For CEOs On Election Day, Politics Is No Party

According to Andrew Ross Sorkin of The New York Times, some business leaders are jumping into the deep end of the political pool: “Chief executives across the business world are increasingly wading into political issues that were once considered off limit.” But someone who knows better, Stanford Business School’s David Larcker, the James Irvin Miller Professor of Accounting, who directs the Corporate Governance Research Initiative, says that’s not bravery, but ego, “business leaders should not confuse running a business with writing a blog.”

In Stanford’s recently completed survey of CEO political activism, Larcker discovered the downsides as well as the narrow upsides to jumping into political hot water. Voices beckoning business leaders to use their formidable skills for an uncharted mission in politics has all the uncertainty of an Elon Musk moonshot, but none of the glory.

The controversial Nike campaign that garnered a significant spike in online sales serves as a reminder of how to do it right. The $36 billion marketing powerhouse based in Portland, Oregon spent months debating the business case. CEO Mark Parker told analysts during a conference call, “Everything we do starts with the consumer. Our obsession with serving the consumer drives our growth.”

It is safe to assume Nike anticipated some fallout for the controversial move. The stock dove 3% before it fully recovered. Then, according to Market researcher Morning Consult, Nike’s purchase ratings fell sharply across all demographics, including age, race, and political affiliation. Ouch? Not really.

Nike’s focus on women, young athletes, and runners are a natural target market for a symbol like former NFL quarterback Colin Kaepernick who has transformed himself into an icon, with long-term brand potential. Seeing him as a lapsed football quarterback is to miss Nike’s strategy. He may have hung up his spikes when he took the knee, but when Kaepernick runs for office, that’s the kind of running Nike is counting on.

However, the call is being heard for more widespread CEO activism, whether a business is inclined or not, driven by a social media frenzy looking for leadership on issues. Recently, the Edelman Trust Barometer, a poll of 33,000 individuals across the world, found consumers expect CEOs to proactively take steps on social problems, even ahead of lawmakers: “Sixty-four percent of people say that CEOs should take the lead on change,” and 56 percent said “they have no respect for CEOs who remain silent on important issues.”

A recent Wall Street Journal article warned CEOs, “you’re a CEO, not a political activist.” At the same time, it underscored the temptation to get into the fray: “The endless, real-time conversation taking place on social media, combined with the rising tide of advocacy bubbling up from their employees, customers and investors, make (CEOs) silence increasingly conspicuous.”

What is a CEO supposed to do?

Like a child psychologist once advised overprotective parents, the best advice is “Do nothing. Just stand there.” Larcker’s Stanford study demonstrated that most are doing just that. It is a misperception that CEO activism has increased in recent years, and the evidence suggests that activism in the C suite is “fairly limited (and) often uncontroversial in topic and tone and dominated by a few vocal outliers.”

Finally, and perhaps most significantly, Larcker’s study also revealed a negative impact on customer behavior from CEO activism. While some research found that CEO activism is viewed positively by consumers if the company is considered “values-oriented,” it is frowned upon generally.

A surprising result of the survey was that, while Americans claimed to change purchasing behavior depending on their agreement with an activist CEO’s position, only 20 percent could think of a product they use more, while 35 percent of the public could think of a product or service they use less.

Stanford’s study concluded that activist CEOs are only a micro-subset of the C suite population: Among S&P 1500 companies, only 175 CEOs (12 percent) made what we can refer to as “social” statements personally or on behalf of the company; and only 63 (4 percent) made these statements on a personal basis. Of these, diversity was the most frequently advocated issue, with 50 percent of activist CEOs promoting an increase in gender, racial, or sexual-orientation diversity or equality.

Leave politics to the pros, and the business will have one less thing to worry about.

David Larcker’s top seven findings:

1. Be relevant. CEOs are going to learn how to be more political but maintain credibility on issues that unite employees, customers, and the public.

2. Have the talk. The CEO and the board need to have the conversation. They also need expertise, unless they were born after 1995.

3. Think long term. A new era of activism is like a new era of nudism. Don’t be tempted to try it out for size until it becomes fashionable.

4. Know your market. People who disagree with your politics will see it as ego, or as an unnecessary incursion on a topic where the CEO has no business speaking up. Supporters see it as passion.

5. Do the math. CEOs of millennial age employees should weigh the cost-benefit of their millennial employees with their potentially non-millennial customers.

6. Be strategic. Should the brand take a stand? In the case of Nike and others, brand activism is usually a coordinated and well thought out strategy, even if the naysayers don’t like it.

7. Why me? The CEO may ask in a moment of frustration, why is this happening on their watch? The answer is Trump, Twitter, and the times. As Jeff Zucker, President of CNN said. “We’ve seen that anytime you break away from the Trump story and cover other events in this era, the audience goes away.”

Related: The CEO’s Social Media Challenge