By Elizabeth Doty
In a recent Expert Dialogue presented by the Corporate Political Responsibility Taskforce at the Erb Institute, Daniella Ballou-Aares and Lauren Caplan of the Leadership Now Project discussed expected “democracy flashpoints” in the lead-up to the 2024 election cycle and what business leaders and board members can do now to prepare. The Leadership Now Project is a national membership organization of business and thought leaders committed to ensuring the United States has a strong democracy and economy.
During the dialogue, Ballou-Aares, Leadership Now Founder and CEO, and Caplan, its Managing Director & Head of Democracy-Aligned Investing, offered real-world examples of business leaders speaking up on issues that threaten democratic principles and structures. They also shared how businesses can use tools like the Erb Principles for Corporate Political Responsibility to decide when, if, and how to take action to support civic institutions.
With timely issues including investigations into corporate actions on environmental issues and the indictments of former President Trump as a backdrop, Leadership Now and CPRT are working with business leaders to determine how and when to take non-partisan, principled action. “Democratic erosion is part of the risk landscape companies and investors are operating in,” Caplan said. “We know that weak political institutions put the business environment at risk. It’s not theoretical anymore.”
This landscape makes it crucial for businesses to establish frameworks for action before they face a crisis. “The most important thing is to do something now, ahead of time: Put a process in place, look at what you’re currently doing in terms of political activities, make sure you understand where you are. Then take a look again at best practices,” Ballou-Aares said.
Generally, developing a proactive strategy means involving more departments and internal and external stakeholders. This may require companies to restructure roles and processes, Ballou-Aares said, so that more people can be prepared to determine what, if any, course of action is next. “If we realize there are problems, we need to know if there is a path to influencing them in a better way — whether through industry associations, direct engagement with legislatures, or being clear publicly,” she said. “There are concrete places where business can weigh in on issues in a legitimate way. I’m hopeful that strategic engagement across leaders and companies can happen going forward, and it’s super critical in the leadup to the upcoming election.”
In the edited excerpts from the Expert Dialogue that follow, Ballou-Aares and Caplan encourage business leaders to prepare now for potential upcoming democracy flashpoints.
Elizabeth Doty: What do you view as the most likely “democracy flashpoints” or scenarios in the coming six to nine months? What specific events or headlines might we see? What data supports those as real possibilities?
Ballou-Aares: We should be thinking about two key risk factors or flashpoints: First is the nature of how this 2024 election itself happens. While ultimately the 2020 election was resolved and we had a peaceful transition of power, we obviously had January 6 and unfortunately, the risk factors have not gone away. They might look somewhat different, but the reality is at a state level, the risk of political violence and efforts to undermine elections through local election administrators could really test the system.
We should remember that 2024 is a big election year across the world, with elections in India, the European Union, and elsewhere. These elections are happening in the context of both AI and disinformation practices growing, as well as greater appreciation of the climate crisis and migration affecting many countries.
There are parallels we see in terms of democracy threats in the U.S. Some of the tactics to undermine democracy in the U.S. are shared among autocratically inclined leaders across countries. We need to be sharing lessons learned around how to build a strong democracy and what it looks like to be effective in terms of standing up for democracy.
The second risk factor is this increasing climate of political retribution and use of legislation to intervene in business decision-making in ways that are related to specific agendas. The most significant case has been Disney in Florida, where there was a direct relationship between an action and speech of Disney and the response of the state Legislature and the governor. Broader examples relate to, for instance, legislation seeking to prevent state treasurers from considering ESG factors in investments. This has created a climate where businesses may be concerned about statements or actions that relate to democracy itself, which may prevent them from preparing for what they might need to in the case of a crisis.
We’ve been concerned because these benchmarks of global autocratic behavior span history and are unfortunately occurring a lot today. When you have that type of political retribution and narrative, if business doesn’t stand together against it, it invites more. The flashpoints are really this kind of pushback on business practices, even if they’re good for a company.
Doty: How do you see these flashpoints affecting business leaders? The phrase I’m hearing often is the feeling of being on our heels, hesitant to react. Executives are being called out individually and don’t want to get in the headlines. The uncertainty is a major factor.
Ballou-Aares: I do see that. We’ve had a bit of an evolution over the last five years where business has sometimes been called upon to be the “adults in the room” — to take a position on issues when government hasn’t been able to resolve them or when we’ve had toxic political rhetoric.
But many business leaders appreciate that we want a functional government because they can’t be the ones to solve all the problems. Some also are pulling back and deciding not to say anything because that is least risky. And I think their advisors — legal, political, or otherwise — sometimes echo that sentiment. I think it is dangerous, frankly, to have a blanket perspective to “stay out of it.” It is overdue that companies become more strategic about which issues they engage with and how.
Caplan: The truth is that democratic erosion is part of the risk landscape companies and investors are operating in. So it really isn’t a choice anymore. Companies and investors are going to have to engage and figure out the best way to do so from where they’re sitting.
Ballou-Aares: There are certainly things companies can weigh in on that are low-impact — core issues to the functioning of democracy, legitimacy of elections, the ability of companies and individuals to have free speech and be able to exercise a perspective.
I’m eager to see more deliberate coalition-building around core democracy issues, which is what we just did in Ohio. Our members in Ohio — an incredible group of 50 well-respected business leaders in the state — came out against Issue One, which sought to raise the voter threshold for constitutional amendments from 50% to 60%. They were able to say, “For our state to attract talent and operate effectively, we need citizens to be able to weigh in on policy.” They were ultimately part of a successful coalition that beat that ballot initiative.
