Religious Freedom Act: Are businesses becoming more socially activist?

The companies castigating Indiana's RFRA law are not promoting liberal idealism over profits: Their response is a recognition that – at least when it comes to the issue of gay marriage – social activism is also good business.

Is American capitalism becoming more socially activist? 

As a growing cadre of CEOs and leaders of the nation’s most powerful businesses continue to come down hard on Indiana’s Religious Freedom Restoration Act this week, many see a shift not only in ideas about corporate responsibility, but in the ways in which more corporations are speaking out strongly about social issues in ways they hadn’t in decades past.

Indeed, even as the debate over the meaning and intentions of the Indiana law continues to rage across the country, American corporate capitalism has more and more become engaged with the same-sex marriage culture war, and has become one of the nation’s most powerful drivers of the social changes that have led to a mainstream acceptance of homosexuality.

For many in the business world, the corporate social engagement in hot-button social issues like same-sex marriage has been fueled by a need to draw and keep young talent, as well as to respond to a younger demographic’s social conscience, which they are more frequently attaching to the product they buy.

“The days of standing completely on the sideline are disappearing,” says Farah Parker, a corporate consultant with FD Parker & Associates in Los Angeles, via e-mail. “Businesses can no longer remain completely silent on social issues. As more corporations strive to create communities and not just consumers, the target audience now picks products based on quality and the company's cultural platforms.”

On Monday, nine CEOs, including Angie’s List’s William Oesterle, Eli Lilly’s John Lechleiter, Roche Diagnostics’ Jack Phillips, and others wrote a letter to Gov. Mike Pence, urging him to enact new legislation that would make it clear that the new religious freedom law could not be used “to justify discrimination based upon sexual orientation or gender identity.”

The debate widened past Indiana’s borders Tuesday, as Arkansas’s legislature passed its own version of an RFRA. It is now headed for the governor’s desk, who is expected to sign it. In Arkansas, both Wal-Mart, the nation’s largest private employer, and data giant Acxiom expressed their concern about the bill, with the CEO of Little Rock-based Acxiom calling it “a deliberate vehicle for enabling discrimination.” NASCAR, Gap, and Levi Strauss also added their voices to the growing chorus of businesses concerned about such laws.

But even as many of the nation’s top businesses critique the law, they also have already helped encourage the sweeping social changes over the past decade, keeping tabs on simmering changes as they pore over consumer data and the views of their younger employees and customers.

This marks a real shift from buttoned-down, traditional corporate culture, which tended to shy away from controversy. Some of the CEO statements released this week sound more like activists from an earlier generation. These companies are not promoting liberal idealism over profits, business analysts say: Their vociferous response is a recognition that – at least when it comes to the issue of gay marriage – social activism is also good business.

A lot of the change has to do with Millennials, who have come of age and are willing to choose companies who they perceive as being transparent about their social views. It is also being driven partly by the development of social media and the prominence of big data, business consultants say, when every corporation has a Twitter feed and Facebook Page that allow companies to interact directly with consumers and keep their fingers on society’s pulse.

The result is a landscape where, at least on this issue, corporations are proving more nimble than politicians.

“The sea change in public opinion on LGBT tolerance in the last two years alone, since the 2013 Supreme Court ruling on gay marriage, has surprised all sides and the issue now represents an increasing threat to the GOP nationally,” says John Ullyot, a GOP strategist and managing director of High Lantern Group, a management consulting firm in Washington, D.C. “The reaction also shows how corporate America often responds to shifts in public opinion much faster than political parties.”

Pro-business Republicans, such as Governor Pence, have found themselves caught off-guard by the overwhelming response from businesses around the country.

"Was I expecting this kind of backlash? Heavens no," he said at a press conference Tuesday.

Pence vowed to "fix" the law so it could not be used to discriminate against gays and lesbians, but called the controversy a “smear that's been leveled against this law.” The governor also said he would not support adding sexual orientation to the state’s anti-discrimination lists.

Today, 89 percent of Fortune 500 companies include “sexual orientation” in their nondiscrimination policies with 66 percent including “gender identity,” according to a 2015 report by the Human Rights Campaign. Two thirds of the nation’s top businesses now offer full equivalent benefits to same-sex spouses or partners, and more than a third now offer transgender-inclusive health care benefits, even in states that do not require them. 

“For the first time, ‘social consumers’ are willing to put their money where their ideals are,” says David Giannetto, a business consultant and author of “Big Social Mobile,” a study of how companies are adapting to changing consumer values using social media, mobile technology, and big data. “This is different behavior than previous generations, where their ideals did not influence their actual propensity to buy, their loyalty, or price sensitivity.”

Of course, the primary duty of any business is to make money, experts say, and for publicly-held corporations, this remains a legal, fiduciary duty. Many business leaders say that any corporate social activism is part of larger strategy to succeed as a money-making enterprise.

“As much as we might like to think this is all about being altruistic, it’s also the fact that it has to be about good business,” says Susan McPherson, founder of McPherson Strategies, a New York-based communications consultancy focused on the intersection of brands and social good.

“Thanks to ... the influx of Millennials as customers and employees, and the ability to directly connect with consumers in a 360 degree fashion [via social media], businesses now have the power to affect and make positive social change,” says Ms. McPherson, who helps her clients partner with charities and other social agencies in developing a social strategy.

And many of these companies took the lead in supporting same-sex marriage laws in the first states to revolutionize the definition of marriage in the US, which 37 states and the District of Columbia now legally sanction.  

Last year, Apple CEO Tim Cook, who blasted the Indiana law on Sunday, also lashed out at critics who questioned the “returns on investments” of the nation’s most profitable company when it came to its efforts to sustain the environment. He angrily told critics not invest in Apple stock if they were worried, and that the company does “a lot of things for reasons besides profit motive. We want to leave the world better than we found it.”

In 2013, Starbucks CEO Howard Schultz responded to a group that planned to boycott the coffee chain because of its support of gay marriage.

“The lens in which we are making that decision is through the lens of our people,” Mr. Schultz told some shareholders angry at the company’s social stance. “We employ over 200,000 people in this company, and we want to embrace diversity. Of all kinds.” He then added: “...It’s a free country. You can sell your shares in Starbucks and buy shares in another company. Thank you very much.”

Sometimes, however, social-awareness campaigns can backfire on a company, as happened with Starbucks’ much-lampooned “Race Together” campaign earlier this month.

Even if much of the new corporate social consciousness is driven by business concerns, it still reflects, and amplifies, a shift in values among the next generation of business people and customers.

“Millennials are much more open expressing what they believe in, what they want to see from the big institutions, whether it be government, whether it be NGOs, whether it be advocacy groups, or whether it’s corporations,” McPherson says. (Their parents, the baby boomers, it must be noted, also had a long track record of making their opinions known.)

And some corporations are even willing to take a financial hit for social causes. Mr. Oesterle, the CEO of Angie’s List, cancelled a $40 million dollar project, years in the works, after the Indiana law was signed. The company planned to build its new headquarters in the old, abandoned Ford Motors plant in the east side of Indianapolis, adding 1,000 new jobs to the local economy.

“The so-called religious freedom restoration act was very disappointing to us, that it passed and was signed so quickly by the governor,” Oesterle said during a press conference over the weekend. “We suspect the motives behind it.”

“We believe that what that bill does to our efforts to recruit good talent to Indiana is significant,” he continued, “and we’re unwilling engage in an economic development agreement that is contingent on us hiring people in, when the state is sending a message out to potential employees that is not always palatable.”