Thinking of taking a stand with your business? Make sure it aligns with your stakeholders' values, says new research by Yashoda Bhagwat, assistant professor of marketing at Texas Christian University
July 14, 2020
By Elaine Cole
The world is moving beyond corporate social responsibility actions such as contributing to cancer research, sponsoring blood drives and donating to feed hungry children in impoverished nations. Today, consumers look to companies to take a stand on issues from gun control to LGBTQ rights. Some businesses are staying silent, some are dipping their toes in the water, and some are diving in.
All of those actions have repercussions on your bottom line.
“It all depends on how the activism aligns with the firm’s stakeholders,” said Yash Bhagwat, co-author of new research published in the Journal of Marketing.
Bhagwat, assistant professor of marketing at the TCU Neeley School of Business, studied corporate social actions over five years and discovered that purpose-driven corporate actions have evolved from contributions and community service to taking stances on complex issues.
“What makes corporate activism unique is that it is political, partisan and public, which means people have strong opinions about them,” Bhagwat said.
Those opinions count in more ways than one.
“The movement from philanthropic activities to sociopolitical activism has significant effects on a firm’s value and stock market performance, depending on how the activism aligns with the views of three key stakeholders: customers, employees and state regulators,” Bhagwat said.
Bhagwat and her co-authors examined 149 firms across the United States and looked at hundreds of instances of corporate activism over five years (based on the Pew Research Center’s Political Polarization in the American Public report and Political Polarization and Typology survey). Examples included Amazon removing Confederate flag merchandise from its website, JCPenney featuring lesbian moms in a Mother’s Day advertisement and Kroger’s policy allowing customers to carry firearms in stores.
To determine how well these activism events aligned with the values of the firm’s consumers, local legislators and employees, they asked more than 1,400 people to label each corporate activism event on a scale from “very liberal” to “very conservative.” A second survey of 375 people helped them identify a company’s typical customers as having liberal or conservative views. They looked at the political composition of the legislature of the state where each firm is headquartered. Finally, the team gauged the political leanings of employees through political contribution data from the U.S. Federal Election Commission.
The results? On average, investors react negatively to activism; however, when a company’s activism aligns with the values of all three of its stakeholders—customers, employees and state regulators—the impact on the bottom line is positive.
A company’s stock market value increased by .71% when its actions aligned with stakeholders’ values, whereas stock prices decreased 2.45 percent when a company’s action was misaligned with its key stakeholders, based on a five-day window surrounding each corporate activism event.
Bhagwat and her co-authors also found that alignment with customers was critical.
“Investors were quick to punish firms who went against their target markets” she said. “Importantly, customers rewarded firms who engaged in activism that aligned with their values, resulting in increases in next-quarter sales.”
Five Factors That Can Influence Investors’ Concerns
- Know Your Customers
Since customers are the most vital source of revenue, the strongest effects come from aligning with consumers’ values. - Who is Delivering the Message?
Investors are more attentive to activism announced by the CEO than a public relations team. - Actions vs. Words
Action provides more impact than statements, so firms should be prepared for a heightened response from investors, either positive or negative. - Strength in Numbers
Several companies joining together on an issue can mitigate negative impact from investors since it is more difficult for opponents to punish multiple firms than just one. - Communicate Your Business Interests
Explaining how activism also makes business sense helps alleviate negative investor reactions.
“Corporate Sociopolitical Activism and Firm Value,” Journal of Marketing, June 2020. Authors: Yashoda Bhagwat, assistant professor of marketing at Texas Christian University; Nooshin Warren, assistant professor of marketing at the University of Arizona; Joshua Beck, assistant professor of marketing at the University of Oregon; and George Watson IV, assistant professor of marketing at Portland State University.
