Why Corporate Political Controversies Rarely Affect the Bottom Line

Despite the seeming baggage that comes with it, what's the real damage that comes from taking a stand?

Jul 18, 2014 at 9:27AM

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In the wake of the Hobby Lobby decision at the Supreme Court, which said its private owner's religious beliefs trumped government policy, should investors worry about whether the companies they invest in get politically active? Do businesses get hurt because they take stances on issues?

While there may be some initial blowback from the move, in the long run the protests against a company's choices are much ado about nothing.

Even though Hobby Lobby is threatened with promises of boycotts and more, the crafts store is not about to go out of business because of it. No matter what side of the political spectrum they stand on, the sound and fury of those railing against the companies usually does end up signifying nothing.

Sure, businesses sometimes might reverse course, it seems if they simply ignore all the background noise they'll barely notice its effects.

Last year General Mills (NYSE:GIS) ran a supposedly controversial commercial for its Cheerios commercial featuring a bi-racial family. Who even knew that was still an issue today? Yet despite the outrage some expressed over the ad, General Mills ignored it  and you could even say they doubled down on it by running a second ad during this year's Super Bowl reprising the theme -- and there was hardly a word said against it. The cereal maker also came out in support of Gay Pride Month last year using its Lucky Charms marshmallow rainbow as its rallying flag and designing an entire website to carry the message further.

Starbucks (NASDAQ:SBUX) CEO Howard Schultz similarly dismissed the notion that its stance in favor of same-sex marriage hurt the company and recommended investors sell their shares if they objected. Its stock trades near its record highs. Coca-Cola (NYSE:KO) created a Super Bowl ad extolling the virtues of this country's diversity and was met with objections for having people sing "America the Beautiful" in different languages. It responded by saying it was going to run an even longer version of it.

Chick Fil A Drive Thru Lg

Source: Chick-fil-A

Similarly Chick-fil-A was excoriated by the media when its CEO expressed his private views on traditional marriage, and even though there were protests around the country, business boomed and today it's expanding (though its CEO has said he won't be venturing into such issues again anytime soon).

In all of these instances, business hasn't been hurt because of the position its taken. Whatever operational problems they might be experiencing, the trail isn't leading back to their political advocacy.

General Mills stock may have stumbled after its latest earning report, but that wasn't caused by its Super Bowl commercial, but rather a general malaise attacking many packaged foods companies. Target's flagging performance is a result of the breach of trust it created from the hacking incident as well as lagging peers in developing an omnichannel retail strategy, not supporting a candidate that opposed same-sex marriage. As noted, both Chick-fil-A and Starbucks seem to be at the top of their games.

In short, for all the ruckus caused by a business wading into political waters, ignoring the resulting storm seems to work best. Boycotts generally don't seem to work, perhaps because it's difficult to maintain outrage for extended periods. I deeply dislike many of the policies and actions of Google yet I still use it. The latest revelation that Facebook used us as the equivalent of lab rats for psychological study is offensive on many levels, but it continues to grow despite its flippant attitude toward its users' privacy.

There's a certain oppressive fear represented by boycotts, which says "agree with us or we'll drive you out of business." Companies have shown if they simply ignore them, the storm will pass and business will go on as usual.

Still, just because a company can express a controversial opinion without cost doesn't mean it should. Perhaps businesses would be advised to follow Chick-fil-A's example of choosing to let the politicians deal with politics and instead be mindful of running their business.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Facebook, Google (C shares), and Starbucks. The Motley Fool owns shares of Facebook, Google (C shares), and Starbucks and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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