The risks of being an activist CEO

Mar 30, 2015
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The risks of being an activist CEO

Mar 30, 2015
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There is suddenly a slew of CEOs speaking out about one sensitive issue or another. Tim Cook of Apple wrote a piece in favor of gay rights in the Washington Post. “ 

Tim Cook: Pro-discrimination ‘religious freedom’ laws are dangerous

America’s business community recognized a long time ago that discrimination, in all its forms, is bad for business,” Cook wrote in the Post op-ed. The CEOs of Salesforce and Yelp made similar stands on the issue, also citing a controversial Indiana law. Not long ago, Starbucks CEO Howard Schultz used his coffee pulpit to spur discussion on race relations. Before that,  he waded into the issue of gun control.

Publicly held companies are, at the end of the day, about maximizing shareholder value. And CEOs are locked in a delicate balance of power between those shareholders, their own interests and their boards of directors (which are usually empowered to fire him or her).

So what explains these kinds of high-profile stances? After all, a controversial stand can alienate customers and weaken brand loyalty — or it can strengthen it — but why become embroiled at all?

“CEOs are people too, as surprising as that may sound,” says Steven Davidoff Solomon, professor of law at University of California, Berkeley. “Sometimes they have to speak, just like you do.”

And they usually ask permission first. 

“You don’t very often see a CEO of a public company taking a public stance on a controversial issue without the CEO going first to the board,” says Donna Dabney, executive director of the Conference Board’s Governance Center.

And boards of directors are apt to give the okay, she says. “CEOs and companies these days are feeling they should speak up on societal issues.”

In fact, says Dabney, CEOs are often criticized for not speaking out enough: “It used to be that you would find that heads of large public companies would take a leadership role in community and societal affairs and I think there’s kind of a change toward stepping up to that role again.”

Having the board on board doesn’t necessarily mean things will go well, of course.

“I’m afraid Starbucks found the experience of dealing candidly with race, even though a commendable effort, to have been something that went rather embarrassingly awkwardly for the company,” says John Coffee, professor of law at Columbia University’s school of law.  

A lot of what determines whether a CEO will take a stand boils down to corporate policy. “Every company does things differently,” says Coffee. Some have business-policy committees to control corporate image — and corporate mouths — extra tightly. Others will let a CEO live his or her life as long as they don’t reduce shareholder value.

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