Re-thinking the role of business in addressing political and social issues

Martin Wolf in the FT recently offered a penetrating analysis of how, particularly in the US in recent decades, business has used its influence “to set the rules of the game under which it then can play...the results are a form of capitalism that, for all its undoubted economic superiority over alternative systems, creates a highly unequal distribution of rewards and shifts unmanageable risks on to ordinary people.”

As Wolf recognises, there is a clear need for systemic reform and for business leaders to help reset the relationship between business, society and politics. As he also points out, the pandemic has shown businesses have the capacity to act not just from self-interest but in service of the wider common good. And more of this is urgently needed as the pandemic has dramatically widened social and health inequalities that were already getting worse.

More people are looking to businesses and business leaders to play a more activist role. The Police Bill’s proposed restrictions on the right to protest is just the latest in a string of thorny political and social issues on which major businesses are increasingly expected to have a view - from Scottish Independence and Brexit, to Black Lives Matter and stronger rules on carbon pricing.

So how should business respond to this new pressure?

First, we should be wary of what we wish for. More political activism by companies, in general, is not a good solution to weak political engagement. The empowerment of citizens and the support of mediating institutions between the individual and the state are crucial. At a system level – nationally and regionally - we need structural reforms that remedy the lack of countervailing powers and encourage participation.

But having said that, given the current state of society and politics, and the urgency of addressing existential social and environmental issues, there is clearly a strong case for companies to use the agency they have now in a more constructive way. But what then are the limits and boundaries governing what businesses should say and do? Where do they draw their legitimacy for the positions they take and the action they sanction? And if they do act, how can they best do so in a way that strengthens rather than undermines democratic processes? This issue of legitimacy is important, especially in a world where political institutions are relatively weak and companies are strong. Judicious and carefully calibrated involvement is essential.

When I asked one FTSE 30 CEO how they approached this he shared four rules of thumb:

1. Don’t naively assume business can avoid political issues altogether. It can’t, but it can and should avoid partisan party politics
2. The issues you choose to address should relate to your business and geographies where you have knowledge and experience to bring
3. Talk without walk will rightly be called out. Businesses need to earn the right to have an opinion
4. The issue should be material

Whilst these rules help, especially to clarify which social and political issues not to engage with, they only go so far. And they don’t address the rationale for acting beyond financial self-interest, or how a business, having identified the issue, decides what to do or say.

This is where clarity about being purpose-led can help

?If the starting point for the business is a desire to pursue a purpose that in some way contributes to the wider common good of society, and thereby benefits shareholders, there is no license to exploit externalities, even if legal and commercially advantageous. It implies strong support for fair and robust consumer protection, employment rights and equality in the workplace, enabling and promoting wider access to opportunity, human rights in the supply chain and environmental protection. It gives a rationale for why a business would, as Blueprint’s Principles put it: “contribute knowledge and experience to promote better regulation for the benefit of society as a whole rather than protecting self-interest.” – a very different rationale and outcome from the traditional self-serving lobbying business has too often done.

It also changes what counts as “material”. All these areas of law are material to what businesses do, and businesses have a role as actors within society to call for and enact ways of behaving that are fair and promote the common good. The Investor Forum and LBS Centre for Corporate Governance recently published a very helpful paper recognizing four types of materiality investors and companies may legitimately care about: financial, systemic, impact and intrinsic, the latter three recognizing the crucial importance of stakeholder relationships and the wider impact a company has on society. What is striking here is the recognition that investors as stewards should see their fiduciary role more broadly in invigilating what companies do - not just to deliver financial returns, but to benefit society and contribute to necessary systemic shifts, and to accept that judgements of materiality can change as the social and economic context evolves.

What does this look like in practice?

