The Cost of CEO Activism

Written

The Cost of CEO Activism

A new survey shows how Americans respond to CEOs who weigh in on controversial issues.
People show support of Colin Kaepernick. Credit: Reuters/Stephanie Keith
Young Americans expect CEOs to take political stands. But is it a good idea? | Reuters/Stephanie Keith

When Nike tapped former San Francisco 49ers quarterback Colin Kaepernick for a new ad campaign this year, customers took to Twitter, some praising the shoe company’s political stance as others burned their Nike gear in protest. And a few years ago, after Chick-fil-A’s CEO disparaged gay marriage, calls for boycotts clashed with shows of public support at the sandwich chain’s stores. Both companies’ stock and revenue climbed following the controversies.

But does it actually make good business sense to take a stand?

Proceed with extreme caution, say researchers at Stanford Graduate School of Business. Their research shows that CEOs take significant risk by wading in, despite Americans’ support for CEO activism.

“CEOs who take public positions on specific issues might build loyalty with their employees or customers, but these same positions can inadvertently alienate important segments of those populations,” says David F. Larcker, the James Irvin Miller Professor of Accounting at Stanford GSB. “The cost of CEO activism might be higher than many CEOs, companies, or boards realize.”

To understand how Americans view CEO activism, Larcker and researchers with the Rock Center for Corporate Governance at Stanford University surveyed 3,544 people across gender, race, age, household income, and home state. They asked respondents what kinds of stances mattered to them, from environmental to diversity, and how they had responded to these kinds of public stances.

They found:

  • Many Americans believe CEOs of large companies should use their positions to influence social, political, and environmental issues (65%).
  • Democrats (72%) care more about activism than Republicans (57%).
  • Boomers don’t want to hear CEOs’ opinions. Millennials and Gen Xers, however, are much more likely to support CEO activism.
  • Issues with the most support? Environmental concerns and big social issues like health care, income inequality, and poverty.
  • Issues with the least support? Diversity issues including race, gender, and sexuality; politics; religion; and obvious “hot-button” issues like gun control or abortion.

The researchers found an interesting trend in how Americans respond to activism: They are more likely to stop buying the product of a CEO whose beliefs they disagree with, rather than start buying a product from someone whose beliefs they value.

The cost of CEO activism might be higher than many CEOs, companies, or boards realize.
David F. Larcker

CEOs who strongly believe they have a responsibility to speak out on issues must consider the potential impact on their companies.

“Companies and their boards need to understand the demographics of their employee and customer base to figure out if their CEOs are doing more harm or good when they speak out,” says Brian Tayan, one of the researchers involved in the study. If you’re Patagonia, for example, and know the customers buying your high-end outdoor wear lean toward liberal and environmental politics, you do a disservice if you don’t speak out about the environment.

But for companies whose customers span political parties, age brackets, religious beliefs, etc.? “Proceed cautiously,” Tayan says. “When consumers don’t like what they hear, they react the best way they know how to: by closing their wallets.”

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