The New Corporate Political Governance

Corporate governance and political governance are increasingly intersecting, as corporations engage in some of the most contentious and important social challenges of our time with their voice, capital, and actions. In a recent article, I examine this new convergence of corporate and political governance and its wide-ranging effects on law, politics, business and society.

Through investments, pronouncements and policies, businesses have directly acted on issues like climate change, racial justice, reproductive freedom, voting rights, gun violence, gender equity and international conflicts. Corporate boardrooms have become critical forums for fights about social and political change, serving as an alternative to courtrooms and legislatures. And this new corporate social and political activism has drawn much attention, praise, criticism, reward and retribution.

Although many have welcomed the voice and resources of corporate America on these timely issues, critics argue that these corporate, social and political engagements are ruining business, polarizing our politics, and hurting our democracy.  Elected officials have punished businesses for engaging in activities they deemed ‘woke’.  For example, in recent years, numerous states moved to limit billions of dollars of state pensions from being invested with firms that actively engage in social issues like climate change and diversity.

The changing corporate political landscape has created tensions that significantly impact the governance of our businesses and our politics.  In light of these unfolding developments, my article makes three recommendations for corporate executives, policymakers and other stakeholders seeking to better navigate this shifting corporate political landscape.  Specifically, it recommends a different corporate overstory, a new organizing framework for corporate political engagements, and instructive models from Delaware and Nevada for rulemaking. 

A Different Corporate Overstory

A new corporate overstory is recommended to provide the structural scaffolding necessary to rebuild and remake conventional business practices and public policies for the changing corporate political landscape.  Whereas the conventional corporate overstory confines businesses to an oversimplified, apolitical sphere of private profit for rational, unempathetic shareholders on one timeline, the new corporate overstory centers a new, more honest narrative of business on the motif of corporations as political, profit-driven, and human-centered entities.  This proposed new corporate overstory allows businesses to better reimagine and re-engage with interdependent shareholders and stakeholders in the new corporate political landscape.

The AILS Framework

In addition to a new overstory, a new framework—Analyze, Internalize, Localize, and Specialize (AILS)—is recommended for systematically organizing and operationalizing corporate social efforts within firms.

• Analyze: To start, businesses should conduct a thorough analysis of their social and political activities similar to how they assess their operational and financial expenditures and efforts.
• Internalize: As part of a comprehensive analysis of their social and political efforts, businesses should account for the issues most important to their internal stakeholders, especially employees.  They should begin their social efforts and engagements internally by treating all their employees and contractors well and create a culture where labor is valued and cared for within the firm.
• Localize:  Once companies have meaningfully engaged with their internal stakeholders, they should, whenever appropriate, prioritize their social and political efforts locally before expanding their engagements to a broader geographic scope. 
• Specialize: To advance their positions and maximize their impact, firms should prioritize and focus their social and political efforts on issues most relevant to their businesses and engage in ways that leverage their comparative expertise.  Instead of responding to every issue in a myriad of way, specialization allows firms to better align their social activism with their business interests creating a mutually beneficial nexus.

The AILS framework is designed to help executives engage more thoughtfully with sensitive social issues to enhance firm value while minimizing bad publicity, reputational damage, and economic harm.

Lessons from Delaware and Nevada

Delaware and Nevada offer two useful models for promulgating business regulations and managing public pensions in this new, complicated corporate political landscape. 

Delaware offers an exemplary model for public policymakers who are considering retaliatory legal changes against businesses in response to their social and political activities. Delaware astutely safeguards its business laws and regulations from petty partisan politics that could harm the state, businesses, and the global economy due to the large number of important companies incorporated in Delaware.  First, Delaware’s corporate law, and changes to it, originate not in the state legislature but in the Council of the Delaware State Bar Association’s Corporation Law Section, a body of longstanding, learned business lawyers and leaders, rather than elected politicians.  Second, Delaware’s Constitution requires its three major courts that adjudicate business disputes—the Delaware Supreme Court, the Court of Chancery, and the Superior Court—be nearly evenly divided between jurists of the two major political  parties. Third, Delaware’s Court of Chancery is structured to provide a specialized, swift, and learned forum for some of the most contentious and complicated business disputes, without fear of partisan favor or backlash. Collectively, these safeguards help shield Delaware business law and Delaware corporations from many dangers that arise out of reactionary, and potentially damaging short-term political impulses.

Like Delaware, Nevada offers an instructive approach for public policymakers seeking to use public pension funds to respond to the changing corporate political landscape.  The Nevada Public Employees Retirement System fund (NVPERS) has consistently outperformed many of its peers.  The key to its success is its focus on low-cost, passive investments like index funds, without regard for the social and political views of the underlying assets or asset managers.  In contrast to the Nevada approach, in recent years, several governors, state treasurers, and other state political leaders have sought to use the tens of billions of dollars in public retirement and pension funds under their stewardship to actively reward companies that align with their political views on certain issues and punish those who do not.  By focusing investments on a broad array of low-cost, passive funds and assets, the Nevada approach allows investors and retirees to benefit from a wide range of investment opportunities to generate the best returns over the long run, without any petty political interference.

Conclusion

Addressing the critical, crosscutting issues and questions presented by the new corporate political governance landscape will be one of the most consequential and demanding challenges for political leaders, corporate executives, and ordinary citizens in the coming years. While a perfect roadmap for the changing terrain remains elusive, a better way forward, fostered by the recommendations made here, is certainly within our grasp.

The author’s full paper is available here. An earlier version of this blog post appeared on the Columbia Blue Sky Blog, available here.

Professor Tom C.W. Lin is the Murray H. Shusterman Chair Professor of Law at Temple University Beasley School of Law.