Nature abhors a vacuum and so, up to a point, does business. A recurring refrain of the capitalist reformation that has seen multinationals become environmental and social policy activists is that companies are filling a void left by retreating, distrusted or ineffectual governments.
Nowhere is this more visible than in the US, where business leaders have long bemoaned a second-rate public education system, the costly and patchy provision of healthcare and Washington’s failure to fix anything from archaic infrastructure to racial injustices.
Corporate America’s recent conversion to stakeholder capitalism, in which the likes of the Business Roundtable professed a commitment to treating employees, communities and the environment as their investors’ equals, redefined companies’ understanding of their social responsibilities. It coincided with a darkening of the political backdrop, at least in the eyes of most top executives.
So when the Trump administration pulled out of the Paris climate accord, for example, companies stepped up their “net-zero” emissions pledges to meet its targets. As Republicans failed to improve on the Obama-era Affordable Care Act, Amazon, Berkshire Hathaway and JP Morgan Chase sought, ultimately without success, to find their own way of making prescriptions cheaper.
As Washington’s education debate descended into brawls over sideshows such as critical race theory, “reskilling” became the buzzword for employers who took it upon themselves to provide the training their employees did not pick up in school or college. But as Joe Biden maps out an expanded role for government, this picture is changing.
Business groups welcome some of the president’s moves, such as his executive order accelerating an electric vehicle transition carmakers already support. But they have greeted with knee-jerk alarm his tougher antitrust rhetoric and his expectation that corporate taxes should fund infrastructure spending.
Lobbying and partisanship
They are missing a bigger point. Too often, their behaviour perpetuates the dysfunction they decry. There is now, as the Harvard Business School professor Michael Porter puts it, an urgent need for business to change its entire approach to engaging with government.
Money spent on lobbying and campaign contributions has advanced the narrow, short-term interests of companies. But it has also indulged a form of politics that rewards partisanship, fails to address the country’s biggest policy challenges and leaves business with the cost of filling the gap.
“Everywhere you look, business is currently aiding and abetting a system that has taken away all of the social support systems,” Porter says. As more boardrooms pursue social missions far beyond Milton Friedman’s definition of maximising profits, he argues, “business must support a serious long-term plan to build a functional, effective political system”.
Too many business leaders have given up on politicians or, worse, cynically bought them off for short-term transactional benefits. Think tanks such as the High Meadows Institute argue that too few have grasped the potential mutual gain from working with politicians to improve governance and meet the nation’s systemic challenges.
Whether voters believe that wealthy, unelected executives are the right people to take on that task is another question. Porter’s paper skips over the suspicion many Americans feel about the country’s largest employers.
Only 18 per cent have much confidence in big business, down from 23 per cent in the past two years, according to Gallup. Many on the left see corporate lobbying and political spending as bywords for corruption. Many on the right agree with Mitch McConnell, the Republican Senate minority leader, who complains that big businesses are acting like a “woke parallel government”.
Business and democracy
But the business case for shaking up the relationship looks compelling. As many executives stated after January’s attack on the US Capitol, democratic stability is essential for economic stability. Those who bankrolled the Republicans who challenged the electoral votes counted that day have found that closer scrutiny of the cheque-book approach to government relations increases the reputational risks for business.
Corporate revulsion at the events of January 6th and Republican efforts to restrict voting rights in states from Georgia to Texas has opened a debate about what it really means for business to support democracy. This creates an opportunity for an overdue reappraisal.
Prescribing a cure is harder than diagnosing the sickness. Porter recommends that boards should make their political spending more transparent, align it with their commitments on climate change and racial equity, and hold politicians accountable for results. At a minimum, he says, companies should not empower those who seek to undermine democracy.
Companies should not expect this new model of influence over politicians to attract less sceptical public scrutiny. Nor will it eliminate inherent conflicts between the roles of business and government. But as more companies conclude that their role in society goes beyond mailing out dividend cheques, more will appreciate that a productive relationship with a healthy public sector would maximise their social impact.
As business is the biggest funder of the US political system, it is time to ask harder questions about what return it is getting on its investment. – Copyright The Financial Times Limited 2021
