Dozens of CEOs and other senior leaders conferred via Zoom this past weekend to explore responses to draft voting-law reforms in various U.S. states.
The Zoom call followed Major League Baseball’s pulling its 2021 All Star Game from Atlanta in response to Georgia’s recent voting law.
Voting access and voting integrity lie at the heart of democracy and civil rights. The Zoom call and MLB’s action raise an overarching business-ethics question: when and how should CEOs lead their companies into political crossfires?
Ethical Crises Vs. Crossfires
In an ethical crisis, the business represents one of the principal actors. Typically at issue is whether the company has breached some norm and what to do about it.
In a crossfire, by contrast, the business finds itself caught between contending outside forces. There might be no need to act. In fact, it might be best to do nothing.
Sometimes, companies find themselves caught inadvertently. This happened to Major League Baseball, which had scheduled its 2021 All Star Game in Atlanta long before Georgia’s voting laws became an issue.
Other times, companies step into a crossfire knowingly. This includes Target, when it announced gender-fluid restroom and fiting-room policy in response to a North Carolina law concerning restroom access in government buildings.
Companies like Coca-Cola and Delta also intentionally entered crossfires when they publicly chose a side after Georgia passed its recent voting law.
Ethics For Directors And Managers Relate To Their Duties, Not Their Personal Preferences
For people who direct and manage companies they do not themselves own, ethical decision making relates to their duties, not their personal preferences or convictions. For example, a public company Board and CEO may not cause the company to donate all of its profits to a charity, even if that charity otherwise represents a worthy cause.
Of course, commitment to duty does not require abandonment of individual conscience. Should an executive’s duties conflict with his or her personal values, that executive may recuse him/herself from decision making, or resign from the company.
What Does Duty Require? Dualism Vs. High Idealism
So what is a director’s or executive’s duty? As discussed in a previous column, over the last 50 years, two competing approaches have duked it out.
Dualism: Maximizing Shareholder Wealth
Dualism holds that a company’s directors and managers should seek to maximize the wealth of all of the company’s owners.
This doesn’t mean anything goes. Businesses must observe the laws and commercial custom where they operate.
High Idealism: Serve All Stakeholders, Not Just Shareholders The opposing theory for the end goal of a business is High Idealism, also known as Stakeholder Theory.
High Idealism argues that a business’s stakeholders — employees, suppliers, customers, and the communities in which a business operates — also have a claim on the business’s profits and assets.
Practical Synthesis: Safeguard Reputation And Grow Profits
Various legal systems embrace Dualism and High Idealism to varying degrees.
As a practical matter, even the most determined dualist cannot chase profits heedless of reputational blowback. And highly idealistic executives who take their eyes off the bottom line will crater their companies, get taken over by dualistic competitors, or expose themselves to accusations of waste, fraud and incompetence.
Four Key Questions for Directors and Managers
In light of the above, how should ethical directors and managers proceed in the face of a crossfire? The path forward may not always be clear, but they should address the following questions:
Q1 — Do We Need To Do Something?
Some matters of civic or social concern directly impact a company or its sector and warrant action. Such matters might include tax or regulatory policy affecting the company’s operations.
In such cases, the company not only has a direct interest in the matter, but can also contribute to the debate relevant insight, experience, and expertise.
By contrast, stepping into a crossfire in which the company has no direct interest or substantive contribution raises the question whether directors and executives are doing their duty, or shirking it. A Dualist would find fault with business leaders using company goodwill and assets to promote causes other than the company’s. At the same time, a High Idealist might ask whether the company should involve itself in a public-policy dispute among stakeholders, especially when other institutions and fora seem better placed to air, mitigate, or resolve such disputes.
For those who find this approach too constraining, imagine that the law in question furthered a cause you strongly supported, rather than opposed, or vice versa.
Q2 — What Precedent Will We Set?
Directors and managers thinking about leading their company into a crossfire also need to ask whether and on what grounds they will enter, or refuse to enter, future crossfires. When do directors and CEOs risk placing themselves — and the companies they are entrusted to serve — at the disposal of the loudest common denominator?
This said, there may be issues that only indirectly affect company operations, but nevertheless call for action because of the company’s mission/values/culture/brand. For example, for many years, Target cultivated progressive values, which informed its culture and brand.
In this light, Target’s stepping into the crossfire of North Carolina’s restroom-access law might have made sense.
But, needing to do something does not justify doing anything. Target’s Board and CEO should have considered Questions 3 and 4 below.
Q3 — Have We Followed Governance Procedures?
Stepping willfully into a crossfire involves the company in controversy. Such a step risks corporate reputation and goodwill among stakeholders and the public at large. It threatens corporate performance and prospects.
Directors and managers in such a situation need to follow proper governance procedures. This guards against unconscious bias, blinkered vision, and lack of implementation planning. For the CEO, this means informing the Board of Directors and gaining its support, as well as syndicating with direct reports.
Failure to respect governance procedures calls into question a decision’s efficacy as well as its ethics.
For example, a recent analysis of 180+ CEOs who signed a Business Roundtable resolution on corporate purpose found that only one CEO acted with the prior support of his or her Board.
Lacking any real institutional buy-in from boards, the resolution gained scant traction. Lack of board support also raised the question whether the CEOs really intended to break new corporate-governance ground, or simply to headfake critics.
Q4 — Should We Go It Alone?
In revising the rules people have to live by, persuasion is better than force. This means process is at least as important as logic.
As a result, leadership does not always mean running ahead of the herd or driving it by force. Sometimes, leadership means urging it forward.
Here, there is safety in numbers — and wisdom in crowds.
It was sensible and appropriate for CEOs to confer by Zoom. It may be that some CEOs wanted to encourage a collective position on one side of the current voting-law debate.
Other CEOs might simply have wished to find ways to avoid or extricate themselves and their companies from crossfires, while promoting airing of civic issues and disputes through more legitimate and effective fora.
In either case, however, Directors and managers must ensure that they act in accordance with their duties and in light of the four key questions above.