The Time Is Now for Business to Form New Relationships With Government
The events of January 6 have shaken the United States and sent reverberations around the world. The sight of a mob storming the Capitol to try to reverse the result of the presidential election has shocked Americans and caused outsiders to wonder if similar upheavals could occur on their soil. The assault demands a fundamental rethinking of our political and social norms and behavior.
Business can help lead the way in this reassessment. Mob violence doesn’t have a track record of promoting prosperity. And corporate leaders should have little interest in fostering hyper-partisanship that risks alienating half their potential customers and prevents the political system from addressing issues like immigration reform and aging infrastructure.
The business community was quick to react to the insurrection, with dozens of companies announcing they were suspending political donations, some targeting Republican lawmakers who challenged the Electoral College vote for President Joe Biden.
The Expanding Role of Business in Society
It’s fair to ask whether this stance will last, especially after the Senate voted on February 13 to acquit former President Donald Trump of inciting the mob. Yet a reappraisal of business’s relationship to government is needed. It has solid historical roots, it’s in the business community’s interest, and it comes at a time when many CEOs are already redefining their companies’ roles in society.
The basis for a new approach exists in the movement toward stakeholder capitalism. In 2019, nearly 200 U.S. CEOs signed a Business Roundtable pledge to run their companies for the benefit not just of shareholders but of employees, customers, suppliers and the wider community. This movement harks back to the idea of an “economic commonwealth” that Harvard law professor Merrick Dodd advocated during the Great Depression. It has gained strength through promises by many firms to promote greater diversity and inclusion in the wake of the Black Lives Matter protests and the growing embrace of sustainability initiatives to fight climate change.
Taking Action — and Ensuring Accountability
Now, companies need to demonstrate they are turning those words into action and holding themselves accountable. Signers of the Business Roundtable statement pledged to compensate employees fairly, support them with training and education, and foster diversity and inclusion, for example. So why not publish annual statements — with metrics — that describe how they are investing in their employees, what efforts have been made to attract a diverse workforce and the results of those efforts?
Most of these areas lack agreed reporting standards. The European Union aims to clarify requirements for environmental, social and governance reporting this year while the new U.S. administration has yet to stake out its policy. But companies should proactively disclose their efforts rather than use the lack of uniformity as an excuse for inaction.
Business also should seek to have a more-open relationship with government, one with clearer guardrails. There are already signs that change is taking place. Growing numbers of S&P 500 Index companies now disclose or prohibit donations to political candidates, parties or committees, according to an index compiled by the Center for Political Accountability and the Zicklin Center for Business Ethics Research at the University of Pennsylvania’s Wharton School. Greater transparency should benefit both business and society.
Companies would also do well to reconsider their stance on regulation. They have every right to express their views, but blanket opposition to new rulemaking misunderstands the nature of representative government and is unlikely to be sustainable.
Consider the conservative backlash against Twitter for banning former President Trump. Social media platforms invest heavily in content moderation only to be damned by the right if they ban him and by the left if they don’t. In the short term, there’s no alternative but for tech companies to set their own standards, individually or within the industry and be totally transparent about their decisions. But companies will prosper best over the long term by focusing more on competing and less on trying to tilt the playing field. We elect lawmakers to weigh competing interests and set the rules.
These aren’t just American issues. Recent years have seen a decline in democracy globally, a rise in authoritarianism and a greater airing of extremist views. Those trends have fueled economic nationalism and eroded the rules-based global trading system. The economic fallout of the pandemic risks worsening those trends. It is in the private sector’s self-interest to help resist these forces.
The business community can’t prosper in the long run if political and economic divisions push us to the breaking point. That’s why business leaders should be asking themselves how they can help all of us come together.