There are concrete places where business can weigh in on issues in a legitimate way. I’m hopeful that strategic engagement across leaders and companies can happen going forward, and it’s super critical in the leadup to the upcoming election.
Doty: How is Leadership Now helping leaders and boards prepare and what are some things people reading this could take advantage of?
Caplan: The first thing is continuing to build awareness and understanding about the link between U.S. political risks and the risks companies face, and the role companies can play. From looking outside the U.S., we know that as the fundamentals of democracy weaken, threats to businesses grow. We see our institutions in the U.S. facing multiple threats, whether it’s the increasing violence around elections, restrictive voting laws, or attempts to politicize certification of elections.
We know that weak political institutions put the business environment at risk. It’s not theoretical anymore. Companies are in the middle of it right now, whether it’s Disney or Chick-fil-A worrying about political retribution, or the companies that received letters from state attorneys general around their DEI efforts, or investors struggling to figure out what to do in the ESG space with this hodgepodge of regulations in place state-by-state. Business has influence and the ability to push back.
The second thing we’re really focusing on is providing tools to help companies manage their political activities in a way that supports stable political institutions rather than weakens them. Also tools that investors can look to in terms of what to ask the companies they’re investing with or to ask their managers to engage with companies on in terms of best practices.
We are working on a guide for companies and boards specifically around political risk in the U.S. and best practices for managing their political activities. That’s building on all the great work that’s been done with the Erb Principles for CPR and the fact that decisions around corporate political activities are not always easy or straightforward. We hope companies can use these tools to have an effective process in place. Another part is looking at the involvement of boards, which can be important in managing these risks. Right now, only 25% of boards tend to consider political risk at all.
An interesting study on institutional investors came out recently from States United Democracy Center and Brookings Institute. It found that 90% of institutional investors believe threats to democracy in the U.S. are increasing, but only 30% of those investors think public companies are equipped to manage that risk. So we’re trying to respond to that gap as well.
The Erb Principles for CPR provide such a great framework for companies to think about those hard questions of when and whether to engage on which issues — the legitimacy — and accountability in terms of thinking of alignment between commitments they’ve made, their other political activities, and transparency.
Doty: How do you feel about investors and boards as a channel for raising awareness about corporate political responsibility?
Caplan: Investors are a powerful lever in terms of influencing companies and surfacing which issues are most important. In some ways, any tool in this area needs to be a joint tool between investors and companies. Part of the idea is to show what companies should do, but also how investors should be engaging on these issues — so it’s a conversation in terms of what is going to most effectively address the risks being posed by the instability we see.
In terms of the tool, the hope is that by making the link clear and leading companies through a process where they can map those risks, that’s going to also clarify the issue for those in the investor community who may not see how it’s material enough to be considered.
Doty: If you were a C-Suite executive — a chief legal officer, a CFO, a CEO — what would you do in the next three months for corporate political responsibility? What would be most important knowing that we need to build awareness and shared perspective on this?
Caplan: The most important thing is to do something now, ahead of time: Put a process in place, look at what you’re currently doing in terms of political activities, make sure you understand where you are. Then take a look again at best practices. Make sure that internally everyone is talking to each other — so your government affairs is talking to your operations group, to your risk group, to your sustainability team when decisions are being made about political activities and which issues to engage on.
Also think about the opportunities for business impact. That includes reviewing your political activities and aligning them to support strong institutions. It also may include identifying election risks and supporting democratic principles in the states where you operate; having a civic action plan and giving workers time off to vote; or supporting nonpartisan efforts to strengthen election infrastructure or longer-term systemic reform.
It’s both defensive and offensive in a way, knowing how you’re going to deal with these decisions and thinking about what you can do to contribute to solutions.
Doty: Let’s imagine that actions over the coming year help build a new norm around corporate political responsibility and a clearer social contract for business. What would that look like?
Ballou-Aares: The idea of corporate political responsibility, which says you have a view on what your engagement and influence is, is good management. You should know what you’re doing and what impact it has on your markets.
Part of the reason we have a gap is that government affairs and politics has been seen in many organizations as a separate exercise that operates by different rules you wouldn’t apply to any other part of your business. This requires moving away from that thinking and instead saying we need to know how we are operating and understand the consequences, intended or unintended, of how we engage.
If we realize there are problems, we need to know if there is a path to influencing them in a better way — whether through industry associations, direct engagement with legislatures, or being clear publicly.
In 2021, Michael Porter and I wrote a piece for Harvard Business Review where we spoke about how sometimes business says they can’t influence the broader forces. But when businesses are focused and proactive and come together with clarity on the outcomes they seek, they’re often very effective. That kind of focused effort is important. For instance, the head of our Wisconsin chapter has been highly effective in this regard. As someone who was in the Bush administration, he is able to credibly speak about his concerns with the behaviors of election denialists.
Caplan: Across the board, businesses would be more intentional about the impact of their activities on the broader political institutions and broader political climate. We would have well-functioning political institutions where government is responsive and businesses weigh in when it makes sense but aren’t pulled in as much as they are now. It would include broader awareness that businesses are actors in broader society and aren’t operating in a vacuum.
Business leaders seeking resources on whether and when to weigh in on policy issues can consult the Erb Principles for Corporate Political Responsibility. See the CPRT website for additional information, and sign up for newsletter updates!
The CPRT is strictly non-partisan and does not advocate, promote or support any political party or candidate. While speakers and participants in the Expert Dialogues may express their views freely, the CPRT does not endorse particular organizations, individuals, parties, policies or legislation.