As corporates are increasingly called upon to weigh in on political issues, Garnet Roach looks at the investor view on talking politics – and finds some firms starting to take a step back and return the focus to shareholder value
The pressure to have a public view on everything from George Floyd’s murder and the Black Lives Matter movement to ‘don’t say gay’ legislation, voting rights and the overturning of Roe vs Wade has been increasing in recent years.
Dr Tara Van Ho, senior lecturer at the University of Essex School of Law in the UK, talks about ‘watershed moments’ that have occurred over the last decade or so, starting in 2011 when the UN adopted the guiding principles on business and human rights. Then this year, Russia invaded Ukraine – another turning point for Van Ho.
Dr Tara Van Ho, University of Essex School of Law
‘We have not seen companies come out so quickly and so significantly in any other circumstance,’ she says. ‘Or seen companies come out almost so completely in response to a global human rights or political development, as we saw in February. Companies have set themselves a new precedent for what will be expected of them in future.’
John Galloway, global head of Vanguard’s investment stewardship program, says the expectation that companies – particularly those in the US – will comment on political issues has come out of what he describes as the ‘dysfunction of the US political system’. This, he says, has ‘led to a rise in pressure on corporates and other entities to come to lead’.
Employees want to work for companies they feel safe in, that they feel share their values – and that they feel are doing good in the world
But it seems that – even as companies offer public statements around Roe, albeit framed as a healthcare rather than a political issue – a new culture of caution is emerging. Even companies that have made bold statements on political issues in the past don’t want to comment: ‘We're super-focused on operational reliability for our customers and people [rather than] looking back at issues that have come and gone.’ ‘We have an internal framework that guides these decisions, but as of now we do not share that externally.’ ‘Unfortunately, I am not able to contribute to this article. [But] I look forward to reading it!’ So say just a few of the firms approached for comment for this feature.
John Galloway, Vanguard
A product of politics Galloway agrees that firms are starting to question whether or not they should be coming out publicly on issues that aren’t material to their operations.
‘No rational company wants to opine on [political issues],’ he says. ‘I do think we’re seeing a reconsideration [around the need to comment].’ Talking about the reluctance of corporates to comment for this feature – even where they’ve come out strongly on issues in the past – Galloway is unsurprised: ‘You’re not going to get companies talking about [political issues] if they don’t need to. And as an investor, I think that’s right.’
Galloway stresses that Vanguard and its funds have no agenda or view on any political or social issue. To drive home that point, he notes that ‘when many of these issues are fraught politically, as they are particularly in the US, we are very cognizant that we serve 30 mn investors across our funds. And those 30 mn individuals have a wide range of personal beliefs, values and priorities. The one thing they have in common, that we’re aware of, is that they have entrusted Vanguard to grow their long-term savings.’
He adds that while Vanguard doesn’t have a view on politics, it also doesn’t have a view on whether or not companies should be sharing their own views – what Vanguard wants to know in those cases is what the board oversight of those decisions was.
Why is that your business? Alison Harding-Jones, Citi’s vice chair of EMEA and head of M&A, is bolder in her view that this is not an area companies should be stepping into. ‘Some companies have come out and been quite public about certain topics, which prompts others to ask, Why is that your business?’ she points out. ‘It’s very hard to land on a line where you have consensus support on some of these issues – and therein lies the problem.’
Like Galloway, Harding-Jones sees companies taking a step back from bold political commentary given the potential for backlash. She recommends that firms ‘steer away’ from ‘big, general statements around political or domestic issues’.
‘Corporates need to be careful about commenting on anything that is outside of their business,’ she explains. ‘That’s not what your investors expect you to do. Investors will make a choice on whether they want to invest in a company based on its business, growth and potential, not based on its stance on political or sensitive issues.’ Indeed, unless there is a direct need to comment, such commentary might well put them off, she adds.
There are regional differences that impact discussions around corporate political responsibility. Dr Tara Van Ho, senior lecturer at the University of Essex School of Law in the UK, points to the European Commission’s Proposal for a Directive on Corporate Sustainability Due Diligence, aimed at tackling human rights and environmental impacts across global value chains. ‘This new legislation is going to change the equation for a lot of companies in the EU,’ she says. ‘They’re just not going to have a choice about whether or not they speak out. The expectation now is that businesses respect human rights in their legal meaning. That creates a bit of a backstop for companies: they’ll be operating within the international legal standards, and can rely on that within their statements.’
