Abstract

CEO political activism, wherein firm leaders communicate public stances on overtly political issues unrelated to their core business, is a nascent and emerging, and thus understudied, phenomenon. We first propose a parsimonious formal model of stakeholder responses to firm political communication, and then test the predictions of the model using two survey-based experiments. We consider the implications of communicating a stance on either side of an issue, explicitly communicating an apolitical stance, and saying nothing (silence). In our model, stakeholders value both ideological proximity to their own political opinions, and consistency of the firm's stance with their expectations about the firm. Theoretically and empirically, we find that, when stakeholder opinion on an issue is highly asymmetric, the firm can benefit from taking the position in line with the majority. Instead, when stakeholder opinion is divided on a political issue communicating a stance elicits a negative average response amongst stakeholders. However, because communication polarizes stakeholders' perceptions of the firm, political communication can also increase the set of stakeholders holding extremely positive views of the firm. Whether stakeholders prefer an apolitical stance to silence depends on their expectations of the firm's stance. Finally, we discuss some extensions of our model, including when firms can benefit from communicating a stance which is incongruent with expectations - an interesting finding given the more commonly identified incongruent penalty in other contexts. We discuss individual-level heterogeneous effects discovered in our experimental data, and conclude with additional strategic considerations.

This paper sheds light on the circumstances under which, and mechanisms through which, it is more or less beneficial for firm leaders to talk politics in business.