In a recent study published on SSRN by the Rock Center for Corporate Governance at Stanford University, authors David F. Larcker, Stephen Miles, Brian Tayan and Kim Wright-Violich argue that CEO activism – the practice of CEOs taking public positions on environmental, social and political issues not directly related to their business – is a “double-edged sword”: CEOs who take public positions might build loyalty with employees, customers or constituents, but these same positions can inadvertently alienate important segments of those populations.

The authors – who aimed to better understand the implications of CEO activism by examining its prevalence, the range of advocacy positions taken by CEOs, and the public’s reaction to activism – canvassed all public statements in national media and corporate transcripts made by the current CEOs of all companies listed in the S&P 500 Index.

Key findings from the study include:

  • Very few CEOs take activist positions in the national media. Among S&P 500 companies, only 28% of CEOs made public statements about social environmental, or political issues either personally or on behalf of the company. Only 10% made these statements clearly on a personal basis. Among the broader set of S&P 1500 companies, the incident rate of CEO activism falls: only 12% made statements personally or on behalf of the company, and only 4% clearly made these statements on a personal basis.
  • With 50% of activities CEOs promoting an increase in gender, racial or sexual-orientation diversity or equality, diversity is the most frequently advocated issue, followed by environmental issues (41%), immigration and human rights (23%), other social issues (19%) and political issues (17%).
  • Any perception of widespread CEO activism might be driven by a few vocal outliers. Most CEOs who take positions due so narrowly regarding one or two issues. Only a few are repeat activists.
  • Although CEOs comment on public issues more frequently on Twitter than on national media, the incident rate is still fairly low. Only 11% of S&P 1500 CEOs have active personal Twitter feeds, and only 4.6% of CEO tweets can be considered activist.
  • With respect to the public’s view of CEO activism, while self-reported purchase behavior is often unreliable, the high degree of public sensitivity to CEO activism suggests that CEOs who take public positions might foster loyalty with some but inadvertently alienate others.
  • Public reaction depends on what issue the CEO activism was about. The public is most in favour of CEO activism about environmental issues (e.g., clean air/water, renewable energy, sustainability and climate change) and generally positive about “widespread social issues” (e.g., healthcare, income inequality and poverty), but least in favour of activism about contentious social issues (e.g., gun control and abortion), politics and religion.

Ultimately, the authors identify a number of important questions relevant to corporate governance that may be of interest to directors, including:

  • How widespread is CEO activism? The common perception is that CEO activism has increased, but empirical evidence suggests that CEO activism is actually a fairly limited practice.
  • How well do boards understand the advocacy positions of their CEOs? Survey data shows that the costs of CEO activism might be higher than many CEOs, companies or boards realize.
  • Are boards involved in decisions to take public stances on controversial issues, or do they leave these to the discretion of the CEO? Given that a public stance taken by a CEO has the potential to impact the commercial performance of an organization, should boards be more engaged in these decisions?
  • How should boards measure the costs and benefits of CEO activism? Should a board that determines the net impact of CEO activism to be negative prevent the CEO from being an activist, and if so, how?
  • How accurately can internal and external constituents distinguish between positions taken proactively and reactively (i.e., made in response to external criticism or pressure) by a CEO? From a board perspective, should this distinction matter?

The author would like to thank Scott Thorner, articling student, for his assistance in writing this legal update.