When the CEO of Uber joins an advisory council to President Donald J. Trump, social media users goad him to resign. When an oil rig catches fire and British Petroleum faces boycotts, politicians quit cashing its campaign checks. As U.S. politics get more polarized, businesses are getting caught in the blowback. Timothy Werner, assistant professor of Business, Government and Society at McCombs, has long studied corporations in the political arena. In recent research, he examines how consumer boycotts can sour firms’ relationships with public officials — and how companies can adapt.
You’ve been studying the political activities of businesses for some time. What sparked your interest?
Among business professors, I’m somewhat unique in being trained as a political scientist. Between my undergraduate and graduate degrees, I worked as a regulatory analyst for Reliant Energy here in Texas. I spent a lot of time analyzing legislation before the Texas Legislature and regulations from the Public Utility Commission.
What motivates businesses to invest money, time, and energy in politics?
The straightforward expectation is that they do it because there’s some return for them. They increase their revenue from government contracts, or they decrease their taxes, or they get other benefits from lobbying. They may even have a status quo policy that’s favorable to them, and they spend time and effort defending it.
Can access to officials dry up when a business becomes a political hot potato?
In two papers I’ve co-authored with Mae McDonnell from Wharton, we found that politicians avoid being affiliated with a business if they think they’re taking reputational risks, like when a firm is the target of a consumer boycott. We had 203 boycotts in our sample.
You write about “reputational spillover” from a business to a politician. Can you actually measure a company’s reputation?
We use the rankings in Fortune’s annual index of Most Admired Companies. From prior research, we know that reputation is at risk when a firm is boycotted. That makes politicians less likely to associate with the firm, for fear of their own reputations being affected.
When they start shunning a company, what forms can it take?
We looked at three kinds of outcomes: the politician’s willingness to accept donations; the firm’s ability to influence the policy process through testimony at committee hearings; and the awarding of procurement contracts to the firm. We found that more contributions were rejected, while the other two outcomes were curbed.
How badly can that hurt a business?
The most dramatic measure is the loss of revenue due to the loss of procurement contracts. But the loss of access also takes away your seat at the table because it makes it harder to influence policy in the long run. Think of contributions as buying an option. You buy it, planning to exercise it when you need it. Now, you will not have that option in the future.
Can a company do anything to get a seat back?
Businesses won’t just acquiesce to limits put on them by activist boycotts. We find that they adjust their political strategies by making their ties to politicians harder to trace and observe. They use tactics that are darker or less direct.
What do you mean by darker?
Darker tactics are ones that don’t require public disclosure or that require minimal disclosure compared to campaign contributions. The example we look at is lobbying. In the period we analyzed, firms were only required to disclose their lobbying activities every six months, and it was in very general terms. You didn’t have to say which individual parties or specific bills you lobbied. You could just say it was the U.S. Senate and it was on generic tax issues. You didn’t even have to disclose what positions you took.
That’s a darker tactic, but an observable one. There are other tactics, though, that we can’t see, like contributions from the corporate treasury to a 501(c) nonprofit like a trade association that then engages in the electoral process. Nonprofits are not required to disclose their donors, provided the contributions are not for the explicit purpose of electioneering. Those are the kinds of political donations called “dark money.”
So there are degrees of darkness.
Right. Lobbying is a darker tactic than making campaign contributions, but it’s not dark money.
Besides making their ties with politicians less visible, you said that firms also make them less direct. How?
Directness means whether the firm’s engagement in politics is relatively direct or facilitated through some sort of intermediary. We looked at CEOs’ personal contributions to campaigns. At boycotted firms, those personal contributions went up while PAC contributions, which would be more closely associated with the firm, went down. That’s a strategic substitution.
Is it just contributions from CEOs?
Interestingly, no. We looked at whether the CEO of the boycotted firm was also using family members to get around campaign contribution limits. We assumed that people listed on campaign finance reports with the same last name and address were family members. We did see a similar pattern. You’ll often find wealthy individuals with 18-year-old children who are also giving the maximum allowable contribution.
What do these tactics mean for the groups that call for the boycotts?
It shows they can be successful temporarily at disrupting a firm’s political strategy, but they have to be on the lookout for strategic substitution. A more depressing conclusion is that successful boycotts may make it harder to monitor political activities going forward because they drive those activities into darker channels.
Another lesson I would draw is to be more strategic in the use of boycotts as a tactic. One of the bigger challenges for a boycott is sustaining attention. We know that about 25 percent of those that get national media attention get concessions from companies. But the likelihood of national media attention goes down as the number of boycotts increases.
In some recent calls for boycotts, it’s a politician who’s controversial, and a company like Uber gets threatened for associating with them. How does this fit your findings?
Uber, as a firm, already faced a number of challenges, such as its hardball approach to politics with local government and its labor issues. This CEO’s relationship to the [Trump] administration played into these pre-existing negative views of the firm. You might say the gas was laying around, and this was a lit match that sparked it into an inferno.
So the firm already had issues with its reputation. There were activists lying in wait for something to come up that they could exploit.
How about Nordstrom? It’s faced boycott pressure for dropping the fashion line of the president’s daughter.
To the average Nordstrom customer, I don’t think calls for a boycott will make any difference to their purchasing intent. The activists’ goal is generally to change a practice they disagree with. In this case, there’s no underlying practice. The only concession Nordstrom could make would be to carry a line they’re losing money on. That makes no sense whatsoever.
So the level of risk from a politically motivated boycott depends on the reputation the company already has?
Yes, and for companies that highlights the importance of continuous reputation management. We’re seeing greater potential for reputational risk because of the polarized environment we live in. Because activists on the left and right are not being particularly strategic in their calls for boycotts, the effects seem to be more minimal than in the past, but you still want to monitor the boycott and see how it might unfold. More important, you want to monitor your company’s reputation before the next boycott is called.
Blacklisted Businesses: Social Activists’ Challenges and the Disruption of Corporate Political Activity was published in Administrative Science Quarterly. Into the Dark: Shifts in Corporate Political Activity After Social Movement Challenges is in review.