Activist Targeting and Corporate Receptivity to Social Challenges

Published June 10, 2014

2015-03-09 15:52:51

A firm’s public image is one of its most valuable assets, and in a world where signs of social responsibility are increasingly demanded by consumers and other stakeholders, firms must take care to protect their public image from claims of social irresponsibility. Social activists may therefore capture a corporation’s attention (and, often, a concession) by using contentious tactics like boycotts, protests, and negative media campaigns that publicize problematic corporate practices. But how is activist contention changing the shape of corporate social strategy? What can firms that are caught in the crossfire of contentious politics do to repair their social image and cultivate a more cooperative relationship with social activists?

Roughly a third of Fortune 500 companies now have a dedicated committee of directors tasked with identifying and responding to potentially divisive social issues that involve the firm.

My colleagues and I have written a new paper exploring these questions by unpacking the process through which the relationship between firms and activists changes and becomes more cooperative over time. Our paper provides evidence that firms that are chronically targeted by activists will seek out and adopt defensive strategies meant to better manage their social footprint. We call these ‘social management devices.’ For example, roughly a third of Fortune 500 companies now have a dedicated committee of directors tasked with identifying and responding to potentially divisive social issues that involve the firm. Firms are also increasingly communicating in-depth information about their social activity through annual CSR/sustainability disclosures. Some firms are even opting in to external social standards set by large and respected organizations like the United Nations. Each of these examples of a social management device is, we find, more likely to be adopted by firms that are more commonly targeted by social activists. This suggests that social activists may play an important role in spurring the adoption of new and innovative strategies for managing social issues.

Our findings suggest, further, that social activists may benefit more broadly from firms’ adoption of social management devices. By increasing disclosure and empowering additional monitors of corporate social activity, social management devices may have the indirect effect of creating new channels of influence for activists, helping them to win access to corporate decision-makers and place their issues on the corporate agenda. In support of this notion, we find evidence that firms that adopt social management devices become more receptive to future social challenges submitted by shareholder activists via the corporate proxy, as compared to matched firms that do not adopt social management devices.

Our work suggests that social activism is prompting meaningful changes in corporate social strategy and that, as a result, companies are becoming more receptive to social issues brought to their attention by activist stakeholders. While activists have little direct role in building or shaping the particular social management devices explored in our paper, we would expect that activists will seek out and win more direct roles in shaping corporate social strategy in the future. Activists are, after all, building profound new inroads for influence in social media, where their claims are quickly amplified, spread, and accessed by a broad consumer base. This expanded influence is likely to afford activists the power and opportunity to demand a more direct role in corporations’ social strategy-making. Activists may begin to bid for board seats on the corporations they seek to influence, as did Wayne Pacelle, the CEO of the US branch of the Humane Society, who recently waged an (ultimately unsuccessful) campaign for a board seat at one of his organization’s most-targeted foes: Tyson Foods. Beyond inviting activists in the board room, as firms become more receptive to their activist stakeholders, we would expect them to increasingly seek the consultation of expert activists when creating, implementing, and enforcing new social and environmental standards. Ultimately, the evolving relationship between firms and contentious activists that we have begun to explore suggests that social activists will play a larger role in defining just what the label of ‘corporate social responsibility’ means for the firms that claim it in the future.

Co-authors:

  • Brayden King, Kellogg School of Management, Northwestern University
  • Sarah Soule, Stanford University

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