executives—the bulk of whose own compensation is typically linked to their company’s share price—are still often motivated by other concerns. At least for now, says Hindery, “greed is winning.”
You can listen to my entire interview with Hindery here, along with Larry Buhl reporting on efforts by a group of wealthy individuals called the Patriotic Millionaires to battle income inequality, and Rachel Schneider exploring why we need to develop new indicators that measure people’s overall financial health, not just their creditworthiness.
The Bottom Line is a production of Capital & Main.
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