Not a Fad, CEO Activism is Vital
Verit Advisors’ view is that CEOs must evaluate and determine their companies’ social purpose and lead in ensuring their organizations achieve that corporate intent and responsibility for the sake of their stakeholders and society.
In today’s fragmented world, should a CEO be an activist in critical areas of social and moral responsibility?
In 1949, Dean Donald David of Harvard’s business school asked that question and advocated that business leaders adopt social initiatives beyond their traditional economic scope. In response, most executives viewed such responsibilities as voluntary. Some feared their crusading would spark liability dangers. And in 1970, influential economist Milton Friedman postulated that the sole purpose of management was to maximize enterprise value, leaving shareholders to pursue their social objectives with the funds generated by their investment.
Nearly fifty years later, CEO activism – a relatively new term – is on the rise and the debate over assuming such responsibilities has intensified. This time, however, employees, consumers and other stakeholders are leading the way in promoting and supporting decisive actions by CEOs that transcend traditional philanthropy and community involvement. As Larry Fink, chairman and CEO of BlackRock, the world’s largest asset manager, asserts, “Society is demanding that companies, both public and private, serve a social purpose.”
Research shows that today, CEO activism is good business. It can lead to better social outcomes while driving corporate reputation and, potentially, revenue.
With respect to the former, CEOs of private companies – the backbone of American communities – are better positioned than their public company counterparts to take bold stands. They can think holistically because they are immune to quarterly earnings pressures and can make longer-term decisions with constituencies other than investors in mind.
Recent studies document strong public support for this activist posture. Edelman’s respected annual Global Trust Barometer for 2019 found that 71% of employees believe it is critically important for “my CEO” to respond to challenging times, but their trust must be earned through more than “business as usual.” Employees who have such trust are far more likely to advocate for the organization and are more engaged, loyal and committed. Further, 76% of the general population want CEOs to take the lead on change instead of waiting for government to impose it.
Doing good can also translate into doing well. Edelman’s separate but related 2019 Brand Trust Survey underscores consumers’ desire for social activism on the part of the brands they buy. Fifty-three percent of 25,000 respondents across eight global markets expect brands to get involved in at least one social issue not directly related to their business. Doing right by society also can boost sales. Sixty-eight percent of consumers are inclined to side with a specific brand when they factor into their trust equation how a brand positively impacts society.
Countless private company CEOs including leaders of companies with employee stock option plans are standouts in doing right – and taking stands. CEOs of private companies Clif Bar, New Belgium Brewing and Stonyfield Farm as well as brands like Ben & Jerry’s, now owned by Unilever N.V., have been vocal in raising awareness of issues such as climate change. Chobani’s CEO Hamdi Ulukaya, for one, has been a vocal opponent of the administration’s restrictions against Muslims, even though he’s been threatened and his yogurt maker faced a boycott.
CAmong ESOPs, employees at popular Texas supermarket chain H-E-B rated CEO Charles Butt at the top of Glassdoor’s top CEO list for 2019. The billionaire philanthropist’s passion is improving public education to improve leadership and teaching in traditional school districts; he gave $150 million to Houston public schools in 2017 alone. In Mesquite, Nevada, the Lee family, which converted the retirement account of its Eureka Casino Resort into an ESOP, backs a growing number of significant local projects through its Eureka Community Initiative.
At Verit Advisors, we have been involved for a long time at the board level and among our associates to help develop quality education in lower-income Chicago neighborhoods. We believe fervently that through education, we can save communities.
This has included a novel project through the Big Shoulders Fund charity that, assisted by two of our associates, introduces eighth graders to finance and investment basics, including managing their own imaginary stock portfolio. Often, the savvy students pick a stock based on what they perceive as societal benefits. One such stock was Tesla, whose cars the students felt were better for the environment; another was Whole Foods, chosen before it was acquired by Amazon, because they noted people are eating healthier.
Through our actions, my colleagues and I have voted with our feet. We believe that CEOs – public and private – should deem it their corporate social responsibility to do their part, dedicating some portion of their resources to helping solve important issues about which they, and their constituencies, feel strongly.
Verit Advisors’ view is that doing right by positively impacting society helps communicate a company’s values and mission, and that at a time when global societal challenges intensify, CEOs must lead the way to ensure employees, customers and communities that leadership is purpose-driven.