By Elizabeth Doty

 

As businesses balance shifting expectations from stakeholders — from investors to customers and employees — resilience has become increasingly critical to long-term business and societal sustainability. Embracing a framework for corporate political responsibility positions a company to do that more effectively.   

In February 2024, we spoke with Angeli Patel, Executive Director of the Berkeley Center for Law and Business. She shared findings from her recent work developing more than 30 case studies on corporate sustainability, which helped her identify three key indicators of business resilience. During our discussion, we explored how corporate political responsibility (CPR) is a vital component for corporations seeking resilience and reduced risk, long-term economic viability, and positive impact.

“Resilience, long-termism and sustainability altogether are not about a tradeoff for profits,” Patel said. “It’s actually about finding ways to make that growth last longer.” Corporate political responsibility is about fostering the ecosystem that enables that. “You need an ecosystem that is safe enough, trustworthy enough, and equitable enough to have a competitive and innovative environment in which business can be done,” explains Patel. “Government is the platform that creates that social license to operate. If we don’t have a government or a government system that can protect that kind of ecosystem, we are in big trouble as an economy.”

Below, find excerpts from the conversation and Patel’s thoughts on why corporations that prioritize long-term goals, stakeholder engagement, and CPR can better adapt when challenges arise.  

On three indicators of business resilience: 

While working on the corporate case studies for the Berkeley Center for Law and Business, Patel discovered three common indicators among corporations that show resilience in times of instability. 

The first is a willingness to face challenges head-on rather than shy from risks. “Your leadership, management, board has the ability to think of a different way of doing business or a different way of responding,” Patel said. “When companies were able to fare through a crisis of any kind — whether it’s a labor crisis, climate crisis at a location, human rights abuses found in supply chains — that willingness to deviate was what stood out.” 

Second is an aptitude for engagement among companies that have built their business by understanding and meeting stakeholder needs, even as they change. “Whether those stakeholders are customers or employees … they had this ability to quickly engage and understand what those stakeholders were thinking about,” Patel said. 

The final indicator is adopting a long-term vision and an articulated plan of success. This is what allows people to stay the course in the face of  near-term pressures. “Having that vision is what kept companies agile in the long term,” she said. “It comes down to a CEO who’s really capable of articulating those things.” 

On legal and business risk in an unstable policy environment: 

An unstable government and policy environment creates unpredictable market conditions, discourages innovation, and results in an uneven playing field for businesses, Patel said. Companies that lack a framework for political responsibility can also face additional — and potentially costly — legal risks from business disruptions such as employment issues. 

“What the non-lawyers at companies don’t realize is that waiting to react to something because it’s not directly tied to your quarterly revenues ends up costing you that effort you put in to get those quarterly revenues. So a lot of the legal risk is where we find the business case to be. And a lot of examples are coming out where the legal risk and the legal cost of some of these issues are increasingly debilitating,” Patel said. “An entire industry has spurred up in the legal world around crisis management advising, and that’s expensive … those are the kinds of costs that have become really hard to justify,” Patel said. “These issues are now triggering other legal issues, and they’re becoming a larger legal cost than companies can anticipate.”

Unfortunately, investing in sustainability and resilience goes against the tendency in a shareholder primacy economic system, which tends to prioritize meeting short-term profit goals. “We’re working with a system that is not incentivized to do this,” Patel said. “You’ll find CEOs who want to build a sustainable business but have the unfortunate reality of having to come up with these quarterly profits. And their biggest question is, ‘How do I convince my board that this is worth focusing on regardless of our share price?’” 

People in corporate legal roles are well-positioned to address organizational policy influence and its connection to risk and resilience. “Lawyers at companies, the minute this can get onto their task list — something that matters, something they need to be keeping tabs on — the more likely political responsibility is to have teeth,” Patel said. “That’s the one department in a company that can say no, and you might have to listen. I think the legal department is very well-suited in a place that’s of authority enough to push for these things and to influence the CEOs.”

Patel also sees an opportunity to raise awareness of CPR and corporate risk among legal leaders through Berkeley Law’s executive education offerings. “We are trying to put this topic a lot more in front of them as something to watch out for,” she said. “We have an executive education on boards as well, where we bring up sustainable capitalism and bring in this political responsibility piece. As an academic institution, we see our role as injecting this awareness.”

On the business case for CPR: 

Patel noted that the case for being politically responsible as a corporation begins with fostering a healthy ecosystem in which business can thrive. “It has to do with one of the largest and one of the most taken-for-granted stakeholders, which is the government,” she said. “You need an ecosystem that is safe enough, trustworthy enough, and equitable enough to have a competitive and innovative environment in which business can be done. Government is the platform that creates that social license to operate. If we don’t have a government or a government system that can protect that kind of ecosystem, we are in big trouble as an economy.”

Patel sees corporate political responsibility as a company’s ability to understand and measure how it affects democratic processes. “A responsible approach to politically engaging means being able to tie your political engagement so directly and so strategically to the business that you are in and understanding not just the short-term gains of that political engagement but more so how that continued engagement might look like, what impact it might have 10 years later, 20 years later,” she said. 

But that approach is challenging for most corporations operating in a system that values short-term profits over other stakeholders. “The incentive structure of being a business does not lend itself to do that kind of thinking or to have that kind of ethos, which is why I often say it’s not a problem of intention, it’s a problem of incentive,” Patel said.

On overcoming challenges to adopting a CPR framework: 

In the current system, corporations engage with policy to gain a competitive advantage. “That’s the incentive structure. That’s the whole point of doing business,” Patel said. “And it would be unreasonable to expect that companies wouldn’t want to compete.” 

But a shift toward long-term goals and stakeholder engagement among some companies can help create new norms. “A culture of political responsibility will need to come about in the corporate sphere before any regulation will be able to make it do so,” she said. 

A movement toward required disclosure of political spending related to climate goals and investor activism also can help spur change — and greater internal awareness of corporate political activity. “Most people didn’t even know that their company has an arm that does political engagement,” Patel said. “This movement toward disclosure on sustainability has started to plant the seed that now needs to be fertilized and watered to become more front and center. The issue there, I think, is the lack of visibility internally about how that engagement is happening.”

This is why measurements and data can help corporate leaders make the case for CPR. “The more directly you can tie these metrics to the way you make your money, the stronger the case will be, and the easier the case will be to make,” Patel said. “The challenge I find is trying to articulate a business case from outside a given company because each business case is bespoke. The business case is something the company has to create for itself, using its own strategy, product, and capabilities.”

Adopting a CPR framework helps companies increase transparency internally and externally, and reduces the likelihood of operational risks. “There’s a lot of risk when it comes to not knowing how you’re politically engaged,” Patel said. “So political responsibility to me is incredible because companies that engage in it are benefiting. It’s the same as supply chain mapping, but in this case, you’re political influence mapping.”

On identifying the firmest ground for companies to stand: 

It’s back to the bottom-line basics here, according to Patel: Focus on how CPR supports long-term strategy and success. “It’s tied to your business strategy. Always tie back any of these goals or aspirations to how it is going to make you money in the long term,” she said. “The goal is to make profits in a way that lasts.”

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.