Back in March 2022, Disney’s then-CEO Bob Chapek said that his company wouldn’t take a public stand on Florida’s so-called “Don’t Say Gay” bill. Four days later, he yielded to rebukes from LGBTQ employees, reversed his decision and criticized the bill publicly.
In the ensuing political firestorm, the state of Florida revoked Disney’s 55-year-old favored tax and regulatory status, sparking legal disputes that lasted well into 2024. Chapek, deeply weakened, was fired not long after the controversy broke, in November 2022.
Disney may be a unique case, but it isn’t alone. Business leaders are increasingly at risk of political sparks igniting into firestorms that can devastate their companies. For example, in 2023, the conservative backlash to a Bud Light promotional campaign involving a transgender influencer led to a 30% drop in sales volume.
Leaders at BlackRock, Delta, Coca-Cola, Facebook, Google and Target, among other corporate titans, have recently become embroiled in similar culture-war debates. These sorts of controversies undermine businesses’ strategy and sometimes their performance, often in lasting ways.
How did we get here?
As longtime business school professors of strategic management, we wanted to understand why so many firestorms are now engulfing business leaders. In our recent research we developed a new theory, rooted in the realities of American politics, that provides a three-part answer.
American politics are increasingly dysfunctional
First, many Americans think the American dream is out of reach. From middle-aged blue-collar workers to recent college graduates and beyond, people across American society are becoming increasingly disillusioned with the social contract. This has led to despair, jealousy and rising anger on both ends of the political spectrum.
Second, American political parties are using voters’ disillusionment and anger to drive fundraising. Each party emphasizes divisive, emotional wedge issues – such as immigration or welfare spending – typically related to the social contract. For candidates, adhering to the party platform and demonizing the other party can pay off, at least in the short term.
This leads to what scholars call “affective polarization,” which spawns animosity toward those with opposing views and expands the distance between opposing policy positions.
This animosity makes democratic government less effective, particularly at a time when the two major parties are near parity in terms of power, resources and electoral outcomes. Congress frequently faces political gridlock, forcing Republican and Democratic presidents alike to rely on executive orders and federal agencies to get work done. When control of the presidency shifts to the other party, executive-branch policies swing one from extreme to another, too.
We believe that ineffective government and policy uncertainty have undermined the American dream. As a result, disillusioned people are increasingly turning for help to the only other institution with enough resources to tackle these challenges: business.
That’s why companies have become the new nexus of political conflict and are facing pressure to take action on social justice, climate change and other issues that the government hasn’t effectively addressed. Corporate actions that touch these issues frequently place firms in between two deeply divided groups with opposing agendas – potentially sparking big controversies.
Business leadership is becoming more difficult
These issues are making executive positions far more challenging than they were just a decade ago. Culture-war firestorms can quickly overwhelm the conventional demands of setting and implementing business strategy. Executives must now spend substantial amounts of time, money and attention dealing with controversies.
This requires making new trade-offs. For example, research suggests that business investments that also benefit local stakeholders, such as communities and employees, get larger returns over the long term. But these investments are risky, because they lose value if the stakeholders refuse to cooperate later.
For example, Disney’s theme parks and hotels in Florida are difficult to relocate, despite adverse shifts in state government policy. Similarly, Chick-fil-A’s efforts to expand outside the American South were affected by opposition from politicians, as well as prospective employees and customers, over the founding family’s religious views and public comments about the definition of marriage.
If the polarization limits firm growth, investment returns and job creation, it would naturally shrink economic opportunities for shareholders and employees, possibly undermining confidence in the American dream even more. At the same time, firms face growing demands to spend on social responsibility. In an era of ubiquitous social media, failing to address stakeholder concerns can produce negative publicity, boycotts and other forms of backlash that can erupt into firestorms that hurt financial performance.
What’s more, despite growing pressures for corporate social responsibility, it’s not always profitable or even good for society. Because managers’ attention is finite, responding to these demands distracts them from investments with more promising financial returns.
Managing trade-offs in this combustible environment requires knowledge and skills that most executives don’t yet have.
What should business schools do?
Business schools have been slow to prepare future executives for this new environment. Although business students usually learn about social responsibility, they generally don’t learn about the causes of government gridlock and political polarization, or how to deal with divisive social issues.
What’s more, while some people criticize business schools for not teaching enough about emerging social issues that affect business, others assail universities for emphasizing these issues too much.
For now, business schools generally don’t prioritize teaching about social contracts. Perhaps more importantly, they rarely explain how firms can strengthen democracy and effective government.
Without business schools seeking to understand and address these issues and providing new training, we believe that future executives may not understand the opportunities they have to arrest the downward spiral.
Ultimately, it’s in everyone’s interest to expand business school curricula to include the dynamics of social contract formation, the process of affective polarization, the causes of government ineffectiveness and the reasons why business has become a nexus of sociopolitical conflict.
The failure to understand and address these issues can undermine the innovation and wealth that democracy and capitalism together have wrought. With proper knowledge and training, however, we believe that executives will be better prepared to help restore the social contract and confidence in the American dream – or perhaps to help to create a new one.