What Happens When Business and Politics Mix?
If a decision expands the potential customer base, the result can be positive.
Bloomberg, March 6, 2018
I have long cautioned readers about the dangers of mixing politics with their investing. Politics is so emotional, so tribal, that it can easily cloud an investor’s thinking. Anything interfering with factual and logical analysis will disrupt even the best decision-making processes. Indeed, changes to your investment strategy based on hot emotions rarely work out.
But what about when politics affects how corporate executives make their decisions? There are dangers and opportunities when hot-button topics are mixed into a business model.
Consider some recent examples where politics appeared to influence corporate decision-making:
- First National Bank of Omaha, the nation’s largest closely held bank and thus one might assume not subject to outside shareholder pressure, dropped its National Rifle Association affiliate credit card “in response to customer feedback.”
- Papa John’s International Inc. ended its relationship with the National Football League, in large part because some players kneeled during the national anthem.
- Dick’s Sporting Goods Inc. ended sales of assault-style rifles and high-capacity ammunition magazines; it would also require any gun buyer to be at least 21, regardless of local laws. Walmart Inc., the biggest gun seller, said it too would no longer sell assault-style rifles, and would stop selling guns to anyone under age 21.
- Chick-fil-A Inc.’s chief in the past made comments about “the company’s support of the traditional family;” it was subsequently reported that the company donated to anti-LGBTQ groups.
- Outdoor retailer Recreational Equipment Inc., better known as REI, said it planned to stop sales of five brands, including firearms maker Vista Outdoors Inc., amid customer complaints. Enterprise Rent-a-Car, Hertz and Avis, meanwhile, have ended co-branding partnerships with the NRA.
- Delta Air Lines Inc. rescinded a one-time group travel discount for the NRA’s annual meeting. (It was only used by 13 people.)
It would be easy to see the actions related to the latest mass shooting as a knee-jerk response. But there’s a big difference between the hotheaded reaction by traders to political news, and what seems to be more deeply considered moves by corporate executives in response to customer feedback. But with the #BoycottNRA still unfolding,1 I want to use something with more distance from today as a leaping-off point for discussion.
Consider how politics informed corporate decision-making at Chick-fil-A.
The company began with a single location in Georgia in 1946, and most of its early growth was in its home and neighboring states. It should come as no surprise that a company that openly espoused religious precepts would find no difficulties expanding in its own backyard in the Bible Belt.
By 2006, sales had topped $2 billion. But the company also had a major obstacle, largely of its own making. In 2012, Dan Cathy, son of the company’s legendary founder, Truett Cathy, told a Baptist newspaper that he and his company “operate on biblical principles” and “are very much supportive of the family — the biblical definition of the family unit.” That led to some controversy, and a closer look at the company’s charitable donations. As it turned out, some of the recipients of those company donations were anti-LGBTQ groups. Protests erupted.
But if you want to be a national brand, you have to sell wherever people are, including the coasts and the cities, areas that tend to be much less conservative and religious. The company’s chief executive officer had two options: either tone down the controversial public political commentary, or scale back the company’s expansion goals. He decided on the former.
In 2015, the first Chick-fil-A opened in New York, to modest protests and long lines. There are now more than 2,100 restaurants across the country, and the fast-food restaurant outfit has gone on to surpass KFC as the nation’s largest chicken chain. 2
There is a message here for corporate executives: They must consider who their customers are now, and who they might be in the future. I do not believe this reflects the rise of what some have taken to calling woke capital, but rather, pragmatic business decisions made by people whose bottom line is, well, the bottom line. Expansion plans, revenue targets and profits appear to drive a lot of these decisions.
Although there are risks when executives choose sides in any national political debate, most CEOs are smart enough not to alienate customers or potential customers. But opportunities exist for companies to become more aligned with the broad public opinion on rapidly changing social issues.
There are, of course, risks for those corporate managers who misread the way the political winds are blowing. Recall Papa John’s break with the NFL: On the very next day, Pizza Hut became the NFL’s official pizza sponsor.
Investing and politics clearly don’t mix, as I keep telling readers. There is no such rule of thumb for business and politics. Companies can take political stands; the results can yield benefits or prove costly. Either way, we’re likely to see more of it in the future. How it plays out depend on whether the decision expands the base of future customers without alienating those who are content with the status quo.
1. As of today, some 20 companies, large and small, have severed relations with the NRA; also see how boycotts might affect the organization.
2. Chick-fil-A may not be Delaney Chicken — for my money, the best chicken sandwich in the world — but it does make a very good fast-food fried chicken sandwich.
Originally What Happens When Business and Politics Mix?
