Why investors are attracted to the number zero.
By Utpal Dholakia
Why Most Companies Should Avoid Taking Political Stances
This article originally appeared on Psychology Today.
More companies are taking political stances these days. During the past week alone, Dick’s Sporting Goods and Walmart said they would stop selling guns to anyone under 21. Dick’s went even further and stopped selling assault-style rifles and high capacity firearms. Over a dozen other companies, including Delta Airlines, United, Hertz, and MetLife announced various actions such as no longer offering discounts to NRA members.
Defining a political stance
For this post, I define a company’s political stance as having two properties. First, a political stance is a visible business decision that shows support for the policies and views of one political party over another. For instance, when a retailer eliminates gun SKUs or an airline cuts off NRA member discounts, these companies are aligning with Democratic views. Alternatively, when Papa John’s Pizza denounced NFL player protests a few months ago, it allied with Republicans. The respective companies were concurrently distancing themselves from the opposing political party in a public way.
The second property of a company’s political stance is that the decision’s timing is fueled by some external event and is unrelated to a business outcome. For instance, stopping sales of assault guns because of poor sales performance or low profitability is a normal business decision, but doing this soon after a mass shooting is taking a political stance.
Many experts have noted the increasing incidence of political stance-taking by companies. Some of this is driven by pressure from within. In one study of senior executives at large corporations around the world, almost half wanted their company’s leaders to speak out on hot-button issues like climate change, gun control, and immigration. A second reason is that some companies’ CEOs are naturally outspoken and weight their own political affiliation heavily in their business decision making.
Despite the potential for positive buzz and support from a section of customers and the general public, there are two important reasons why I think it’s a bad idea for companies, particularly large ones, to take political stances.
Political stances usually alienate a significant fraction of the company’s customers, employees, investors, and other constituents.
Every business operates in an environment with many moving parts that have complicated relationships among them. For lasting success, everything has to work more or less smoothly. For example, when employees are satisfied with their work environment, they feel empowered and fulfilled, and go on to deliver high-quality customer service, which in turn, delights customers. When investors view the company in a positive light, it creates a halo effect that makes it easier to handle difficult economic conditions.
However, when a large company takes a political stance, it alienates some significant number of these constituents and throws things out of kilter. This is because every large company, whether it is Dick’s Sporting Goods, United Airlines, or Papa John’s Pizza, is sure to have constituents across the political spectrum. Taking a stance that favors one partisan group upsets and alienates customers, employees, and investors from the other group. The morale of employees plunges leading to lower motivation and effort. Some employees may even leave. Customers will simply defect and find some other seller if they feel unwelcome. One recent study found that when offered an opportunity to purchase a deeply discounted Amazon gift card, consumers were more than twice as likely to buy when their political affiliation matched the seller.
Political stances take the attention of managers away from the company’s core business objectives.
The primary objectives of a business are to deliver high-quality products and services at a fair price to customers, provide an inclusive work environment with fair pay to employees, and deliver strong financial performance to investors. Taking a political stance usually does not fit well with any of these goals. What’s even more problematic, it distracts managers at all levels in the company from the activities that are crucial to achieving these goals because it occupies their time and attention. Just imagine how much turmoil must have gone on inside Dick’s Sporting Goods this past week over a policy change that contributed relatively little to their sales or bottom line. (The company sold assault-style guns only at 35 of its 750 stores, and the firearm product category sales had been declining long before this stance.)
There is a third pragmatic reason for avoiding political stances, which is that such decisions are unlikely to have a significant impact on the core issue. For instance, even if Walmart and Dick’s Sporting Goods stop selling assault-style rifles, there are plenty of other sellers who will continue to do so. If Papa John’s lashes out against NFL player protests, consumers will simply buy another of the dozens of available pizza brands. The stance-taking company is ceding ground to its competitors that decided not to take a political stance, without affecting any significant change.
I will conclude by pointing out one caveat. My discussion has focused on large companies that serve diverse constituents. For a small business with few homogeneous employees and a narrowly defined customer segment, this discussion would be reversed. Such companies should be the ones that wade deeply into political issues and take stances that align with their employees' and customers’ political views.
Utpal Dholakia is the George R. Brown Professor of Marketing at Jones Graduate School of Business at Rice University.