When North Carolina governor Pat McCrory recently signed into law the Public Facilities Privacy & Securities Act, in response to a Charlotte city ordinance that, among other things, would have prohibited discrimination based on sexual orientation or gender identity, the reaction from the business community was swift and dramatic.
Deutsche Bank froze the creation of 250 jobs in Cary. More than 100 business leaders, many from well-known companies, signed a letter to Gov. McCrory opposing the new state law. PayPal cancelled plans to create 400 jobs in a global operations center in Charlotte, and CEO Dan Schulman was especially vocal: “This decision reflects PayPal’s deepest values and our strong belief that every person has the right to be treated equally, and with dignity and respect,” he wrote in a statement.
As the outcry from the business community became a national story, McCrory issued an executive order on April 13, clarifying the state law and asking the legislature to revisit some of its provisions.
The actions of PayPal’s Schulman and other CEOs is an example of a phenomenon that Harvard Business School professor Mike Toffel and his co-author at Duke’s Fuqua School of Business, Aaron Chatterji, call “CEO activism,” in which corporate executives speak out about social or environmental issues not obviously related to their core businesses.
“What prompted this research is that we kept observing instances of CEOs stepping into the limelight on controversial social issues that are not directly related to their companies’ bottom lines”
“This is distinct from traditional corporate social responsibility, where you can clearly see the connection to promoting the company’s objectives,” explains Toffel, who co-authored a recent paper on the topic with Chatterji.
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In their paper Do CEO Activists Make a Difference? Evidence from a Field Experiment, the researchers address two key questions: One, can CEO activism sway public opinion about controversial issues like civil rights and climate change? Two, in terms of consumer response, does CEO activism affect customer perceptions about the company? (They recently discussed the paper in the New York Times.)
“What prompted this research is that we kept observing instances of CEOs stepping into the limelight on controversial social issues that are not directly related to their companies’ bottom lines,” Toffel says. “And we hadn’t seen as much of that in the past, as corporate leaders tended to stay out of the fray on these types of issues.”
For example, in March 2015, the state of Indiana passed the Religious Freedom Restoration Act (RFRA), allowing businesses to cite religious freedom as a defensible reason to deny service to a customer. Critics, who included a number of high-profile CEOs, argued that the law granted companies permission to discriminate against customers in the lesbian, gay, bisexual, and transgender community.
Religious Freedom Restoration Act
In protest, Angie’s List then-CEO Bill Oesterle cancelled a $40 million project to expand the company’s Indianapolis headquarters. (Oesterle has since left the company.) Salesforce.com CEO Marc Benioff tweeted plans to cancel company events that would have required customers or employees to travel to Indiana. And Apple CEO Tim Cook authored an op-ed in The Washington Post to oppose the legislation.
The public outcry against the RFRA seemed to make an impact; the week after the law passed, Indiana’s governor signed a revised version to ensure it could not justify discrimination against gay and lesbian customers.
But the results of a CEO climbing into the bully pulpit don’t always work out as intended.
As Chatterji notes, “Starbucks CEO Howard Schultz received lots of criticism after he tried to promote discussion about racial equality by having baristas write ‘Race Together’ on coffee cups.” And when chicken chain Chick-Fil-A President Dan Cathy spoke out against gay marriage in 2012, his statements sparked a great deal of backlash and boycotts. (Cathy also received a great deal of support. Former Arkansas governor Mike Huckabee responded to the protests by creating Chick-Fil-A Appreciation Day. Chick-Fil-A sales increased 12 percent in 2012 over the previous year.)
Investigating the effects of CEO activism
With so much CEO foment taking place, Toffel and Chatterji decided to research the extent to which executive activism affected not only public opinion but also customer perceptions. Apple CEO Cook’s actions around the RFRA debate particularly intrigued the researchers.
“You can see a business reason why the CEOs of Eli Lilly and Anthem, some of Indiana’s biggest employers, opposed the law: they need to worry about attracting and retaining the best talent,” Toffel says. “Or why CEOs of companies that largely sell to Indiana residents, like the Colts football team and Pacers basketball team, might oppose the law to ensure all potential customers feel welcome. But from a business perspective, it’s not obvious why the CEO of Apple, which is headquartered in California, would get involved in a contentious debate about gay rights in Indiana.”
”From a business perspective, it’s not obvious why the CEO of Apple, which is headquartered in California, would get involved in a contentious debate about gay rights in Indiana”
To investigate, Toffel and Chatterji designed an experiment to gauge whether mentioning Cook’s concerns about the RFRA influenced public support for the law, and whether Cook’s opinion affected consumers’ intent to buy Apple products. They worked with the market research firm Civic Science, which conducts surveys placed on news and entertainment websites.
