Business and Politics—Should They Be Linked?

By: Dr. Lynn Reaser

As issues such as race discussion and religious freedom have again surfaced, questions regarding the proper role of business in taking strong positions on social and political issues are relevant. How socially/politically active should a corporation be?

Some political activism, such as that leading to a better education system, can yield economic dividends. However, corporate activism may often primarily reflect the chief executive officer’s (CEO’s) political preferences. According to a study done by John C. Coates IV of Harvard Law School, companies that had created political action committees and engaged in other political activities showed an 8% worse performance than other firms after the 2008 recession. Activism can frequently distract a company from its strategic focus, according to the study, and lead to poor investment choices.

A company is accountable to its employees, its customers, and its shareholders. This does not mean that it should ignore its responsibilities to the community or its obligation to safeguard the environment. It does mean that considerable care must be taken to avoid pursuing paths that may not be in the best interests of its constituents.

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