CEOs as citizen leaders – What are the obligations, opportunities, and costs of activist leadership?

Public expectations today demand that business leaders serve a social purpose beyond delivering financial performance.

To that end, leaders in the top job are increasingly engaging in CEO activism, in which they take public positions on political, social, and environmental issues not directly related to their business. The decision to weigh into such public matters is complex and requires strategic communications.

Consider the situation faced by Kevin Plank, founder and then-CEO of Under Armour, in 2017. At the time, social media was abuzz with people on both ends of the political spectrum threatening to boycott businesses depending on their political leanings. For many American CEOs, it was a no-win situation – weigh into the political environment and someone is bound to be offended.

Plank found himself on the White House American Manufacturing Council (AMC), a group of high-profile American CEOs advising the administration on economic growth, job creation, and productivity. Plank wrestled with the complexity of the moment – patriotically serving his country in an important economic capacity while at the same time experiencing discomfort with some of the administration’s policies.

It all came to a head in August 2017 following the violent Unite the Right rally in Charlottesville, Virginia, which resulted in one dead and 40 injured. In the wake of this event, AMC members Ken Frazier, CEO of Merck, and Kevin Plank announced they were resigning from the Council in protest. They were followed by 10 others and ultimately the AMC was dismantled altogether.

What is instructive is the executive decision to stand for what one believes in. It was neither easy nor were the business implications clear. It required strength of character, resolve, and a very personal exercise in reflection. To us, this showed real leadership.

However, such decisions can have mixed consequences. This sequence of events has now been studied by management analysts. The results of recent research published in the British Journal of Management shed light on the determinants and financial outcomes of this early and widely publicized example of CEO activism.

Comparing the companies of CEOs who stepped down from the Council and those who remained until their eventual dissolution, the study revealed three key findings –

• Shareholders initially reacted negatively toward CEOs who stepped down (note that this trend reversed over time, as companies like Merck and Under Armour were ultimately rewarded by shareholders)

• CEOs’ personal political ideology, not companies’ corporate social responsibility (CSR) performance, predicted who stepped down

• Entrenched CEOs were more likely to step down

Here are some considerations for your own business –

A movement from shareholder value toward stakeholder capitalism

At first glance of the financial consequences, CEOs (and boards) may be deterred from CEO activism. However, today’s world demands a new type of purpose – stakeholder capitalism – where corporations can and should serve all its stakeholders.

This ethos was epitomized in 2019 when the Business Roundtable’s new Statement on the Purpose of a Corporation was signed by 181 CEOs committing to leading their companies for the benefit of all stakeholders – customers, employees, suppliers, communities, and shareholders. Among the signatories were the CEOs of Blackrock and Vanguard, the world’s leading asset management firms with over $16 trillion in combined assets under management. Such institutional investors have significant influence over the social and economic welfare of our society, and this was a major event. Perhaps most vocal among this group was JP Morgan Chase’s CEO, Jamie Dimon, who continues to hold himself and others accountable for upholding values in leadership.

Heed the calls of young consumers, investors, and leaders

In their 2020 global study on purpose in organizations, communications agency Zeno Group found that younger respondents were more likely to act against companies and brands they disagreed with than older respondents. As young adults accrue financial capital and eventually take the helm of organizations, they will only continue to push society towards purpose-oriented companies. To remain viable, it will be increasingly important for business leaders to consider their impact on society and the planet.

Above all, remember what is important to you as a human and why you are in business in the first place. Clarity of your own principles will ultimately translate to your organization making principled decisions. In that, we all win.