The research survey began on April 2, 2015, the day Indiana’s governor signed the revised version of the RFRA. Some 3,400 respondents were asked one of several versions of a question related to Indiana’s controversial law.
Some received this question: “Apple CEO Tim Cook recently expressed his concern about Indiana’s new law about religious freedom because he believes the law may allow discrimination against gays and lesbians in that state. Do you support this law?” Other respondents received a version of the question in which “Apple CEO Tim Cook” was replaced by “Indiana-based Angie’s List [then-] CEO Bill Oesterle,” or the “mayor of Indianapolis.” Others received a version in which they were simply told that “some believe the law may allow discrimination.” And others were simply asked, without any preamble, “Do you support Indiana’s new law protecting religious freedom?”
Another 2,176 respondents participated in a second survey that asked: “How likely are you to buy Apple products in the near future?” For some, the question was prefaced with Cook’s views on the RFRA; others were prefaced by Cook’s business philosophy, and still others simply received the question.
WHEN CEO ACTIVISM INFLUENCES POLICY POSITIONS
Overall, respondents’ support for the Religious Freedom Restoration Act was significantly lower when the question was framed by the discrimination concern, regardless of which leader expressed it or even whether it was attributed to a leader at all. These discrimination frames resulted in nearly 40% of respondents indicating support, compared to 50% among respondents that answered without the discrimination preamble.
To dig deeper, the researchers took advantage of the fact that previous Civic Science surveys had asked some of the same respondents whether that they supported or opposed legalizing gay marriage. Considering just those who were gay marriage advocates, the RFRA garnered 14.3 percent support among respondents who had simply been asked whether they supported it, and 8.3 percent support among those who were told that “some people” believed the law to be discriminatory. But support for the law dropped to zero among those respondents who were told that Cook believed the law to be discriminatory.
But CEO activism also proved to be counter-productive; Cook’s opinion had the opposite effect among survey respondents who opposed same-sex marriage legalization. Some 91.7 percent of same-sex marriage opponents expressed support for the RFRA when simply asked whether they supported Indiana’s new law. However, support fell to 70 percent among same-sex-marriage opponents who responded to the unattributed statement that “some people” considered the law to be discriminatory. But when the discrimination concern was attributed to Cook, support for the law was back in 90 percent range, indicating that Cook’s engagement negated the potential for the discrimination frame to erode support for the law.
“That same-sex-marriage opponents were more persuaded by the unattributed message than by the same message attributed to Cook reveals that CEO activism can sometimes be counterproductive and that CEOs wishing to persuade some groups might be more effective funding unattributed messages rather than speaking out themselves,” the researchers conclude in their paper.
As for the potential effect on Apple’s bottom line, Cook’s CEO activism increased consumers’ overall intent to buy Apple products in the future, according to the survey results. In the group of same-sex marriage supporters, purchasing intent was nearly twice as high among respondents who had been told of Cook’s public views about the RFRA.
For those who opposed gay marriage, Cook’s opinions didn’t sway purchasing decisions either way. This was also the case for respondents who expressed support for the RFRA.
“We didn’t find any evidence that people who were opposed to Cook’s view were less likely to purchase from Apple after learning of his view,” Toffel says. Of course, it’s possible that this loyalty was due at least in part because Apple’s products are particularly “sticky,” that is, consumers find switching to a competing product a complicated, time-consuming chore.
Hoping to spark more research
Toffel acknowledges the need for follow-up research to gain a more comprehensive picture of the value of CEO activism. He recognizes that he and Chatterji have raised as many questions as they’ve answered.
After all, their study focused on one high-profile CEO of one famous company on one policy issue. But would a CEO’s views affect purchasing intent differently if the company’s products were less distinctive than Apple products? Would consumers decide to buy Shell gasoline rather than Mobil if they disagreed with the Mobil CEO’s views on a social issue that’s not directly related to the business? When do the costs of CEO activism outweigh the benefits?
And when can CEOs sway public opinion in a way that other people can’t? Toffel is specifically interested in CEO activism on climate change, where corporate executives of firms who don’t stand to profit from doing so nonetheless call for public policies to address the climate. In the US, public opinion about climate change and the need for new policies tend to divide along political lines, despite a strong research consensus about the seriousness of the issue. Could public statements by corporate CEOs shift public opinion on this issue?
“It’s not obvious how that would all shake out,” Toffel says. “And that’s why this is just the beginning. We wrote this paper as an attempt to foster more research. We want to tell the academy that we think CEO activism is a very interesting phenomenon well worth studying, and we think there are lots of interesting questions to explore. So we hope this is the first word rather than the last word in management research around this topic.”