How do a business's politics affect its bottom line?

There's been plenty written in recent years about how politics is affecting consumer preferences. A USC Annenberg study cited consumers expressing strong desires to buy from brands they see as aligned with their values—and wanting to work for those companies, too.

In the past year alone, companies like Anheuser-Busch InBev, Target and Disney have been drawn into the culture war fray for their support of LGBTQ+ rights, and while these brands have taken a stand on the progressive side of the equation, others like Chick-Fil-A and Hobby Lobby have planted their flags on the conservative end of the spectrum, with equally fierce backlash from liberals. Some, like AB InBev, have even been targeted by both sides.

There's evidence that this dynamic is getting more extreme, and some leaders seem to be looking to step back from the controversies. With pressure rising on companies to take more public stands from both their customers and employees, especially among the younger generations, businesses face a complex calculus regarding how public to be in terms of the values they espouse.

There doesn't seem to be a whole lot of direct data about the risks and rewards around this challenge, especially efforts to quantify actual behavior rather than just stated preferences, but one study that does should get our attention, and it suggests potential research that could help companies navigate the current minefield.

That study, published in July 2020 in the Journal of Politics, showed significant impacts on consumer behavior in both negative and positive directions based on how the consumer’s politics align with a chain store or restaurant, with the effect being especially large for strong partisans. These results may not be that surprising, but the authors do finally show that the "effects are large enough to be economically consequential," with a potential for substantial impact on market share in certain regions or market niches.

That study wasn't designed to draw conclusions about whether the risks or rewards were bigger, so we need to look elsewhere for this type of data. A study from earlier that year in the Harvard Business Review, that surveyed younger company managers and business school grad students, showed a neutral reaction towards liberal partisan behavior—positing that “good corporate citizenship" is already baked in as an assumption among this pretty liberal sample—while it found a big negative reaction among liberals towards conservative behavior (and surprisingly little reaction from conservatives either way).

It's possible that if the sample had been more balanced in terms of age, we might have seen some more negative reactions from conservatives towards liberal behavior (consistent with the first study).

Taken together, this research paints a complex picture that suggests that businesses that understand their customer base have a good chance of publicly aligning their values in a way that has a positive economic impact. But it's clear that the risks of failing in this understanding are big, possibly even higher than the potential rewards.

The partisan sorting that's happening among many businesses, especially among leaders in corporate America, is exacerbating that danger. As this process accelerates, there's a real chance that companies will become what some have come to call "organizational monocultures," where ideas that challenge the orthodoxy are marginalized.

Leaders and workers who may have a different understanding of market realities, especially regarding partisan alignments, could stay quiet out of fear, giving these companies less ability to understand the market fully and therefore target effectively.

While there seems to be a shortage of hard data necessary to fully capture how big this effect might be, the contributing factors are only getting worse. How many businesses will ignore this risk until it has metastasized into something more than just a minor threat?