It is reprehensible to view a school shooting or a hate crime in context of how you can make a quick buck. But equally wretched is the current state of politics in America, where Congress can’t do anything about the nation’s never-ending string of mass shootings or our massive federal debt or the dysfunctional state of U.S. health care or, well, anything important.
This abdication of responsibility by elected officials has created quite an uncomfortable situation for Corporate America. Because, absurdly, U.S. businesses are now the nation’s de-facto policymaking body.
Increasingly, consumers are turning to Big Business with demands to enact change. As a result, companies are increasingly becoming proactive on issues in an effort to appease their customers.
That level of responsiveness to the issues of the day used to come from town hall meetings and legislative proposals. Now it comes from malls and corporate-marketing budgets.
The complexities of this reality are far too intricate to delve into here, and surely there is a qualified sociologist or political scientist who can more accurately unpack the causes and possible effects. But as an investor, it’s clear how some of the biggest corporations in America are becoming increasingly embroiled in political and social issues — whether or not it’s good for their shareholders.
Here are five key issues should be a concern to all investors, since they seem to be a concern for many corporations nowadays, and some examples of the companies that have become entangled with those topics:
1. Guns
Dicks Sporting Goods DKS, +2.36% is the most obvious example of politics and business mixing. After the school shooting in Parkland, Fla., both Dick’s and Walmart WMT, -1.02% announced an end to assault weapon and high-capacity magazine sales, along with a requirement that gun buyers be age 21 or older.
Dick’s didn’t just let its policy do the talking, either. In a strongly worded letter from CEO Ed Stack, the public company said that “thoughts and prayers are not enough” and that “the systems in place are not effective to protect our kids and our citizens.”
So what did it mean from a business perspective? A recent report from YouGov BrandIndex shows a dramatic rise in consumer’s favorable perceptions of the brand after its strong stance on guns.
On the flip side is the rather uncomfortable position of Delta Airlines DAL, +0.09% , which hopped on the bandwagon by cancelling a discount for NRA members that literally was only used by 13 people. Furious Georgia lawmakers killed a $40 million tax break for the Atlanta-based carrier, and then the airline offered a mealy mouthed explanation of its move by saying it was simply trying to ”remain neutral” in the debate. Delta doesn’t seemed to have added much to the guns debate — and worse, seemed to open itself up to criticism. This should be a cautionary tale about what happens when a publicly traded company misplays a political issue.
2. Workplace equality
Gender issues in the workplace have been getting plenty of coverage in recent years, with some of the discussion done in earnest and a lot done as marketing and branding efforts.
That may sound cynical. But think back to the buzz last year around the “Fearless Girl” statue, installed opposite the famous charging bull statue on Wall Street. Most people aren’t aware that the piece was a deft marketing effort to promote the Gender Diversity Index ETF SHE, -0.24% launched by State Street Global Advisors. This wasn’t the work of activists or a public arts campaign, but a move by the suits at advertising agency McCann New York. And with more than $300 million now under management for this fund and plenty of free press, it would seem McCann earned its keep, too.
Of course, a big reason SSGA launched the Gender Diversity ETF is because it knew there is increasing pressure for corporations to focus on workplace equality. Consider that in January, Citigroup C, -0.48% delved deep into its pay structure after demands from activist shareholder Arjuna Capital. The firm has been vocal about pushing for such information in the past, and Citi’s voluntary disclosure of gender and racial pay disparities will only embolden Arjuna and others to push other companies for similar details.
3. Sexual harassment
Equal pay and equal access to top jobs are a big concern for women, and this issue has been getting a lot of attention lately. Sexual harassment in the workplace is its own separate issue, and it’s also a big focus for both consumers and companies. That should be evident, from the 2017 scandal at ride-sharing giant Uber to more recent allegations against Wynn Resorts WYNN, +1.04% founder Steve Wynn, and countless other episodes in between. Uber’s market share dropped materially and Wynn Resorts stock fell by double digits in a single day after the allegations against its founder went public.
Clearly, the stakes are high when it comes to any allegations of misconduct — a cover-up and reports of a widespread culture of harassment have been shown to seriously damage businesses. Going forward, expect continued public scrutiny on corporate policies and disclosures. That’s particularly true in industries where bad behavior seems all too common, such as technology, where the pervasiveness “bro culture” has been well documented. For example, Facebook FB, -0.34% revealed its sexual harassment policy in December, while Microsoft MSFT, -0.34% reviewed and updated its policies because of the attention on the topic.
4. Sustainability
In many ways, the politics of environmentalism has long been co-opted by corporate America. From smaller offenses like misleading claims about “all natural” products, to big lies like Volkswagen’s VW, +1.38% emissions scandal, it is hardly news that companies claim to care about the environment when they really care about the bottom line.
But the “greenwashing” of old ways doesn’t get companies as far as it used to. And after roughly $30 billion in charges, as well as serious brand tarnish to VW, you can bet consumers and regulators are only going to be more discerning.
To be clear, some moves towards sustainability are simply good business. For instance, Coca-Cola Co. KO, +0.09% benefits from wasting less water because it can keep costs down that way. Its efforts over the last few years, including a pledge to replenish all the water it uses globally via Coca-Cola products, are as much about margins as they are about the environment. Furthermore, efforts at oil giant Royal Dutch Shell RDS.A, +0.82% to move beyond fossil fuels into low-carbon energy is as much driven by the growth potential of alternative energy markets as a concern for global warming.
But whatever the motivation, expect Corporate America to continue a push towards environmental sustainability. A 2017 survey from consulting firm McKinsey reported that roughly six in 10 organizations were more engaged with sustainability efforts than they were two years before, while 70% have formal sustainability governance in place.
5. Poverty
This issue is perhaps the thorniest of all, because at its core a publicly traded corporation exists to make as much money for execs and shareholders as possible. However, the widening gap between the rich and poor has very much become the defining issue of the last several years.
For instance, over half the world's population — 3.7 billion people — pocketed none of the wealth created in 2017, while 82% of it went to the richest 1%.
If your portfolio was up 20% last year, however, you probably bristle at the notion of giving that back for some poor farmer in Nigeria. But in the words of 1%-er Larry Fink, CEO of investment firm BlackRock BLK, +1.16% , those gains come at an increasing cost.
"We are seeing a paradox of high returns and high anxiety,” he wrote in a letter last year to fellow bigwig CEOs, warning that even those who have seen success in recent years can’t help but notice how many others are persistently falling behind. As a result, Fink noted, “the public expectations of your company have never been greater.”
That’s easy for him to say. BlackRock is largely concerned with investing in other companies that have to make the hard decisions about wages and productivity. But it’s still an important shift for an investment banker and unabashed capitalist to start laying inequality at the feet of executives instead of simply blaming the poor for being lazy know-nothings who deserve what they get.
Where we go from here is an open question. After a massive U.S. corporate tax cut has put much more cash in company pockets a few companies like Walmart, Bank of America BAC, -0.06% and AT&T T, +0.46% awarded small bonuses to employees as a way to share a bit of that wealth. Will this be an ongoing effort of Corporate America, or will low-income workers be emboldened to push for more? And what about low-income workers elsewhere in the world?
There are no easy answers. But increasingly, publicly traded companies are going to have to think about them and respond to their shareholders.