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Study finds that CEO activism is a double-edged sword

Niji Narayan



Photo by Gotta Be Worth It from Pexels
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A new paper published by Stanford and The Miles Group analyses the risks of CEO activism and concludes that it is a double-edged sword.

It is a Stanford Closer Look paper from the Corporate Governance Research Initiative (CGRI) at Stanford Graduate School of Business, authored by Stephen Miles of The Miles Group (TMG), and Kim Wright-Violich of Tideline.

The study concludes that while most corporate chiefs walk a careful line to avoid offending customers, employees, and the public at large in taking public positions on issues, the changing role and visibility of the CEO is complicating the picture.

“The ‘double-edged sword of CEO activism’ reflects the tricky risk calculation for CEOs as they wade into public commentary on often highly controversial issues,” says Miles, whose TMG firm coaches CEOs and leadership teams in top global companies.

“CEOs are commenting on issues that were once thought to be a third-rail – such as gun control or climate change – and we see a mixed response from stakeholders about leaders putting themselves out there like this,” he says. “While certain groups may respond positively to a bold statement over social media, investors may penalize a company with a stock dip if they feel that a position is too edgy for that particular company.”

The paper explores the practice of CEOs taking public positions—through the media and Twitter—on environmental, social, and political issues not always directly related to their business, and examines how boards should weigh the costs and benefits of these CEO actions. This latest addition to the Closer Look series was based on research conducted by Accounting Professor David F. Larcker and CGRI Researcher Brian Tayan, of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University.

“CEO activism is not new, but it is becoming more common and receiving more attention,” says Professor Larcker. “Boards and CEOs need a thoughtful framework for thinking about the issues of the day and how – or whether – the company wants to be positioned.”

According to Miles and his colleague Taylor Griffin, COO at TMG, CEOs must be aware of the following three common scenarios:

  1. Event-driven – “The type of crisis event such as when an accident happens, even due to the fault of the company, requires a human, ‘authentic’ response from a CEO,” says Griffin. “Many CEOs are caught flat-footed in these events, reverting to some kind of legalistic avoidance of accountability. The new standard for CEO response is the community standard versus a more ‘corporate’-sounding response. This is an instance where a CEO needs to sound more activist and involved.”
  2. CEO-driven – “Unlike a company-specific crisis requiring action and response by that particular company (see above), this is the type of defining societal issue that, in this day and age, is almost forcing some companies and CEOs to ‘pick a lane,'” says Griffin. “With the Parkland shooting, for example, many companies – driven by the CEO – felt that they had to respond to the event with a position around the NRA. Whether it is gun violence or climate change or LGBQT or immigration or another highly charged issue, the CEO and company must start having the conversations internally ahead of time and figure out where they want to land when another crisis surfaces and the CEO is expected to take a stand.”
  3. “Simmering issues” – “Every company has one or more issues related to their business or industry that is lurking or ‘simmering’ as part of the public conversation – whether it’s cage-free eggs or plastic waste or the use of fur in clothing manufacturing,” says Miles. “CEOs have to be keenly aware of the potential controversies that could erupt from any of these kinds of risks, and map out ahead of time the public positions they want to take instead of being ad hoc about it. Or perhaps the ‘simmering issue’ provides the opportunity for the CEO and company to put a stake in the ground and be activist pioneers in their industry. Either way, CEOs must try to be proactive about what issues are causing chatter, what risks they are taking coming out on either side of an issue, how far out in front of issues they want to be publicly, and to what degree they are investing their corporate time and capital in the areas that are likely to ‘blow up’ in the not-too-distant future.”

“Activist statements can have a real impact – positive or negative – on customer and employee attraction and retention,” Professor Larcker adds. “There are tremendous differences across age groups and political affiliations, and every company’s population is different. It’s critical that the CEO and senior management develop a guiding framework around the level and tenor of CEO activism, and then run this framework by the board of directors, to ensure that the path is strategically appropriate for the company.”

Hi there,

Thank you for visiting PICANTE News and thank you reading my articles!

I have been writing articles and explaining reports in several industries for well over a decade or so. This is why I pride myself as one of the few survivors left in the world who have actually mastered the impossible art of copy editing. During my education phase I've graduated in Physics and obtained my Master’s degree in Communication and Journalism.

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