The Research Brief is a short take about interesting academic work.
The big idea
Companies and CEOs are increasingly wading into political issues. My latest research suggests that such corporate activism can come with high costs if it doesn’t align with the political values of a company’s customers, employees and local lawmakers — or big gains when it does.
In what we think is the first study to examine how corporate activism affects financial performance, three co-authors and I built a database of decisions by publicly traded companies that took a stand on polarizing issues such as LGBTQ rights, abortion, immigration and gun control over a five-year period. We then looked at the relationships between activism and immediate changes in a company’s stock price and subsequent changes in its sales. We found that the impact depended on how well the company’s activism aligned with the political values of the people the company represents. On average, well-aligned activism boosts a stock price by approximately 1% and sales by approximately 10%. Misaligned activism lowered a stock price by over 2% and reduced sales by over 4%.
The impact on stock prices depends on whether investors think the activism will strengthen or weaken long-term relationships with customers, employees and lawmakers — who may retaliate by rescinding tax breaks or making other policy changes. We found that companies can avoid or mitigate stock drops when they explain to investors how activism is good for business.
Why it matters
Companies and their executives are increasingly moving into political terrain. Recently Amazon, Walmart and other companies expressed support for Black Lives Matter. Goya Foods CEO Bob Unanue praised President Donald Trump’s leadership during the pandemic.
This trend began in the 1990s and early 2000s as human rights activists and environmentalists pressured companies to be “responsible” members of society. Today consumers, employees and local citizens are pressuring companies to take actions that support their own political views.
Currently, nearly every major company promotes its efforts to protect the environment and ensure workers’ rights. As more companies take political positions, our research shows companies may want to ensure its views reflect those of its employees and customers. Unanue’s comments about Trump, for example, drew an immediate backlash and calls for a boycott by its largely Latino customer base. This reaction also drew calls for a “buycott” of Goya’s products, suggesting companies might also gain new customers even while losing others.
What still isn’t known
We are only beginning to understand how corporate activism affects profits, brand perceptions, competitive reactions and – importantly – public attitudes toward the issues at hand.
Future research may evaluate how corporate activism affects a brand’s market position. For example, certain activist brands like Nike and Ben & Jerry’s have a reputation for taking political stances. Does having an activist reputation reduce competitive threats? How does it affect the way customers view the brand and its products?
What other research is being done
A small but growing field of researchers is examining activism from a variety of perspectives. For example, in the recent “Future of Brands” conference at Columbia University, scholars presented work examining how corporate activism shapes consumers’ moral decision making. More broadly, we need more research to understand how people’s political views shape what they buy.
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