Lisa Harlow, head of investment stewardship for EMEA/Asia-Pacific at Vanguard, agrees. A ‘more structural approach’ to such issues ‘generally brings the temperature down a bit, because companies can set their views out in a more governance and disclosure-led way,’ she explains. ‘Having frameworks for expectations is probably what IR professionals and boards want.’
John Galloway, global head of Vanguard’s investment stewardship program, says it is worth remembering that there is no single world view when it comes to geopolitics. Offering an observation on the industry more broadly, rather than Vanguard specifically, he says: ‘Companies doing business in China, and concerns about human rights abuses in China, is an example where I think investors in different markets – particularly institutional investors in different markets – have different perspectives.
‘We have spoken to institutional investors and asset managers that have a heavier institutional business in Asia, for example. And they would say, Actually, this is viewed very differently outside the West. They view this as anti-China sentiment, not a human rights issue – so there’s less focus on it.’
Lisa Harlow, Vanguard
Alison Harding-Jones, Citi
You’re not going to get companies talking about [political issues] if they don’t need to
A change of tack Of course, companies continue to make public, politically charged statements as, at time of writing, war continues in Ukraine and the political landscape in the US remains fractured. Some others, however, are openly bucking the trend for social and political commentary.
At the end of 2020, Brian Armstrong, chief executive of Coinbase, posted a blog that noted the ‘difficult events’ the US was grappling with at the time: ‘A global pandemic, shelter in place, social unrest, widespread protests and riots, and West Coast wildfires. On top of that we have a contentious US election on the horizon.’
Acknowledging that ‘it has become common for Silicon Valley companies to engage in a wide variety of social activism, even unrelated to what the company does’, this was not the route Armstrong wanted for Coinbase, though he also recognized that ‘there are certainly employees who really want this in the company they work for’.
Internal guidance to employees stated: ‘We won’t debate causes or political candidates internally that are unrelated to work; expect the company to represent our personal beliefs externally; assume negative intent, or not have each other’s back; take on activism outside of our core mission at work.’
Armstrong was right that some employees at least wanted to work for a firm that was not only a business but also an entity that represented and reflected their own beliefs and values. The company offered employees an exit package if they were unhappy with what he termed the company’s ‘culture clarification’. In a follow-up blog post a week later, he revealed that around 5 percent of Coinbase employees (around 60 people at the time) had taken the deal to leave.
Investors will make a choice on whether they want to invest in a company based on its business, growth and potential, not based on its stance on political or sensitive issues
In April 2021, project management tech firm Basecamp followed Coinbase’s example, with co-founder and CEO Jason Fried saying the company would not be making public statements on political issues, as well as telling employees not to talk politics in company forums. Like Coinbase, Basecamp also offered a severance package and it was reported that around 20 employees – a third of the company’s workforce at the time – took up the exit offer.
More recently – and in certainly the most high-profile case so far –Facebook parent company Meta reportedly told employees not to discuss abortion at work after the US Supreme Court overturned Roe.
Employees are driving pressure What is particularly interesting in the cases of Coinbase and Basecamp is the acknowledgement – both implicitly and through the offer of severance packages – that choosing to publicly steer clear of political issues is as much about human capital as anything else.
Andrea Hagelgans, managing director on social issues engagement at Edelman, says younger employees in particular are driven by their values. ‘What you’re seeing is employees feeling like these issues are part of their authentic self – and saying, I bring my full self to work,’ she says. ‘The risk [of not engaging on these topics or even banning employee engagement] is that you entice employees to leave your firm, and then you have a real recruiting challenge in the future, particularly with higher-skilled and Gen Z workers, who are very clear that they are driven by their values.’
While Hagelgans and Van Ho clearly take a view that companies should be more involved in these issues than perhaps Galloway or Harding-Jones, what they all agree on is where the pressure is coming from: employees.
Andrea Hagelgans, Edelman
‘Society has changed significantly in its expectations of businesses, not just in terms of institutional investors, which care about things like human rights and climate change, not just in terms of consumers who are increasingly making those demands, but also in terms of employees,’ says Van Ho. ‘Employees want to work for companies they feel safe in, that they feel share their values – and that they feel are doing good in the world.’
