The Business Fallout from Charlottesville

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Wharton's Americus Reed and Yale's Jeffrey Sonnenfeld discuss the business fallout from the white supremacist rally in Charlottesville.

President Donald Trump campaigned on the promise that he would “make America great again” by becoming the first CEO in the White House, someone who could leverage his business acumen to bolster the economy and create jobs. But his effort to get buy-in from titans of industry seems to be falling apart. A number of top executives resigned from Trump’s two business advisory groups following his failure to unequivocally condemn racially motivated violence in Charlottesville, Virginia.

The wave of revolt was led by Merck CEO Kenneth Frazier and followed quickly by the heads of Under Armour, 3M, Campbell Soup, Intel and others. After saying he would replace the executives, Trump announced on social media Wednesday that he would instead disband the two councils. This very public rift between Trump and his peers has pundits analyzing what it means for the president’s future and his brand. Wharton marketing professor Americus Reed and Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale University, recently appeared on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111 to discuss the fallout. During the discussion, Sonnenfeld disclosed that he’s known Trump for more than a decade and used to critique his reality show, “The Apprentice,” for NBC. The following are key points from their conversation.

Business leaders are facing unprecedented social pressure to react.

The mass exodus from the president’s two advisory councils isn’t surprising to Sonnenfeld. But he is dismayed that the business community didn’t respond faster and more forcefully.

“Where is Jamie Dimon’s clarion call?” he said of the outspoken CEO of JPMorgan Chase, describing him as “an extraordinary opinion leader.” Dimon was atypically quiet for several days before expressing his disagreement with Trump’s reaction to the events in Charlottesville.

“That he’s sitting by mutely is astounding, especially in the face of one of only three Fortune 500 CEOs who happens to be African-American, who had the courage to take a position based on his convictions,” Sonnenfeld said of Frazier, who was the first to quit the council. Trump attacked Frazier on Twitter the following day.

Reed noted that many of the CEOs needed to take a moment to strategize their responses because of the enormous public pressure.

“I think that people are nervous in the sense that this is a call to take some sort of stand,” he said. “This is a relatively new kind of thing for CEOs. If you look back a few years ago, we didn’t even know these people’s names. Now, in this day and age of social media, that’s part of the skill set — to come out and communicate what are the beliefs of this organizational culture.”

Sonnenfeld said many business leaders were supporting Trump as a colleague in the White House. “They had high hopes on a lot of economic change that was going to come their way. They aren’t seeing a lot of it happen,” he said. “They’re seeing a lot of brushfires, a lot of these unplanned or forced errors. The self-immolation has thrown many of them off, but none of these people were Trump detractors that joined the board. They all joined these boards with a sense of patriotism and enthusiasm. They are leaving discouraged.”

“This is a relatively new kind of thing for CEOs. If you look back a few years ago, we didn’t even know these people’s names.”–Americus Reed

Sonnenfeld said he heard from numerous CEOs who said their boards were discussing the situation and debating what to do before Trump announced he would disband the councils. “It’s an extremely uncommon experience,” he said.

Reed echoed that sentiment.

“The CEO is the figurehead, the person who sets the tone. Everything is being scrutinized, everything is being watched, everyone wants to know what do you stand for, and everything is being interpreted,” he said. “It’s a pretty extraordinary moment in time where companies are being pressured to justify what it is they’re going to do and where they’re going to align their company’s values and beliefs.”

Company branding extends to employees fired for participating in the march.

Several businesses fired employees who participated in the march in Charlottesville, which was organized by neo-Nazis espousing white supremacist views. Although participation is part of their constitutional right to free speech and assembly, it doesn’t outweigh the needs of the businesses to protect their brands, the professors said.

“They have the right to do that,” Reed said of the firings. “It’s about values for companies, organizations, institutions. What do you stand for? This notion of, ‘What is it that you stand for, and is that misaligned with the things I care about?’ — it’s a very important issue for lots and lots of consumers.”

Added Sonnenfeld, “The whole notion of branding is the notion of a reflected image of themselves. You’ll see people that will distance themselves from this.” He pointed to the recent controversy at Google, which resulted in the firing of an employee who wrote in a memo that women are biologically unqualified to work in tech. “Google made the decision that, ‘No, that’s not part of our culture.’ And I think they are entitled to make that decision.”

The Charlottesville violence renewed the controversy over Confederate statues that stand in cities across the United States. Many were vandalized in the wake of the march, and some cities are taking them down.

“It’s a pretty extraordinary moment in time where companies are being pressured to justify what it is they’re going to do and where they’re going to align their company’s values and beliefs.”–Americus Reed

“All of these things are interconnected,” Reed said. “Cities are brands, so there’s money to be lost” in tourism if a city has a negative reputation around the issue. He pointed to the so-called “bathroom bill” in North Carolina. Major businesses and organizations pulled out of the state over the 2016 law, which required transgender people to use the bathroom that matches the gender listed on their birth certificate.

“You ask yourself, how much of this is being driven by authentic moral concerns versus pure economic concerns?” Reed said. “It’s an interesting question to ponder. ”

The protection of branding extends to logos and images. The Detroit Red Wings and Tiki Brand moved swiftly to denounce the march after their products were visible during the Charlottesville event.

“It’s incredible, this co-opting of products and services, logos, images,” Reed said. “It takes a long time to create and nurture the right sort of brand equity around a company or service or product that you create. That can be undermined very quickly if you don’t get out ahead of these kinds of things.”

Companies have a follow-the-leader mentality on such issues, Sonnenfeld said. “You look for that role model, and then people fall in line and do the right thing. It takes a leader to spark the group to do the right thing.”

“It makes a difference as to what’s said, not just that you get out there and mumble some clichés.”–Jeff Sonnenfeld

When public figures speak out, language matters.

Neither Reed nor Sonnenfeld were impressed by the politicians and business leaders who did not specifically mention Trump while denouncing his actions. Vague statements laden with moral platitudes ring empty, they said.

“They’re not naming the names or drawing lines,” Sonnenfeld said. “It makes a difference as to what’s said, not just that you get out there and mumble some clichés.”

Reed said there’s a tension between taking a stand and self-preservation.”There are a lot of things at stake, and people are trying to protect their own interests but also come out and have some kind of statement about what it is they stand for. Because that tension is so potent to them, what ends up coming out is this kind of vanilla, almost meaningless statement that’s always true for anybody because it’s so vague,” he noted.

There’s a lesson in leadership for Trump.

The events surrounding the Charlottesville march have illuminated the problem of forcing a business paradigm on government, Reed said. It should serve as an example to Trump that he needs to find a different leadership style if he wants stakeholders to work with him.

“You can’t bully them into doing it. You can’t force them. You can’t insult them into doing it,” he said. “The psychology is very clear on that. When you do that, they go the opposite [way].”

But Sonnenfeld contends there’s no single style of corporate leadership. Most CEOs aren’t autocrats, and diplomacy “usually carries the day in the business world.” He pointed to former New York Mayor Michael Bloomberg, who translated his business skills to the political realm rather successfully.

“However, Donald Trump has never been a corporate titan of any public company. It’s a mid-sized company, and the public piece of it really fell apart. His private enterprise is what hung together,” Sonnenfeld said. “He has never been the kind of corporate titan that he courts right now. He identifies with them, he cherishes the relationship with them. But he knew very few of them.”

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