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    Summing Up: What Are the Limits of CEO Activism?
    06 Sep 2017What Do You Think?

    Summing Up: What Are the Limits of CEO Activism?

    by James Heskett
    Do CEOs have a responsibility to speak out when they encounter social injustice? James Heskett's readers offer a variety of viewpoints.
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    CEO at window looking for inspiration CEOs face difficult choices when deciding to speak out under the company's brand. Credit:  fizkes

    Summing Up: Should Boards Specify Limits on CEO Activism?

    Opinions about suitable CEO activism—taking public positions and actions on social issues-—in reaction to this month’s column were varied and nuanced. This reflected what DDB identified as “a huge new challenge for CEO’s” and a complicated one, according to Rob Jones. But only three respondents addressed the question of limits on the practice. More about that below.

    Ernie supported CEO activism in general, saying, “Let them express themselves. Now more than ever, American society needs this kind of exchange of ideas.” Bill added, “All it takes for evil to flourish is for good people to remain silent.” Jesteeleconsult commented, “Looking the other way in times of such outrageous and inhumane social injustice is not an option. Silence still makes a statement.” Referring to the specific action of Ken Frazier, CEO of Merck, who resigned from a presidential appointment in protest, hollidsu said, “Frazier was showing true leadership. He should be commended even if the share price went down.”

    JBW, based on his experience in Canada with outspoken banking executives, argued that, “Silence may be both a more eloquent statement and a more intelligent one…” CEOs and other high-profile people “do a service by restraining their knee-jerks and shutting their mouths.” RCD added, “I can’t accept the premise that CEO’s have a role to play in setting moral tone.” Stephen Dolle commented, “I see CEO’s speaking on social injustice as a gimmick to cover themselves (on a number of other practices and issues to which Dolle objects).”

    Those who addressed the question also recognized its complexity. David Wittenberg’s bottom line was, “I don’t think it’s possible to formulate a rule that applies in every such situation.” He went on to say, “The scariest part of this for me is that leaders are coming under fire increasingly for what they didn’t say and didn’t do… members of some movements might boycott, protest, or even engage in violence against your company if you are not willing to voice support for their cause… there are rarely any solutions that would satisfy everyone. CEO’s facing this kind of circumstance have my respect and sympathy.” Peter Fanning offered a criterion when he commented: “A CEO whose personal philosophy is too divergent from that of the organization’s philosophy will likely not … maintain the respect of the Board… (and) be CEO very long.”

    Shaun Greene’s comment raised a question for all of us to consider. He said, “The limits are simply the CEO’s contract. If the board wants limits, put them in the contract.” Of course this leads to the question of whether or not this sort of thing can be contracted. Should boards specify limits on CEO activism? What do you think?

    Original Column

    A series of recent events triggered the question at the top of this column. They began with a statement by President Trump suggesting that “both sides”—one group that included neo-Nazis and the KKK and another group of counter-protesters—were to blame for the violence, injuries, and deaths on or near the University of Virginia campus last month. This prompted Merck CEO Kenneth Frazier to resign from the president’s American Manufacturing Council, citing the president’s failure to condemn “hatred, bigotry and group supremacy.” Frazier's action triggered a mass exodus of other CEOs from two business advisory groups created by the president.

    One of the responsibilities of a CEO is to determine the degree to which personal identification, and by extension the organization’s identification, with social issues is appropriate. Of course, all major business organizations participate in lobbying activities through an association or by other means. It is pretty much assumed. CEO “activism”—taking a public stand or action for or against a social issue—is something else.

    As Thomas Cech, a Merck board member, put it, “You put your name and your company’s name in the spotlight, and people who don’t like what you did can find ways to try to retaliate.” That includes customers, employees, suppliers, lenders, and government. After all, many organizations rely on government for fair or outright supportive legislation.

    This is not a simple decision driven only by personal feelings. On one level, it requires analyzing the economic consequences of any particular action, something hard to do in advance of an action.

    There is a level beyond economic consequences—one involving values. Bill George, one of my colleagues at HBS and the former CEO of Medtronic, has suggested at least one criterion that could suggest such limits. He has said, “Today’s CEOs are public figures, with responsibility to uphold their company’s mission and values. When these values are violated, even by someone as powerful as the president of the United States, they are obliged to take a clear stand. In this era of instant global communications and social media, it is no longer possible to hide in the shadows.”

    Values are important. Are public actions by CEOs the best way to reflect or reinforce them? Presumably, such actions will be applauded primarily by employees; after all, they signed on to work for an organization with some awareness of its mission and values. At Merck, the value statement that appears to be most relevant is: “As an employer, we strive to create a workplace environment that inspires trust, inclusion, and respect so we can unleash breakthrough thinking and invention.”

    A CEO’s activism depends on how strongly (and uniformly) a CEO, his or her board, and senior executives in the organization, feel about an issue. In the case of Frazier, another of his board members, Leslie Brun, suggested that his race had something to do with how strongly he felt about acting. As Brun put it, “As you can imagine, as the only African American in that position, on that council, you can’t take yourself out of your own personal context.” Still, is that a sufficient justification for Frazier’s action? As it turns out, it was audacious. For more than 24 hours (long enough for the president to attack Frazier and his company on Twitter), no other CEO serving with Frazier on the president’s business advisory committees issued a statement of support for him.

    Jeffrey Sonnenfeld, professor at the Yale School of Management, reminds us that CEOs today are under pressures that their predecessor “business statesmen” like GE’s Reginald Jones may not have experienced. “They don’t have the time or the support in their boardrooms to be corporate statespeople,” he commented.

    Investors may or may not be enthusiastic about CEO activism. (In Merck’s case, it doesn’t seem to have affected its stock value much. However, the markets declined 1.5 percent later in the week immediately after CEOs resigned en masse, among other events.)

    When is personal, public action called for? In this situation, is a CEO’s primary responsibility to customers, employees, or shareholders? To what extent should personal feelings or values play a part? What are the limits of CEO activism? What do you think?

    References:

    David Gelles and Katie Thomas, Inside the C.E.O. Rebellion Against Trump’s Advisory Councils, The New York Times, August 15, 2017, pp. B1 and B4.

    Bill George, Courageous Leader Triggers a Moral Revolt of CEOs Against Trump, Harvard Business School Working Knowledge (hbswk.hbs.edu), Harvard Business School, August 18, 2017.

    Steve Lohr and Landon Thomas, Jr., The Case Some Executives Made for Sticking With Trump, The New York Times, August 18, 2017, pp. B1-B2.

    Merck’s Code of Conduct, Merck.com, accessed August 25, 2017.

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    James L. Heskett
    James L. Heskett
    UPS Foundation Professor of Business Logistics, Emeritus
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