The varied responses of businesses in the US and UK to the outpouring of anger following the George Floyd murder in 2020 is instructive. Many businesses invited and welcomed dialogue with their employees and stakeholders on the implications. As a result, many leaders became far more acutely conscious of the existence of deep-seated racial injustice in society of which their business was an unwitting culture carrier. Conscious awareness of an injustice in which you are complicit forces choices, and a recognition that there is no neutral option: you are either an agent of change or a tacit supporter of the status quo. In the language and actions many businesses are now taking on diversity, equality, and inclusion the motivation has shifted from “the business case”, to a much more deeply grounded sense that as social organisations businesses need to be a force for change if they are to be a force for good. This is intrinsic materiality - it matters to the business for its own sake and they are helping create the fairer society on which their long-term prosperity rests.

There are of course different ways in which companies can act on social and political issues that matter to their customers, employees and wider stakeholders. They can make statements and lobby. They can raise awareness among their employees and stakeholders and encourage their engagement. They can also offer opportunities and platforms for stakeholder voices that are not being heard (both inside and outside the business). This shift to active listening and engagement more clearly positions a business to be a credible and empathetic commentator on emergent issues and to share its expertise, views and learning in that context. To do this well a company needs to scan the horizon and listen to the voices of lived experience. It also needs to recognize that emergent issues often start at the fringes - and to respect the dignity of people, especially those whose voices are seldom heard. And it means being with and alongside people and understanding when it is time to stand up and act in solidarity with them.

How do you engage with different perspectives within the business?

In many cases, there will be different and conflicting views on a given policy issue within leadership and staff teams. In such situations, it becomes essential through dialogue and exploration to understand both sides of an argument and to be fully informed. It means identifying what the rationale and source of legitimacy is for a company to engage, and then to explore in what way that engagement would be most effective. One risk to avoid is the inappropriate use of the company as a soapbox for the personal views of its leaders or owners, or to co-opt it as a vehicle for political activism which is better undertaken elsewhere. Another is the opposite risk - using these reasons as excuses for not acting where there is a clear and compelling reason as a corporate citizen to do so.

But when having thought the issue through carefully, using criteria like those suggested by the CEO above as a starting point, there needs to be a strong and convincing argument which answers for all comers the question “Why are you intervening on this issue, and what has it got to do with the success of your business?” And business leaders do not have to act alone and suffer from being the tall poppy. Collective action is vital where an issue affects many businesses or a whole sector, and is often far more effective. It is no use complaining about a lack of political leadership unless business leaders show their own integrity (in the broadest sense of the word) and courageous values-led leadership.

Addressing power imbalances and businesses role in political dialogue

What would help encourage and promote that wider political debate is more honesty and openness from business leaders about the systemic deficiencies from which they are currently the beneficiaries. There is a healthy scepticism about the newfound social credentials of businesses when they tend to stay silent on thorny political issues such as the regulation of executive pay and corporate tax or imputing the costs of social or environmental externalities.

In some of these difficult areas what would also help is innovation in forms of political dialogue - such as citizens assemblies – in which businesses participate alongside others, bringing their insight and knowledge to advocate for changes that serve the long term common good of all, and where the process of debate and deliberation is genuinely open, thereby avoiding powerbroking discussions between elites convinced they know what works best, and so easily miss what others can clearly see.

We know our current political structures are weak. But we are where we are. Businesses are trusted more than politicians and have agency in a system in urgent need of reform. And some issues cannot wait. So they should use their agency intelligently for good, adopting a systemic approach, acting collaboratively and inviting and welcoming scrutiny and dialogue. As Forum for the Future put it in their paper A Compass for Just and Regenerative Business: “Businesses (and others) have, until now, considered and managed many of the world’s sustainability challenges in isolation from one another – environmental and social issues have typically been treated as separate domains. This is rooted in a paradigm of the world as a machine, where problems are best solved by breaking them down into smaller parts, and is unsuited to addressing complex, interrelated sustainable development issues. To move towards a sustainable future, businesses must take a more systemic perspective that recognises the true complexity of, and the interactions between, the challenges faced by our world”.

And that means the deeper and more thoughtful engagement of business in political and social issues is – and needs to be – here to stay.?