The business case for democracy

Florida Times Union, April 11, 2021

On the heels of a record-setting election turnout and an election free of any substantive voter fraud, Republicans in Georgia enacted new legislation that can be best described as voter suppression. That the bill was premised on the big lie of a stolen election, makes its passage all the more insidious. Republicans did not like the outcome of the last elections in Georgia. Who likes to be on the losing side? But instead of figuring out how to better appeal to voters, Republicans have chosen the path of reducing voter access to the ballot box. This has provoked predictable outrage. Several major corporations have now joined the fray. United Airlines summarized it succinctly, “Legislation that infringes on the right to vote of fellow Americans is wrong.”

Businesses influencing our politics is not news. Over a decade ago, in the 2010 Citizens United v. Federal Election Commission case the U.S. Supreme Court in a 5-4 decision cited the First Amendment in opening the floodgates for corporate spending in elections. By my rough estimate, from the federal campaign contribution website OpenSecrets.com, of the top 50 organizational donors in 2020 election cycle, 34 were corporations. These 34 corporations provided over $1.1 billion in campaign donations, 52 percent going to Republicans and 48 percent to Democrats. Even more money, this time unaccounted, flowed into groups who legally do not have to disclose their donors. Republicans cheered Citizens United. But now they decry those same corporations exercising their 1A rights to speak out on social justice issues.

Corporations have begun to broaden their understanding of what drives firm value. Paying attention to the proverbial bottom line of cash flow but ignoring the social perils surrounding their customers and employees is no longer a sustainable model. Free markets, necessitate democracy, which needs a commitment to social justice. Businesses realize, now more than ever before, that the blind worship of free markets has not made each generation doing better than the previous. To the contrary, unfettered crony capitalism has led to grotesque income inequality, an erosion of trust in institutions and staggering environmental degradation.

Businesses need democracy to work. More importantly they need democratically accountable governments to help markets remain not only free but also fair. While undemocratic governments are easy to corrupt, which may favor corporate interests in the short run, but flawed democracies eventually endanger business interests. This does not mean businesses having discovered religion are now going to pull back from authoritarian economies, such as China. But it does mean that where businesses perceive that its newfound moral voice will make a difference, they will be unafraid to speak out. Baby steps forward.

A 2021 Edelman Trust Barometer report found that a staggering 86 percent of respondents want corporate CEOs to lead on societal issues. When governments fail, 68 percent want businesses to engage on social issues, “with the same rigor, thoughtfulness, and energy used to deliver on profits.” After Major League Baseball pulled its All-Star Game from Atlanta, 48 percent of MLB fans and 62 percent of avid fans expressed support for MLB’s decision.

Some derisively call this wokeness or cancel culture. But from my vantage point of researching capital markets for over two decades, I see corporations haltingly but surely charting their path back to Adam Smith’s conception of free markets where, “necessary assistance is reciprocally afforded from love, from gratitude, from friendship and esteem,” and where social responsibility is fiscal prudence.  Businesses realize that if they do not step-up and step-in, society could descend into dystopia as social injustice, wealth inequality and climate change, further plunge the world into unprecedented chaos.

Parvez Ahmed is professor of finance and director of diversity and inclusion at the Coggin College of Business, University of North Florida.