Public companies have lately been enticed to participate in public policy debates of the day. Headline examples include Coca-Coca and Delta two years ago on the Georgia voting rights bill and Walt Disney more recently on the Florida law regulating the teaching of gender identity in elementary schools.
Companies are free to remain silent or speak out, as their leadership deems best. But either approach can be problematic, alienating one cohort or another. Some situations can lead to internal frictions between boards and executives and even within boards.
To address these challenges, it’s useful for directors to recall a few general principles about their roles and prudent for directors to agree in advance with corporate executives on a framework for determining whether the corporation should speak out publicly on a controversial matter of public policy.
Despite pressures from various groups, the corporate board’s duty remains the same as it has been for more than a century: directors owe fiduciary duties of care and loyalty to the corporation and its shareholders. But while directors don’t owe non-shareholders (“stakeholders”) any special duties, it is usually good for the corporation to reward employees and to cater to customers.
Directors must put the corporate interest above their own. While many citizens today base consumer, employment and investment decisions on aligning with their personal values and beliefs, directors don’t have the privilege. A director who believes alcohol or gambling is a sin should not sit on the board of a distillery or a casino.
Directors do have a basic obligation to become informed when making any decisions for their companies. That means asking management questions about stakeholder concerns and trying to decide how they relate to the corporation’s and shareholder interests.
Finally: while the legal duties remain the same, practical realities may pull managers in complex directions. Directors must be aware of related risks and available to help CEOs manage them.
A Principled Framework
On any topic, the relationship between a CEO and board varies based on factors from personalities and board structures to industry and propensity to speak out on issues. That said, a cooperative and collaborative interaction is most productive.
In terms of CEOs speaking out on issues, boards ideally give CEOs latitude to speak for the company and CEOs would look to directors for advice. All should appreciate that there are risks of backlash and unintended consequences of both staying silent and speaking out. The recent Disney situation illustrated both: a CEO stayed silent, to the alienation of some workers and activists, then spoke out, to the alienation of other workers and some lawmakers.
A board’s key role is to help the CEO establish a framework, consistent with board oversight duties, with guardrails to help the CEO navigate the issues. Such a framework should be accompanied by regular updates and ongoing dialogue.
An example of such a framework would put the easiest cases at both ends of the spectrum, with the more contextual in between. In this framework, the CEO would have total discretion concerning public comments on such as topics as wages, prices and earnings, while making it off limits to recommend candidates for public office or endorse or oppose specific political parties or agendas.
The hot topics in between that pose contextual challenges could be classified according to whether they are within the company’s business or not and advise discretion or restraint accordingly.
On thorny issues, directors and executives might consider having their company enlist the assistance of business or professional associations with relevant experience and resources. Consider the Business Roundtable, which has long led the corporate community in handling difficult policy for CEOs, often using backchannels rather than megaphones to protect U.S. interests and respect its political process.
A framework such as this would make it clear that a CEO should not have to consult the board on every issue. The framework is a way to set expectations for when consultation is warranted. The approach should be consistent with the standard board model of “nose in, fingers out.” After all, these public policy fights are primarily management problems, with the board’s role relating to oversight, risk management and internal control.
Another clear advantage and purpose of the framework: the board and CEO must have each other’s backs and be united. A CEO out in front of the board may soon face termination. Boards out of line with CEOs face reputational risk and adverse shareholder reactions. The most promising route to such alignment is for all to stress that the company’s business is paramount.
Ultimately, a framework should help a board stress and address the two most critical questions. First: how does the topic relate to the company’s core business, operations and shareholder interests? Second: Would the company speaking out advance those corporate interests?