The Double-Edged Sword of CEO Activism

Abstract

CEO activism — the practice of CEOs taking public positions on environmental, social, and political issues not directly related to their business — has become a hotly debated topic in corporate governance. To better understand the implications of CEO activism, we examine its prevalence, the range of advocacy positions taken by CEOs, and the public’s reaction to activism. We ask:

• How widespread is CEO activism?

• How well do boards understand the advocacy positions of their CEOs? • Are boards involved in decisions to take public stances on controversial issues, or do they leave these to the discretion of the CEO?

• How should boards measure the costs and benefits of CEO activism?

• How accurately can internal and external constituents distinguish between positions taken proactively and reactively by a CEO?

Note: The Stanford Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance and executive leadership. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.

Keywords: corporate governance, activism, CEO activism, corporate activism, advocacy, corporate advocacy, corporate social responsibility, ESG, ESG investing, social issues, environmental issues, controversy, corporate reputation, reputation management, boards of directors, risk management, corporate governan

JEL Classification: G30, G34, M12