Public Companies and Politics: How to Co-Exist

Easier to say than to do! David Lopez, and Jonathan Povilonis of Cleary Gottlieb Steen & Hamilton LLP,  say. that companies should stay out of politics except when they decide it’s in their economic interest to do so.

There are three general directions that public companies could head toward:First, corporate America could evolve to mirror the political landscape. 

In the same way that some states are known as red, blue or battleground states, so too could we find ourselves with companies actively publicizing themselves as red, blue and battleground (or “centrist”) companies that pursue management styles and policies reflective of their political imprint.  In turn, customers, employees, investors and others could decide which companies to deal with based on their own political allegiances.

Second, companies could attempt to adhere to the classical Friedman doctrine and refuse to take stances on any political or social issues that do not directly impact their businesses.  The appeal of this approach is readily apparent, and it may even work for some companies over certain periods of time.  But the shape of today’s political and social discourse frequently leaves a lot of room to argue that facially neutral policies have societal or political implications, and many investors (particularly younger ones) have been increasingly focused on these implications in the past several years.

Third, and we think more tenable over the long run, is a return to the basics of fiduciary duties in a way that is also responsive to the current realities.  The Friedman doctrine that companies should pursue profit and leave political and social issues to governments can be a starting point, but the practical director or executive will also be sensitive to the wishes of their customers, employees and business partners.  If a company sells a product to a customer base that has demonstrated strong views on a particular issue and whose purchasing habits will be affected by corporate policies, then even Milton Friedman would say that the company should shape its corporate policies accordingly and make this clear to all affected parties.

While this third approach is far from guaranteed to spare companies from political backlash, it remains the most promising way forward in exceedingly difficult terrain.  And companies that prepare for these situations—and carefully articulate the rationale of any decisions in advance—will have the highest chances of avoiding the worst of the resulting political and marketplace fallout.

Public Companies and Politics: How to Co-Exist

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