Governance is tangled in politics

Governance is tangled in politics, especially now, as one of the busiest global election years comes to a head at the start of November. 

Corporate leaders, usually tasked with acting in the company’s best interests, still have political convictions. Occasionally, those convictions come to the fore and, sometimes, with passion and endorsement in key political races. 

From a corporate governance perspective, the real issue is what moves like this can do to a company’s strategy, reputation, and stakeholder focus. This is especially true when we talk about pivotal elections like those in the United States, where polarisation has swept every issue, and anger across party lines is rampant.

This recent Financial Times article sets the scene quite nicely. It claims a few crucial points:

• Twenty years ago, it was typical for the managerial class, or “corporate elite” in the United States to identify as right-leaning or conservative. 
• Since then, the trend has been overwhelmingly leftward, with many corporate leaders today identifying with progressive issues and beliefs. This trend has acted as a breeding ground for the growth of attention on things like DEI and ESG. 
• However, as of this current US election cycle, a right-leaning cohort of corporate leaders does appear to be re-emerging. This time, the trend is centred on Silicon Valley, and those who are part of it are vocal and heavily endorsing conservative principles, Republican candidates, and Donald Trump’s election efforts. 
• Research indicates that the progressive/conservative split is now relatively even based on the campaign contributions of top corporate leaders.

It means corporate governance is becoming more tangled in politics, at least in the United States. But here’s the thing: there are many areas where trends in the US can have a worldwide impact; this, for sure, is one of them. 

Campaign contributions are one thing, but now we are starting to see already well-known corporate leaders take to the stage in support of 2024 election candidates. Elon Musk is the highest-profile example, standing next to Donald Trump, giving his endorsement, and watching all the wall by investors, consumers, and regulators with interests in the likes of Tesla and Twitter. 

It puts these global brands in the same arena as political candidates and the collection of policies and principles that go alongside them. 

This may make for an easy win in the short term, especially with the candidate’s core supporters. How it impacts the stakeholders of the associated companies is less certain.

Good or bad is a big call in corporate governance, and realistically, it is way too simplistic and usually only doable with hindsight. 

The real question for governance centres around strategy and risk. If a company becomes attached to a political brand, how much strategy will need to change; how much risk will it need to entertain?

So, like any conversation around risk and strategy, we must consider the positives and the negatives. From there, corporate leaders can make their own calls.

• A company’s leader endorsing a political candidate could serve as a reputation and value booster if the candidate wins. 
• There will likely be some kind of principle alignment between the corporate leader and the politician, which could pay off throughout the next term of government, especially in areas like the levels of corporate oversight or the top governance issues which the government chooses to focus on.

• The most obvious and straightforward: If a CEO, owner, or founder backs a particular political candidate and the candidate loses, there is a risk of reputational loss, as the leader and company may now be in the spotlight for the wrong reason. 
• The move could alienate critical stakeholders. Assessing this means going to the core of corporate strategy and judging the impact of major policy decisions. Many of today’s economies are anchored in stakeholder capitalism—in practice, if not in principle. Consumers, regulators, and local communities have more influence now than they might have had twenty years ago. Adopting political positions at the corporate governance level could anger these stakeholders and turn their influence against you. It’s not definite, but you should know the impact before endorsing a political movement. 
• Endorsing a political candidate can often blur established boundaries, involving a leader’s personal positions and attaching them to their company, whose products, services and mission statement may have nothing to do with such a position. There’s nothing automatically wrong with this, but it can be risky because it may inadvertently add extra layers to your company’s strategy, committing it to business success while supporting specific political ideals. Again, the goal is to be sure before endorsement.

Should governance be tangled in politics? Like it or not, the process can make things messy for the company, especially if you haven’t done your homework on ramifications beforehand. 

The bottom line is that corporate leaders will always have personal opinions and, depending on their independence from the board or strategy, may have no problem voicing these opinions wherever they see an opportunity. 

Like any other leadership decision, however, you should have enough of a think beforehand about its impacts.