WSJ Nearly Gets it Right on Accountability to Shareholders for Political Expenditures

We can’t argue with this part:

The fiduciary responsibility of a CEO is to safeguard the company’s assets and acknowledge this overriding principle: “It’s not our money but that of the shareholders.”

And we agree that shareholders (they say small but we say all shareholders) should be allowed to sue corporate managers and boards for political expenditures.

But the reasoning that follows in the Wall Street Journal op-ed by Jon L. Pritchett and Ed Tiryakian is skewed. Their definition of “political” would not be recognized by any dictionary and they are wrong in the examples they pick (and ignore) of corporate decisions unrelated to financial metrics.

The authors mean by “political” a decision that puts principle above immediate financial gain. They use as an example Target’s decision to make their bathrooms free from trans-phobia, attributing a drop in stock price to this particular decision. Is there a single Wall Street analyst report suggesting that this is the case? Is there no way to tie this decision to not just human decency but to Target’s brand choice of inclusion and dignity for all customers?

We would argue that the decision had no impact on the stock price and challenge the authors to prove otherwise. And on the topic of politics we would think a better example from Target would be their making a political contribution to a candidate who opposed gay rights contrary to the company’s longtime gay-friendly brand (they liked his economic policies), which led to extended protests and a lot of bad publicity, and then which led to an apology. That is what we consider politics, not making bathrooms available to customers.

The “Christmas cups” at Starbucks example the authors give in the article qualifies as fake news. Starbucks did have Christmas cups. They were red, which is a color associated with Christmas, and just as Christmas-y, or more so, than their previous cup with snowflakes or the one with a snowman, which somehow never offended anyone. Did the year the cup featured ice skaters constitute a “political decision?” It is the very definition of “ordinary business.”

The same applies to the near-unanimous decision of the CEOs to resign from President Trump’s advisory councils. The CEOs who left are experts at cost/benefit and risk/benefit analysis. They understand that associating themselves with a president who cannot bring himself to explicitly oppose Nazis and the KKK carried significant risk of damage to the reputation of their companies and their brands. As for benefit — the councils met just once and were not doing anything. To the extent that any potential prestige was beneficial to their companies, they rationally concluded that it had was disappearing quickly. An article in the Harvard Business Review the same week as the departure from the President’s advisory councils explicitly points to diversity as a brand and reputation enhancer for companies and Professor Jeffrey Sonnenfeld calls the decision to leave “courageous.” David Gelles, who covers business for the New York Times, wrote about the “forthright engagement” of executives.

Even this past week, it was easy to discern careful calculations made by executives who chose to speak out against Mr. Trump. Many faced calls to resign from the presidential advisory councils, and the prospect of boycotts if they did not.

But they also faced notable and new kinds of pressure from within — from employees who expect or encourage their company to stake out positions on numerous controversial social or economic causes, and from board members concerned with reputational issues. In the past week, business leaders have responded with all-staff memos and town-hall meetings.

In short, while companies are naturally designed to be moneymaking enterprises, they are adapting to meet new social and political expectations in sometimes startling ways.

So, Pritchett and Tiryakian have no basis to assume that the decision to leave the councils was motivated by anything other than their fiduciary responsibility to shareholders. We disagree with the authors’ idea of what constitutes “political.” We do agree entirely, though that investors should be able to sue for misuse of corporate assets in truly political expenditures like campaign contributions and lobbying, as for example to thwart environmental or occupational safety or product safety rules. A good first step is to require companies to disclose those payments. We suggest this as the topic for their next op-ed.

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