A principled approach to when businesses should or shouldn't engage in politics

So many things in our world deserve our intervention: wars, discrimination, poverty, illness, etc. Just as people will work together to tackle those problems, businesses and their brands also sometimes take part.

If you have ever been in a leadership position in a business, you might even have had to make decisions on the politics your business will engage in. Should you broadcast your support to Ukraine, that you want to save the planet, or that you wish to end discriminations? If you do want to support those ideas, how many resources should you invest?

Those questions were raised where I work and I searched for a principled answer. This article is that answer. My goal was to find an universalist explanation that could get everyone on board.

People get together and create corporations to compete with one another in providing the best products or services. By creating value for others, corporations are able to generate value for their shareholders, employees, and customers.

In this basic description, corporations compete on the products they create. Unless politics is directly and strongly tied to the outcome of the business, it would be a distraction and minimize the value creation for all stakeholders. After all, if a business diverts resources for activism, it won't invest as much in its offerings and return less value to shareholders. Another negative consequence will be that it will fail to attract all the potential talent available. Politics is divisive, and some applicants might opt out of joining the business even though they agree with the mission.

When a business doesn't invest resources into engaging in politics unrelated to its original purpose, it delegates these opportunities to its shareholders and employees in the form of additional resources that were not used by the business. This is empowering for individuals as it allows each person to be in charge of the political causes they wish to support and finance. This strikes me as an healthier approach for everyone.

There are some great examples of businesses with a strong mission engaged sincerely in activism. Patagonia is well known for its environmental efforts. Dr. Bronner's Magic Soaps is a lesser-known example but an even stronger one as the company was founded with the purpose of proselytizing the founder's spiritual ideology. Even to this day, it is heavily involved in philanthropy and fills its packaging with moral messages.

Those companies prove activism can be part of the mission. However, they are an exception. Most companies will engage in politics without any deep commitment. They will "discover" their new mission late in their life, alienating part of their workforce and customers. They then tend to abandon their new values as soon as they become too costly, further damaging their image. Those companies fail to realize that there's a real cost to doing activism due to its inherent divisive nature. During some moments in time, everyone might seem in agreement, making it easy to jump on board, but your values are only tested when they start costing you. That's what most of us see in business activism: a marketing ploy to boost a brand for cheap and abandoned at the first inconvenience, not a deep commitment to a cause.

Should most businesses then exclusively focus on their original purpose? Yes, but with one nuance: negative externalities.

It is safe to say that as a society, our goal is to maximize human flourishing. History has shown that a free market system is currently the best solution to reach our goal. By definition, in a free market, the state should have minimal involvement. Its role is to allow for this system to operate by protecting individual rights, which include private property and enforcing contracts.

When a business operates, it will often create some kind of negative externality. For example, it might heavily use public roads for its trucks, damaging them in the process. By doing so, it is hurting the value of property that isn't theirs, and it makes sense that it would pay for their repair (most likely through taxes). This approach is morally and intuitively correct: If someone damages your property, even slightly, you should be compensated. The opposite is also true: If you damage someone else's property, you should take responsibility, even if the government doesn't have a mechanism in place to do so.

In my roads example, the state handles the negative externality for the business. But what happens if the state doesn't have a mechanism in place? What happens if you could create a negative externality without any consequences?

This brings us to the environment. Many businesses now advertise their environmental actions, such as giving a percentage of their turnover, buying carbon offsets, financing carbon removal, and planting trees. However, what most fail to do is explain why they take such actions. If we consider negative externalities, it makes sense for businesses to offset their carbon footprint as this isn't something that is currently handled by the state (at least in most instances). Nonetheless, this sets a limit for the environmental work that a typical business should undertake. Any investment beyond that threshold goes beyond compensating for negative externalities and instead becomes activism with all the downsides we previously mentioned.

Having a clear understanding of why the business allocates some resources to protect the environment is essential. Some people will always want to push to do more which will be at the detriment of the business and its stakeholders. In this instance, it's not about having the business involved in climate politics; it's about doing the right thing and offsetting the negative impact generated. I would argue that it has nothing to do with activism.

I've had success in sharing this approach to restrain those who are the most enthusiastic about having a business engaged politically. My experience is that there's a silent majority that doesn't want to deal with politics at work and will be glad to see its leaders not follow the latest trends, but instead focus on the original mission. Additionally, this position isn't based on political views, but on a more principled stance of having corporations focus on creating value through their offerings and letting individuals make their own political decisions.