While there is of course the potential for backlash, Van Ho also points to the positives of taking your views public. ‘There is now increasingly – at least within the US and the EU – a competitive advantage to be gained by speaking out to protect certain values,’ she says. ‘You can build up a really strong consumer base by knowing who you are and staking that claim. But also, not every business needs to go out and make a public statement on an issue. This is also about operating within your values. Advertising those values is different.’ Unsurprisingly, the human capital element is also where Galloway sees any real link between external politics and shareholder value. ‘Often, the motivating force is actually a company’s employee base,’ he says. ‘It’s a question of talent attraction and retention – less so customer demand.’
This was a key part of conversations Vanguard was having with companies in the aftermath of George Floyd’s murder, for example.
‘As we were talking to companies about how they were handling that social upheaval, many companies and board members reported that it was really about their employee base and their ability to attract or retain talent – more than being about customers,’ Galloway recalls.
‘But if there is a link [between political issues and] shareholder value, you’d expect it would appear in either customer sentiment – you could see companies being boycotted or customer preferences shifting to or away from a brand, for example – or employee recruitment and retention.’
After the Supreme Court overturned Roe vs Wade, research by intelligence firm Morning Consult finds that corporate efforts in support of abortion access are much more popular among US adults than those who support the Supreme Court’s decision. ‘Such moves could earn public approval for those brands,’ says Morning Consult. Its survey finds that:
The survey of more than 2,200 US adults also finds that:
‘Brands not only have public perception to consider in this matter,’ says Morning Consult, ‘but also the wishes of their current – and future – employees.’
Be genuine – but stay mindful of shareholder value Despite the few high-profile cases where companies publicly say they won’t be commenting on political issues and the fact that this certainly isn’t something investors are actively looking for from companies, the pressure remains to speak out.
If you do speak out on an issue, your chance of facing significant backlash, or a boost to your corporate profile, comes down to whether or not you appear genuine in your motives and convictions – and the quantifiable action you’re taking on your chosen issue.
‘Businesses are concerned about the backlash but the response to that shouldn’t be withdrawal from these activities – it should be to start actually digging in and figuring out what you are going to speak on,’ says Van Ho.
‘Where are your red lines? What are your values as a business? What does it mean for you to take on issues? I don’t mean flagging up that you care about Pride month, for example, but asking yourself as a company what it means for you to embrace the rights of people from the LGBTQ+ community.
‘When companies do that work, they get to the right kinds of answers and they can put together the right kinds of statements. What's more, you don’t see the sort of backlash that companies get in two different directions: both from the people who never wanted them to speak out in the first place and from the people who wanted them to speak out more authentically and more consistently – as well as do more than just speak out.’
The fact that the political and news agenda is changing so fast is yet another element that makes this an even trickier path for companies to tread. While you can’t – and certainly aren’t expected to – have a view on what’s in the news on a weekly basis, what you can do is get ahead of the issues that might impact your company so that you can reassure your investors that senior management and the board have a game plan.
If you want to be cold-minded about it, companies made the decision that it was in the interests of their business to exit Russia
‘Right now, given the supply-chain disruptions we’ve seen and thinking through other geopolitical events that might happen, we are asking companies how they are thinking about what they might do if certain scenarios were to play out,’ says Galloway. ‘Again, we don’t have a view on the answer, but we want to understand how firms are thinking about what their response would be if China invaded Taiwan, for example. What would the decision-set look like?’
For Galloway and Vanguard, whatever decision a company takes, it is all about understanding how it came to make that decision and what the board oversight was. He points out that even moral decisions – such as exiting Russia following its invasion of Ukraine – are ultimately still about business and shareholder value.
‘With the war in Ukraine, companies were being asked to take a moral position,’ he says. ‘But if you want to be cold-minded about it, companies made the decision that it was in the interest of their business to exit Russia.
‘They may have framed it in the context of concerns about human rights or moral outrage but we know firms were making that decision with their boards and senior teams based on an understanding of what is in the best interests of their shareholders.
‘What we understand for most companies is that moral outrage was the second order. This decision was about what is in the interest of their shareholders and their employees. That’s a nuance, but an important one.’
That nuance is also what makes politically fraught corporate decisions so difficult.
Coinbase declined to comment. Neither Meta nor Basecamp responded to a request for comment
