Walking the Talk
Corporate Political Responsibility:
The Missing Link in Companies’ ESG Strategies

The January 6 US Capitol insurrection shined a light on the role of corporate money in political action; and within a week, many companies had paused (or ended) their PAC contributions. But this not a new issue! At the University of Michigan’s Erb Institute, we frame the challenge around social and environmental impact — namely, the disconnect often observed between companies’ public sustainability ambitions and their non-public lobbying efforts.

Erb’s recently convened Corporate Political Responsibility Taskforce (CPRT) will help business leaders and their companies respond to this core disconnect, through stakeholder engagement, management tools and pre-competitive collaboration. Erb Institute Managing Director Terry Nelidov recently talked with CPRT Director Elizabeth Doty and ClimateVoice’s Executive Director Bill Weihl, to get their perspectives on how companies can overcome this disconnect between sustainability and policy, and why it’s more urgent now than ever as we enter the 'Decisive Decade' (Doty and Weihl will continue this conversation at SB’21 Trend Watching on February 23.

The problem is that the left hand doesn’t always know what the right hand is doing …

Terry Nelidov: Let’s start with the problem that you’ll be addressing in the February 23 panel discussion. People often talk about companies “saying one thing but doing (or lobbying for) another.” When it comes to sustainability, what is the central disconnect that you’re concerned about?

Bill Weihl: Companies talk about the critical nature of certain issues — climate, racial justice, inequality — but are often either silent or advocate for the status quo in public-policy debates relevant to these issues. Also, their trade associations frequently take positions that are at odds with the stated goals of their member companies. Companies talk about difficult systemic problems, but fail to engage productively in the public-policy debates required to solve them.

Elizabeth Doty: Agreed! I think the biggest issue is that companies naturally tend toward functional siloes. Companies already struggle to act as "one company" around their brand and normal operations. Alignment is even harder on more complex issues — such as sustainability, inequality, social justice and education; where CSO, brand management, DEI [Diversity, Equity and Inclusion], and government affairs start with very different assumptions, priorities and strategies. Without a proactive, principled way to reconcile these views, companies' words and actions diverge. Consistency is one of the most basic ways people know if you are trustworthy; and in today's environment of distrust, simple inconsistency between words and action is treated as intentional greenwashing or hypocrisy, which is terrible for both reputation and impact.

This disconnect is the root cause of inaction on so many other social and environmental challenges.

TN: Who cares? Sorry for my candor, but people may understand this sustainability / policy disconnect in theory but wonder in practice, “Aren’t there more urgent problems for us to be tackling in sustainability?” What about climate change, racial justice, inequality and human rights? Aren’t they more important than an esoteric discussion of “internal alignment?”

BW: This disconnect is at the root of many of those urgent problems. My current focus is on climate — but addressing climate is also intimately tied to racial justice, inequality, human rights, and other issues. Solving these problems requires structural change — and that requires disrupting the status quo. Certainly in the case of climate, there are powerful interests using their extensive influence — directly, and through trade associations — to maintain the status quo. When powerful companies stay silent in these debates, they let those powerful interests dominate the conversation and, often, win.

ED: Great question, and Bill is right — this disconnect is the root cause for many of those issues. There is often a cultural side, as well. Let's just ask ourselves, "What limits our ability to make progress on these massive, urgent, systemic issues?" In most cases, it is the lack of clear, predictable rules-of-the-game that ensure competitors who innovate to improve sustainability, social justice, opportunity, human rights, education and other issues are rewarded, not disadvantaged. Without those rules, companies are left playing whack-a-mole, trying to occasionally differentiate here and there. In the end, they only move the needle incrementally — while dysfunctional market incentives reward other companies who play for the short term and accept undermining public goods or externalizing costs to society.

This is urgent because we have now entered the Decisive Decade — not only for climate but for many of the social, environmental and political systems on which our market and democracy depend.

