Walking the talk: why companies should be politically transparent

More and more companies flaunt their policies regarding social or environmental sustainability. However, these same companies may promote policies that contradict their stated CSR objectives through their political actions. Enough is enough, says a group of top researchers, arguing for political transparency.

In 2017, CEOs of large firms like Dow Chemical and Corning signed an open letter to The Wall Street Journal urging the U.S. to remain in the Paris Agreement on climate change. They were subsequently lauded in the media as champions of the environment. Meanwhile, they were simultaneously supporting the Industrial Energy Consumers of America, a lobbying group that was pushing the administration to withdraw from the agreement.

Unfortunately, this is just one example of corporate sustainability initiatives operating as a cover for companies’ political efforts to block meaningful change. Writing in Harvard Business Review, Senator Sheldon Whitehouse of Rhode Island, referring to similar, oil-company hypocrisy, lamented, the “double game” of these companies: “trying to buy a little credibility with these public comments while using all their quiet lobbying muscle to crush any threat of bipartisan action.”

 

Practical applications

While financial analysts, ratings organizations and investors must demand that corporations be transparent about political activities, companies themselves must also recognize that this information will increasingly be expected. We therefore recommend the following three steps to companies: 1) fully disclose your corporate political activity, as expectations for transparency become the norm; 2) align your political activity with your public pronouncements and CSR efforts lest you be attacked for hypocrisy; 3) support public policies that will enable the private sector to better pursue sustainability efforts — policies that are in your firm’s long-run self-interest..

Some gains, but more needed

Corporate sustainability, once viewed as utopian, irrelevant or even subversive, has gone mainstream. Of the Fortune 500 global companies, two-thirds now issue sustainability reports, describing a wide variety of environmentally friendly activities. While many companies are making sincere efforts, and numerous initiatives have contributed to meaningful progress on social and environmental issues, global indicators show that the environmental situation is worsening.

In the current atmosphere of political division, many citizens of Western democracies despair over the inability of their governments to solve the pressing problems of our times. They suspect that a big part of the problem is the influence of money and corporate power in politics. In this climate, members of the Alliance for Research on Corporate Sustainability decided to gather a team of experts to create a “manifesto” to improve corporate sustainability efforts. Here is what it advises to firms.

CSR needs CPR

Indeed, as stated in an article in MIT Sloan Management Review, “Compared with companies’ efforts to green their operations, corporate political actions such as lobbying or campaign funding can have more influence on environmental protection, and arguably represent the greatest impact a company can have on protecting — or harming — the environment.”

Therefore, there is a pressing need for corporate political responsibility (CPR), not just corporate social responsibility (CSR). We define CPR as a firm’s disclosure of its political activities and advocacy of socially and environmentally beneficial public policies.

Firms must become as transparent about their political activity as many have become about their sustainability activity. Only then can we eliminate corporate hypocrisy and safeguard citizens from the unseen actions of private interests. And without transparency, shareholders are cheated because they don’t know how the funds they invest are being used.

The time has come for corporate political action to be taken into account by activists, scholars, consumers and investors who care about sustainability.

CSR metrics must include political actions

Ratings organizations offer metrics on CSR, allowing investors to make better-informed choices about the companies they fund. And in fact, socially responsible investment funds have helped change corporate reporting habits. Yet the CSR indicators used by rating agencies and investment funds mostly ignore corporate political action.

We argue that it is time for CSR metrics to be expanded to critically assess firms based on the sustainability impacts of their public policy positions. CSR rating services and ethical investment funds should demand such information from firms and include an assessment of corporate political activity in their ratings.

Millennial expectations

It is also clearly in firms’ best interest to fully disclose their political activities because the demand for political transparency will likely become stronger as the millennial generation grows in influence. They have grown up with an expectation of radical transparency regarding the products they buy and the companies for which they work. Companies are realizing this; those who do not, may be left behind.

Although not a panacea, we believe that creating new norms of corporate political responsibility —coupled with radical transparency around corporate political action — is a promising step.

 

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Based on an interview with Magali A. Delmas and her article “CSR Needs CPR: Corporate Sustainability and Politics” (California Management Review, June 2018), co-written with Thomas P. Lyon, John W. Maxwell, Pratima Bansal, Mireille Chiroleu-Assouline, Patricia Crifo, Rodolphe Durand, Jean-Pascal Gond, Andrew King, Michael Lenox, Michael Toffel, David Vogel, and Frank Wijen.

This paper was a finalist for the California Management Review’s Best Paper Award.