Tag: CEO activism

How do companies cope with social risk?

How do companies cope with social risk? In “Blindsided by Social Risk—How Do Companies Survive a Storm of Their Own Making?” from the Rock Center for Corporate Governance at Stanford, the authors look at “social  risk,” essentially, reputational risk that can impair a company’s social capital and, in some cases, its performance.  These risks can arise from a variety of circumstances—a damaging statement or action by a company representative (a CEO, a board member, an employee) that triggers an adverse reaction from customers, employees, regulators or the public; a troubling interaction with a company’s services or a product name considered offensive; a damaging event at a competitor that fuels a broader inquiry across the industry. In these types of cases, “media attention (social or traditional) amplifies the impact, sparking a backlash that extends well beyond the directly affected parties.” Because social risks can be more nebulous and unpredictable than traditional operating or financial risks—and the extent of potential damage more difficult to gauge—companies may find it especially challenging to anticipate, prepare for and guard against them.  Yet, the paper asserts, “so called ‘social risk’ can be just as material as any operating, financial, or strategic disruption.”  What can companies and boards do to protect against these types of risk events or mitigate their impact?

Activist CEOs speak out—is there a way to do it better?

It feels like CEOs are stepping into it—the political fray, that is—all the time these days. And recently, there has been a lot of pressure on CEOs to voice their views on political, environmental and social issues. According to the Global Chair of Reputation at Edelman, the expectation that CEOs will be leaders of change is very high. Last year, Edelman’s Trust Barometer showed those expectations at a record high of 65 percent; “[t]his year, the call to action appears to be yet more urgent—a rise by 11 points in the public’s expectation that CEOs will speak up and lead change. Today, some 76 percent of respondents believe CEOs need to step up.”  Similarly, in this year’s annual letter to CEOs, BlackRock CEO Laurence Fink focused on the responsibility of corporations to step into the breach created by political dysfunction: “Unnerved by fundamental economic changes and the failure of government to provide lasting solutions, society is increasingly looking to companies, both public and private, to address pressing social and economic issues. These issues range from protecting the environment to retirement to gender and racial inequality, among others.” In the absence of action from government, he counsels CEOs, “the world needs your leadership.”  (See this PubCo post.) To be sure, a number of CEOs have jumped in to meet this challenge. But this study, “The Double-Edged Sword of CEO Activism,” suggests that, notwithstanding the public perception of widespread CEO activism, the incidence of CEO activism is actually relatively low. And public reaction seems to vary depending on the topic, but can, in some cases, lead to consumer backlash.  Is there a better way to handle it?  The authors of this article think so.