In the recently released report Avoiding the Tragedy of the Commons: How to Improve the Political Environment for US Business, the Conference Board explores how partisan polarization and wide shifts in government policy in the wake of each election is making long-term business planning more difficult than usual. The report also examines how U.S. companies may lower their risk in this rapidly shifting political climate and highlights the role that frameworks such as the Erb Principles for Corporate Political Responsibility (CPR) can play.
During the April Corporate Political Responsibility Taskforce (CPRT) Expert Dialogue, Paul Washington, Executive Director at the ESG Center at the Conference Board, discussed highlights and takeaways from the future-oriented report. Based on a survey of chief legal officers and government relations executives at 100 companies, the report found that 98% view the political environment as a challenge, and 71% believe things will be at least as bad or worse two years from now. As Washington said: “This is why there’s this tragedy of the commons: There’s an issue that everyone sees as a big systemic issue for business, a collective problem. But individual action is very hard to take in this area. It really needs a variety of forms of collective action to address.”
In the excerpts below from the CPRT dialogue, Washington outlines the background for the current challenges, the potential for collective action to help resolve them, and how the Erb Principles for CPR can play a role.
On how the current political environment is impacting business and how companies are responding.
The systemic issues they’re facing include a combination of polarization — each party has moved to the poles — and closely divided election results. Even when voters show up in the way our system of government works, close, contested and divisive elections lead to incredible policy volatility — an uncertain environment that is terrible for business planning.
For example: Imagine you’re an investor or someone managing the retirement plan at the company. Should you take ESG factors into consideration? Well, there was one rule under the Obama administration, another rule that came in the last administration, and yet another rule implemented by the Biden administration that Congress later overruled. This makes long-term planning extremely challenging, and that’s just one small way people are dealing with this sort of policy whiplash.
We also asked these business leaders what the impacts have been thus far: While there’s a cohort for whom it is both significant and negative, for many it’s moderate and negative. This furthers the tragedy of the commons: Everyone sees a major systemic issue for business, but most businesses have only been hurt a moderate amount. Simultaneously, there are risks associated with sticking your neck out and speaking up on any number of issues. The tragedy of the commons means there is a collective problem but individual action is hard to take; it requires a variety of forms of collective action to address.
How political discourse on ESG is affecting companies.
A subset of the companies are facing ESG backlash, and it’s becoming a bigger concern. Backlash is an umbrella term. Some of this is healthy skepticism. Some of it is just philosophical or ideological opposition from people in the Milton Friedman school of thinking. And then there’s political opportunism. We found that 40% of companies we surveyed have experienced backlash. This is another tragedy of commons. For most, at this point it’s relatively modest in its impact. But most people think, like the challenges of political instability, it’s going to get worse.
In some ways, this is a clarifying moment for companies. The opposition to caring about environmental and social responsibility could take root at the federal level and more than likely in some ways in particular states. And then it becomes codified, which will make business even harder to run.
Why the concept of a “tragedy of the commons” applies now and why economic security is a bipartisan issue that companies could lead in addressing.
Today, we are watching the tragedy of the commons unfold. Even as systemic issues threaten our economic and political systems, it’s challenging for individual companies to speak out or take action. This lack of security is alienating the public, undermining support for companies, the economic system, and our system of government. To address these fundamental issues, we must consider economic security and fairness — issues that cut across the red-blue divide in our country.
We’ve surveyed consumers and asked about the issues they most care about and want companies to address. No matter what drives their spending decisions, no matter how you phrase it, and regardless of background, they care about fair wages and fair labor conditions first and health care access next. Companies need to address these systemic issues that matter to the well-being of society and resonate across political lines. But this kind of work requires broad coalitions. It is not just the work of big companies. There is a real opportunity here for an alliance between larger companies and smaller companies, across industries. That kind of alliance is very important for telling the story and persuading policymakers.
Companies also should be cultivating connections at the local level. Generally, there has to be a shift of corporate political resources from the federal level to the state and the local level because that’s where much of the activity is going to be happening, both pro- and anti-ESG. Our report also mentions the Committee for Economic Development, which is the public policy arm of the Conference Board. It provides nonpartisan, fact-based solutions that you can embrace regardless of party and regardless of industry, and they have been dealing with this for decades. They have a whole set of recommendations of what businesses can do to support democracy
How the Erb Principles for CPR can serve as a framework for broad business collaboration.
One key contribution from the Erb Principles for CPR is the call for CEOs to make sure their own houses are in order before taking a stand on democracy or criticizing public officials for not doing the right thing. Whatever you’re out there advocating for can become a vulnerability if you don’t have transparency, accountability, responsibility, and consistency in your own actions. Companies can become a legitimate target of criticism if their own actions, whether political contributions, lobbying activity or public statements, aren’t aligned with their values, and then they become far less effective in accomplishing their goals.
The Erb Principles for CPR draw clear attention to that vitally important point. When we surveyed CEOs about their goals for 2023, focusing on getting their internal corporate political activity in order did not make the list. Corporate political responsibility needs to be on that priority list if they are going to make public statements about “making the world a better place.”