Paul Holmes 27 Oct 2022 // 4:40PM GMT
WASHINGTON, DC—CEOs have a vested interest in social cohesion that makes it critical that they take an active role in advancing social issues, Jeffrey Sonnenfeld, senior associate dean for leadership studies and Lester Crown professor in the practice of management at Yale School of Management, told the audience at PRovoke Global in Washington, DC, on Wednesday.
In a session entitled “Why CEO Voice Has Always Mattered and Why It Still Does,” sponsored by Edelman, Sonnenfeld appeared (remotely) in a lively (if occasionally one-sided) conversation with Richard Edelman in which he traced the history of CEOs engaging in activism, and urged business leaders to invest in “social capital” through their actions, even as doing so becomes more costly in terms of political retribution.
Sonnenfeld has recently been a catalyst in persuading companies to weigh in on issues such as the need to ratify the results of the last presidential election and more recently on the need to disengage from Russia after the country’s invasion of Ukraine earlier this year.
But his history driving change with CEOs on social issues goes back 50 years—a reminder that the notion of corporate activism is not a 21st century invention.
Sonnenfeld recalled working with CEOs on the Business Roundtable “half a century ago, talking about the need for business to be responsible to all stakeholders.” He talked about CEOs who had led the charge—often behind the scenes—in enacting the Foreign Corrupt Practices Act, on thinking about diversity and inclusion, on environmental cleanups around chemical spills. “These leaders did not believe that doing well and doing good were at odds,” he told the audience.
More recently, he pointed to the 2016 “bathroom bill” in Indiana that targeted trans people. “It wasn’t progressive companies like Patagonia and Nike that led the way. It was Walmart and UPS and AT&T, pillars of the heartland. When the outcry comes from the heartland, sometimes the country looks at things differently.”
He cited de Toqueville, who coined the term “social capital” in 1840 and argued that what set America apart was not strict laws, but high levels of social trust. “CEOs have to understand the value of social capital. They don’t want costly social divides. For their own long-term interests, CEOs should be engaged in social issues.”
That’s why, he says, it was critical for business leaders to get involved earlier this year when the then-president led an attempt to overturn the results of a legitimate election in order to maintain his own power.
“The president [still Trump at that time] went on the national networks and proclaimed that the results were different, proclaimed himself the winner, and claimed powers he did not have. And the networks cut him off. Some people were calling it a coup d’état. And because of the work I had done in the past, CEOs were calling me, they didn’t necessarily accept that language about what was going on, but they were calling me, telling me I should do something.
“I was asking them, where’s the Business Roundtable, where’s the US Chamber of Commerce? All of them had wealth and reputation at stake, and I had nothing to lose.” He called Edelman, he said, and between them they called 120 CEOs, most of them members of the Roundtable. Ninety of them—Republicans and Democrats—signed on to a letter that was published as soon as the results in Pennsylvania were ratified.
“The concern was for the nation. These were companies that were proud of their contributions to the elections. Many of them, for the first time, had given employees paid time off to vote, others had encouraged employees to volunteer as poll workers.
“We came up with five bullet points. Here’s who won, congratulations to the winners and to the American people who participated in the democratic process. If anyone has any complaints they should take those concerns to legal system. If they do that, they need to demonstrate evidence of fraud, but we saw none. And finally, there should be a peaceful transfer of power.”
The statement was the first published response to the election results, even before political leaders in the Democratic Party were able to congratulate the new president, and were quickly echoed by others (often verbatim) including former presidents and foreign leaders.
“It is very important to civil society for business leaders to speak out in times of turmoil when our political leaders are letting us down,” said Sonnenfeld, pointing to Edelman’s Trust Barometer research which shows that while trust is many institutions has been declining, CEOs—particularly in their role as employers—have maintained their own credibility.
“I thought we were one and done,” said Sonnenfeld. “But the day before the insurrection recordings came out of President Trump trying to intervene in the Georgia elections.” Many of those same companies then got together and voted to withhold political contributions from members of the House and Senate who refused to accept the election results.
The came the events of February 24, when Russian President Vladimir Putin ordered a full-scale invasion of Ukraine.
Sonnenfeld had no direct role in the initial corporate response, which he said took him by surprise. “Immediately, there were 12 companies that announced that they were pulling out of Russia, and I looked at who they were and they were oil companies, big tech companies, and professional service firms. That they were the first movers was remarkable.
“Oil companies have a complicated relationship with Russia, which is the third largest producer of oil, but also the least efficient producer. They wrote down millions of dollars of business. Tech companies, already under fire for other reasons, were willing to be a lightning rod. And professional service firms are usually the last to jump on board during any geopolitical conflict, but with Gen Z, where they shop, and especially where the want to work, they are very driven by the values of their employers.”
Over the next few days, however, Sonnenfeld noticed a lot of companies issuing statements condemning the invasion while doing little or nothing to curtail their own operations in Russia. He complained to friends in the media that these companies were getting the same level of coverage as companies that had taken real, tangible actions.
“And so we started to identify who was real and who wasn’t, we started to identify the fraudsters who were getting credit without taking any real action,” Sonnenfeld said. “We started a list, and we showed that the companies that had pulled out immediately saw a bump in market value. The market recognized that they had taken out operating risk and reputation risk by their actions. Again, they were doing well by doing good.
“And so we started a stampede of companies that pulled out of Russia.”
All of that happened in the first couple of months of 2022, but the second half of the year, and to a certain extent echoed the CEO leadership on social issues that Sonnenfeld said he had seen throughout his career. But as Edelman pointed out, the second half of the year saw politicians targeting companies for their positions on issues such as gay rights and abortion, and environmental, social and governance more broadly.
“As I have argued, this has been a priority for our greatest corporations for 50 years,” Sonnenfeld said. “What’s changed is the grandstanding of self-serving politicians, labeling and finger-pointing.”
In addition, he said, there was an uptick in “whataboutism,” asking for example why companies were getting involved in Russia and Ukraine but often remained silent on China and Taiwan.
“There’s a lot of stuff going on in the world,” Sonnenfeld acknowledged. “You practice triage. When you see the mass slaughter of civilians, women and children being mowed down or targeted with bombing, you do what you can, you try to figure it out.”
He recalled talking with Michael Dell, who maintained a matrix of more than 100 issues, categorized according to degree of urgency, relevance to Dell’s business, and stakeholder interest. It was impossible for any one company to get involved in all those issues, he said, but Dell had a process for deciding where it could make a real impact.
Edelman pressed him on China, asking whether American companies might be expected to take a stand on human rights issues in the future.
“This is the hardest question your clients can ask you,” Sonnenfeld acknowledged. “It’s complicated. Everything we’ve talked about so far is uncomplicated. Wokeness is a non-issue created by politicians. Russia and Ukraine was black and white. But this is a real issue. The messaging is unclear from western governments, including our own. Taiwan is not recognized by western governments, there is a ‘one China’ policy that the west accepts. But I think we need to question whether we need a different formulation.”
In contrast to Russia, which he said was “not a superpower, they just have a lot of land—there’s nothing we require from Russia,” China is a genuine superpower, and is integrated into the global supply chain in a myriad of ways. “It’s much harder to disentangle ourselves from China.”
At the same time, he said, apparel companies that had disengaged from China over the abuse of the Uyghur population and the US boycott of cotton produced by slave labor, including adidas and Nike, “they held their ground, and after the initial impact their business rebounded after three months.”
Having said that, “a similar China-wide boycott would obviously have very serious consequences.”