TN: Fair enough! But why now? We’ve been talking about this “core disconnect” for years. It’s been a part of corporate life ever since companies created sustainability departments and then published sustainability goals, which then began to bump into policy and lobbying goals within large global bureaucracies. What’s the rush? To be blunt, shouldn’t we focus limited time and resources on more urgent problems, and maybe put this one on the back burner for now?

ED: This is urgent at three levels — firm, systems and values.

• Rising firm-level risks: Increasing company political activity, combined with the problem of internal siloes and the outsourcing of advocacy to third-party trade associations, political nonprofits and lobbying firms exposes companies to severe reputational risks with their employees, customers, investors and the communities where they do business. This risk is even higher with younger generations — who no longer ask, but expect, companies to use their political influence to address the systemic threats facing us as a society.

• Systems-level risks: As has become vividly apparent this past year, we are fast approaching tipping points in our climate, social-justice, education, healthcare, infrastructure, and many more systems. The current “materiality” model leads companies to engage politically only when they face a direct impact to their firm or industry. But this one-way model does not consider the inverse — their companies’ impact on society, and their own responsibility for the entire system's health. Until companies consider “bi-directional” materiality and their responsibility for sustaining the social, environmental and political systems on which markets depend, no efforts to promote sustainability will be enough.

• The moral imperative: Quite simply, more and more business leaders are facing a crisis of conscience that calls them to reconsider how companies' political activities are affecting the very systems on which markets, democracy and society depend.

BW: I would only add that with climate, we have approximately 10 years to cut emissions in half. Another few years of half measures could be catastrophic, so we need to mobilize every source of influence we can on the side of climate action. Companies are making active choices to be silent on climate policy, or even to advocate for the status quo; and those choices are leading to bad societal outcomes. We need to act now to change that.

Action often that begins internally — with employees.

TN: OK, I’m convinced! This disconnect is both urgent and important. But what’s a company to do? Or, remembering that companies are actually people, too — what can employees and internal change agents do to motivate leadership to action?

BW: Companies care what their employees think — and what students, as future employees, think. Not to mention investors and customers. Employees and students, in particular, can speak up and be clear that they want their companies to take strong stands on these critical issues — even if it poses some risk for the company. With ClimateVoice, we’re working to educate, engage and mobilize the workforce to do precisely this. 

ED: I would add to Bill's point, that companies can ask their employees and potential employees about their expectations for, and prioritization of, systemic issues like climate, inequality and social justice in company lobbying agendas. From an Erb Institute perspective, we think companies need to include "corporate political responsibility" as a critical part of the "G" in their ESG strategies. The first step is to adopt (and communicate) internal policies to ensure: 1) transparency, 2) accountability and 3) responsibility in the full range of political involvements. This means disclosing political activities; aligning activities with firm purpose and values; obtaining consent when using others' capital or engaging employees; and adopting lobbying guidelines to ensure that political influence supports the systems on which markets, society and life depend.

What is the role of universities?

TN: And one last question, directed first to Elizabeth, as Director of Erb’s Corporate Political Responsibility Taskforce: Isn’t business the business of business? In other words, what is the unique contribution that a university institute can make to driving meaningful change in business, policy and society?

ED: An institute like Erb is in a special position to help senior business leaders by drawing on forward-looking research and real-time business engagement from across the University of Michigan. By providing frameworks, forums and expertise, we can help leaders in thinking more systemically about broad-sustainability issues and what limits our ability to make the urgent, systemic shifts that are needed. As that relates to corporate political responsibility, our taskforce will help business leaders and their companies quickly get up to speed on emerging issues, and understand the perspectives of stakeholders, employees and future talent. We will provide networking, frameworks and management tools to help them develop strategies for their own issues of most pressing concern.

BW: This kind of change involves a shift in how leaders think about their roles, and how people of all sorts think about the responsibility of companies. Universities educate future leaders, and need to teach them how to think about these complex systems issues — and how to think about the responsibilities of companies to help solve societal problems. If business is really about creating value for all stakeholders, then it has a critical role to play in addressing these complex systems issues — not just by acting in its own operations, but by playing a constructive role in crafting the policies that define the rules of the system in which we all operate.