Staying Politically Neutral Can Be Dangerous For Companies

How does the way US companies react to political events influence customers’ attitudes toward them?

United States President Donald Trump’s executive order temporarily banning immigration from seven Muslim countries has put corporate executives in a bind. Almost from the moment he announced the ban, questions poured in about where those executives stood on the issue.

The media have highlighted a cluster of companies that have made public statements against the executive order. For example, Netflix called it “un-American”, while Ford Motor Company said: “We do not support this policy or any other that goes against our values as a company.”

But overlooked are the many more companies that tried to distance themselves from the debate. Chevron, Disney, Verizon, GM, Wells Fargo and others have all taken a wait-and-see approach. An illustrative example is Morgan Stanley, which expressed concern and said it is “closely monitoring developments”.

Such responses are no doubt based on the prevailing wisdom that companies need to stay out of politics. Most large corporations have diverse constituencies that draw from both sides of the political spectrum. As a result, executives fear that attracting the political spotlight by taking a stand on the executive order will alienate either the millions of customers who voted for Trump or the millions who voted against him.

My research suggests their fears are misplaced. And in fact, the opposite may be true: It may be more dangerous to remain silent than to take a political stand.

Violating expectations

Consumers today form relationships with a company based not only on the quality of the products and services it sells but also on a set of expectations of how it should comport itself.

When companies violate these expectations by behaving inconsistently, consumers reconsider that relationship. Obviously, this can have a major impact on company performance if many customers experience a violation.