Policy or Politics: The CEO’s Dilemma

According to 2022’s Edelman Trust Barometer, business is the most trusted institution globally, trusted by 61% of respondents (33,000 in total across 28 countries). Technology (74%) and Healthcare (69%) are the most trusted business sectors, while scientists (75%) and my employer (74%) are most trusted groups of people. Furthermore, business has become the only institution that is seen as both competent and ethical. 

In contrast, Government and Media are the least trusted institutions, seen as fueling a cycle of distrust, dividing society instead of unifying. Government leaders and journalists are the least trusted people (in the 40%s). 

Against this backdrop, according to Edelman, societal leadership is becoming a core business function. With government unable to provide trusted leadership on society’s biggest challenges, from climate change, to reskilling, to racial justice and trustworthy information, business is filling the vacuum. Most people want more, not less, business engagement on the issues facing us all. “This makes perfect sense” says Dave Samson, Global Vice Chairman, Corporate Affairs, Edelman. “On competence, business now leads government by a 53-point margin and is viewed as more ethical than government by 26 points.” 

And CEOs are expected to be the face of change, apparently informing policy but not politics.

Edelman Trust Barometer, 2022

In a recent article entitled ‘Our future lives and livelihoods: Sustainable and inclusive and growing’, McKinsey & Company also advocate for greater CEO involvement in policy shaping. “More companies and CEOs will need to enter the arena, to engage deeply in the design of policies, and to contribute their market knowledge… Their capacity for innovation can and must be harnessed to shift the frontier of what’s possible and to help achieve what may seem unachievable.”  

But herein lies the CEO’s dilemma: At what point does policy shaping become politics? Where is the line that CEOs should not cross? Is there a line at all?

Nelson Peltz, co-founder of activist fund Trian Partners, thinks there is. As reported in the Financial Times, he recently met with Unilever CEO, Alan Jope, to discuss a recent announcement about Unilever’s Ben and Jerry’s brand. Ben and Jerry’s, of course, are no strangers to policy and political controversy: the brand’s stated mission is to use ice cream to change the world. However, Peltz was there to lobby against the announcement that Ben and Jerry’s would stop selling ice cream in the occupied Palestinian territories – a protest against Israeli settlements. Peltz told him that no company has any place making these kinds of political statements.

In contrast, Larry Fink, CEO of BlackRock, the world’s largest money manager, believes customers, shareholders and employees need to hear a clear purpose from CEOs and where they stand on societal issues relevant to the company. In a recent investor letter he wrote: “Employees need to understand and connect with your purpose; and when they do, they can be your staunchest advocates. Customers want to see and hear what you stand for as they increasingly look to do business with companies that share their values. And shareholders need to understand the guiding principle driving your vision and mission.”

For Michelle Blake of MB&a, a brand consultancy, the societal issues relevant to a company should be seen through the filter of purpose. “If I'm going to run a tea company, it makes sense for some of my activities to be around what happens on those tea farms in India, and campaigning for women's rights, and making sure those people get an education, and worrying about the workers' conditions, and maybe having cooperative profit sharing. Those are the things that make sense because of who I am, what I do, and why it's important. If you're doing it right, you're doing it through that purposeful filter.”

Much of this, however, could be considered good corporate citizenship, which is increasingly becoming operational table stakes - the things that we should all be more active about. But when does responsible corporate policy become politics? 

“Some of those things just trip into politics.” Blake explains. “But I think if it matters to you because of who you are and why you're doing what you're doing, you are being purposeful. Then, to not speak up is not what your consumers are going to expect of you. It's not what your employees are going to expect of you. It's not what your community's going to expect of you. Then, to not speak up is the wrong thing to do.”

In other words, being involved in policy is not the same thing as being partisan. Getting off the sidelines is not the same thing as choosing sides. As Starbucks CEO Howard Schultz put it 10 years ago, at HBR’s 90th Anniversary Gala Dinner, being involved in policy is not an issue of “being a Republican or a Democrat.” Instead, he said it’s about “trying to lead.” Business leaders have no choice but to get involved in politics in a world where government is failing to address some of the existential issues that humankind, as well as your business, is facing. To do otherwise can be seen as an abdication of corporate responsibility. 

“If you think about it, a lot of this started in the Victorian era,” MB&a’s Blake points out. “You think about Lever Brothers, the Cadbury family, the robber barons in the US. They built entire towns, and set up schools and libraries, and created new worker environments out of enlightened self-interest. They didn't do it really to be generous, I think. There was probably some of that, but it was also really practical. If I have an employee who's poor, sick, unhealthy, they’re not going to show up to work. They were doing this because there was a gap in what was being delivered by government.”

Back in April 2021, 2-page advertisements in The New York Times and The Washington Post, carried what may be the largest political mobilization of corporate America’s CEOs. Dozens of companies, including Amazon, Google, Starbucks and Netflix, joined hundreds of business leaders, to protest against the restrictive voting legislation advanced by Republicans around the country.

New York Times, April 2021

Despite calls by former President Trump and many others for boycotts of these companies, most commentators at the time felt there was little chance that the companies whose CEOs were speaking out would lose sales. Threats to boycott major companies don’t have the impact they once did. Consider the Nike incident with Colin Kapernick. It quickly became clear that Nike had joined a cause much of its customer base supported too. Perhaps this and similar incidents have emboldened companies to think more strategically about the values of their different customer segments.

“If you're a CEO today, you're walking a tightrope, in many respects. You have increasingly vocal expectations from younger consumers that are rapidly gaining economic power.  Generation Z is the largest generation since the Baby Boomers, and they're really starting to enter the market from a consumption perspective,” Matt Kleinschmit, CEO of Reach3 Insights, a market research firm, told NBC news. “If you’re a CEO of a major corporation, you're trying to think about the expectations of that generation and balance that with the expectations of your older customers [who] have lower expectations about the role of the corporate community to bring change.”

Earlier, we asked if there’s a line somewhere between responsible corporate policy and politics that CEOs should not cross. The answer of course is complicated, and a CEO’s appetite for involvement in policy shaping and politics depends on many things including the company’s history, culture and values, as well as the investor environment, company performance, and the CEOs themselves.

What is clear is that for some CEOs, like Unilever’s Alan Jope, and Hamdi Ulukaya, CEO of Chobani, America’s second largest yogurt maker, separating a long-term ‘purposeful’ business strategy from quarterly earnings reports is crucial. Ulukaya has inspired many with his anti-CEO playbook, which emphasizes taking care of employees first, helping the communities in which you operate, having the courage to take positions on social issues vs. maximizing returns for shareholders. “In the long term, you always get the reward for doing things right,” he said in a recent interview with Forbes. It has never been more important than at this challenging time for businesses like Chobani “to fix any injustices we see in the world.”

“Today we describe the mission of the firm as being to make sustainable living commonplace,” Unilever’s Jope said in a podcast with Mike Milken in 2020. “And we believe that if we imbue our brands with a sense of purpose, if we conduct our operations in a way that is purposeful where we pay attention to our impact on society and on the planet, then the owners of our company, our shareholders will be preferentially rewarded.”  

There has been much debate about Unilever’s ‘woke’ activities – both positive and negative. However, since Jope has been at the helm of the world’s most ‘purposeful’ company, with its world-changing Ben and Jerry’s ice cream, humanitarian Knorr stock cubes and non-binary Dove soap, the shares have been dismal, falling nearly 10% in the past 12 months. Meanwhile, shares in US rival Procter & Gamble have risen more than 15%.

Now activist investors such as Nelson Peltz, who think there is a very clear line a CEO should not cross, have the underperforming company in their sights.