How business leaders & boards can reduce risk & strengthen civic trust by preparing for a principled response.
Doty has served as the Director of the Erb Institute’s Corporate Political Responsibility Task Force since its launch in 2021. For 30 years, she has helped leading companies implement their business strategies, improve employee engagement and retain customers by aligning across functions and delivering on their commitments.
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.
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. “Weak political institutions put the business environment at risk. It’s not theoretical.”
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?
Ballou-Aares: We should be thinking about two key risk factors: First is the nature of how this 2024 election happens. While ultimately the 2020 election was resolved, we had January 6 and unfortunately, the risk factors have not gone away. 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, along with the climate crisis and migration affecting many countries.
Some of the tactics to undermine U.S. democracy are shared among autocratically inclined leaders across countries. We all need to be sharing lessons 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 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 do 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.
Doty: How do you see these flashpoints affecting business leaders? I’m hearing of hesitancy to react. Executives are being called out individually and don’t want to get in the headlines.
Ballou-Aares: Over the last five years, 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.
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. 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 figure out the best way to engage.
Ballou-Aares: There are concrete places where business can weigh in on issues in a legitimate way. I’m eager to see more deliberate coalition-building around core democracy issues. For example, our members in Ohio — an incredible group of 50 well-respected business leaders — 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.
Doty: How is Leadership Now helping leaders and boards prepare and what are some things people reading this could take advantage of?
Caplan: First, we’re 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. Weak political institutions put the business environment at risk. It’s not theoretical.
Second, we’re focusing on providing tools to help companies manage political activities in a way that supports stable political institutions. We are working on a guide for companies and boards specifically around political risk in the U.S. and best practices. 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.
Doty: How do you feel about investors and boards as a channel for raising awareness about corporate political responsibility?
Caplan: We’re trying to respond to that gap as well. The hope is that by making the link clear and leading companies through a process where they can map those risks, that’s also going to clarify the issue for boards and the investor community.
Right now, only 25% of boards tend to consider political risk at all. And a recent study on institutional investors from States United Democracy Center and Brookings Institute 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.
Investors are a powerful lever. We want to show how investors can engage 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.
Doty: If you were a C-Suite executive, what would you do in the next three months for corporate political responsibility?
Caplan: It’s important to do something now, ahead of time: Put a process in place, look at your current political activities, make sure you understand where you are. Then take a look again at best practices. Make sure internally everyone is talking to each other when decisions are being made about political activities — so government affairs is talking to operations, to the risk group, to the sustainability team.
Also, think about opportunities for business impact. That includes reviewing your political activities, and 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, 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.
Historically in many organizations, government affairs has been seen 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 recognizing the need to understand how we are engaging in political activities and the consequences, intended or unintended, of that engagement.
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.
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.