This blog post contains a summary of content from our white paper, “Navigating Risk in the Era of Purpose-Driven Corporations”.
Read the full white paper here.
The aftermath of the Parkland shooting underscored the ever-riskier environment that corporate leaders find themselves in: A politically volatile climate increasingly divided across partisan lines; a consumer base that expects brands to take stands on important social issues, but that could also bash them on social media for taking one, and a news media that capitalizes on controversy. This charged environment leaves ample room for missteps and reputational damage.
What has changed?
From a governance perspective, institutional investors have drastically increased scrutiny of how companies manage social, environmental and governance risks. As impact investing moves mainstream, we see that a fcous on governance is less about rewarding “good” corporate behavior, and more about identifying risks that are off the balance sheet. Today’s corporate leaders must be hyper-focused on identifying the types of social issues that are important to their business’ values, and in-turn, that may impact their reputation.
A second important factor is the heightened volatility in the political climate, both at the national and the state level. We’ve seen the consequences of this dysfunction across many events, including the North Carolina bathroom law, which by one estimate lost North Carolina $3.76 billion of corporate business.
News media amplifies all of these issues, and with real-time digital updates, the public has access to announcements and controversies the minute they happen, meaning debate, conversation, and engagement can fire up just seconds after an event takes place.
Where do we go from here?
In our recent white paper, we analyzed the stock impact and duration of news cycle surrounding certain companies that were thrust into the public eye following the Parkland shooting. Our analysis found that short-term stock impact faded when the spike in media interest leveled out. Brands that did take a stand—either for or against gun control—saw a short spike in conversation, most of which normalized in just over a week. That said, research also shows us that brand affinity increases over time for brands that do take a stand on social issues. So, the question we’re left asking is simple: when, why, how should brands take a stand on social and political issues?
There are key considerations to address when and how companies should respond and react. They include evaluating the brand’s core business, the makeup of its customer base, the intensity of public feeling around the issue addressed, and the degree of alignment between the brand’s proposed stance and public opinion.
That said, communicating a stand without disrupting relationships with stakeholders – including investors, employees, customers and distributors – requires long-term strategy and planning. The most fundamental action a company can take to that end is to identify and maintain a sense of purpose. A sense of purpose, accompanied by ongoing, clear stakeholder communications, will be the company’s “lodestar” through times of crises and beyond.
Too often, management starts on the path of building a “purpose-driven” company, only to be sidetracked with business issues such as mergers, acquisitions, regulatory issues or market-driven events. But those critical junctions are precisely when having nurtured a sense of purpose can be most valuable. To navigate risk in this landscape, no brand and leader can afford to ignore the importance of purpose and the value of the authenticity it brings to their relationships.