By Ja’Ron Smith, Shannon Brushe and Erica Sanders
Over the last few years, companies have been increasingly confronted with a dilemma: should they respond to social issues, even if those issues are completely outside of their corporate mission? Social impact has certainly crept further into corporate strategy, creating a grey area for if and how to respond as a social player without veering too far from the work of the business. But not everyone thinks this is a positive trend; in the politically divided United States, what some people might view as a company appropriately speaking out on current events, others view as the company inappropriately stepping out of its lane. For the latter group, this is capitalism gone wrong, or “woke capitalism.”
Underpinning this is the increasing pressure corporate leaders are under to contribute positively to society in a way that attracts and maintains talent from younger generations to stay competitive, all while looking after the financial health of the business.
The concept of businesses being pressured to respond to social issues is not new. However, more than ever, the public seems to be keeping score. The delicate balance between returns and social impact, particularly during times of economic uncertainty, is proving to be complex for many organizations, yet one that is manageable with the right level of proactive risk management.
What is Woke Capitalism?
While ESG (environmental, social, governance) covers a broad range of issues across many sectors, the conversation around wokeness seems to be most focused on the ‘S.’ Generally, a company’s wokeness was previously measured on whether it issued a statement about a major social event or issue; now, there is a focus on the intent of an action or program, which is much harder to track, prove, and defend.
BlackRock is a good example of a company experiencing a perfect storm of critics on both sides of the political aisle: those who see the investment firm as pushing too far on ESG funds, particularly if those funds don’t perform as well as advertised, and those who see the firm’s adoption of ESG funds as hypocritical considering its investments in the fossil fuel industry. During a Texas State Senate hearing to contest BlackRock’s “woke” positioning (because individual states are engaging here too), the firm’s representative stated, “The purpose of the capital markets and finance has always been the same…and that’s looking for opportunities in the markets and managing risks in the markets to produce the best returns we can.”
But as financially accountable as corporations must be to investors, customers, and employees, social impact is winning headlines and driving political discourse, which can be disruptive to a company’s operations. House Majority Leader Steve Scalise signaled this trend in a recent tweet: “Woke CEOs who push the Left’s radical agenda at the expense of American families can expect to appear before Congress.”
Political Pressure to Perform
With Republicans now in control of the House of Representatives, and consistent with Rep. Scalise’s comments, they are positioned to follow through on their pledges to confront and challenge companies who seem to fit into their categorization of woke capitalism.
One of the biggest voices in this space is Rep. Jim Jordan (R-OH), the new chairman of the House Judiciary Committee. Last year, he sent a letter to the CEOs of Apple, Amazon, Alphabet, Meta, and Microsoft highlighting their perceived roles in censoring conservative views online and their “woke capitalist agendas.” In his letter, Rep. Jordan stated that the influence and wide reach of these companies “can serve as a powerful and effective partisan arm of the ‘woke speech police,’” and made it clear that his committee will keep a close eye on this issue.
Democrats have taken up their own mantle in the debate over the social conscience of corporations. For example, Sen. Sheldon Whitehouse (D-RI) stated that he wants to continue to investigate major oil and gas companies and their role in climate change, suggesting that the Senate take a page from the House in exposing “the dissembling by our fossil fuel friends.” There is equal opportunity for corporations to be caught in the social impact crossfire from both sides of the aisle.
Assessing Risk & Being Accountable to Key Stakeholders
As careful and well-intentioned as a company may be, the examples mentioned above demonstrate that no company is immune to criticism, and may even land executives in the witness stand of a congressional investigation. But there are practical ways to approach this trend to ensure a company is accurately assessing risk while remaining responsive to the issues that are important to their most influential stakeholders.
One big consideration is determining who is applying the pressure for a response. Whether it is a congressional committee with subpoena power or an activist investor, companies are often compelled to form a plan or opinion on an issue. Listening to key stakeholders on a regular basis will not only provide an opportunity to get ahead of a brewing problem, it will also provide a leadership team with a clearer sense of what its ‘constituents’ – employees, communities, investors, etc. – care about. A process for engaging these key stakeholders is essential, as is a process for how decisions to comment are made internally to avoid the last-minute scramble over who approves what and when. Often, it helps to have a third-party advisor be part of that process to apply an outside view on the situation, particularly on politically or emotionally charged situations.
Of course, many businesses choose to lay low and not stick their heads above the parapet. But the businesses that truly drive change identify those issues that align with their own objectives and map out when to take a proactive stance and how to mitigate potential risk. While not all social movements can be anticipated, having a plan in place that includes keeping a pulse on how key stakeholders, including legislative leaders and policymakers, are feeling about the business can go a long way in ensuring that your business’s response is seen as genuine and timely, and aligns with the organization’s purpose.
This essential preparation requires a multidisciplinary approach, often leveraging a combination of legal, public affairs, communications, and geopolitical considerations to position a business for success in a hyper-political environment. It is difficult to be perfect in this environment, but having a level of preparedness and a sense of humility shines through to those stakeholders who are truly important to your organization.
DGA is well positioned to help organizations navigate these complicated political and communications challenges. Contact a member of our team to learn more: