Companies Enter Unfamiliar Territory With Firmer Political Stances - Investopedia

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The riot in the U.S. Capitol on Jan. 6 was an unprecedented moment in American politics, but it seemed to be largely ignored by the financial markets. While none of the major indexes faltered, the Capitol riot has had at least one significant impact on the financial world – it has encouraged and even forced some companies to take up a political position.

Key Takeaways

• Companies have traditionally avoided any overtly political actions, but the Capitol riot appears to be a game changer.
• A large number of firms have suspended political contributions, with some targeting Republicans who objected to the certification of President Biden's win.
• Taking political stances can have repercussions for companies if and when power changes hands.

Sticking to Business Untenable for Some

Companies have traditionally seen themselves as apolitical entities. It is not unusual for companies to give equally to both major parties in the United States. Whenever there is a transfer of power, they recycle the same press statement of working with the incoming administration to bring about positive results for their industry and shareholders.

The Capitol riot, however, has pushed a number of companies to drop the apolitical approach – at least for the time being. Some of these companies are seen as having little choice, as the nature of their businesses demanded some form of action at the risk of losing customers. Others chose to take a political stance for their own reasons.

Companies Forced to Take a Stand

Social media companies were at the forefront of companies forced to take action. Facebook, Inc. (FB), Twitter, Inc. (TWTR), Alphabet Inc.'s (GOOGL) YouTube, TikTok, and smaller companies like Reddit have all taken actions after the Capitol riot to suspend accounts, redirect hashtags, and otherwise remove content. As some of these platforms were used to disseminate misinformation and organize parts of the Capitol riots, this should come as no surprise. The implications of these actions will have direct impacts on these companies, but statements indicate that they felt inaction to be a far bigger risk.

Unfortunately for some of these companies, the reaction to the Capitol riots will work against some of their arguments of being platforms versus publishers. These companies have long argued that they are platforms (some also claiming impartiality) and hence that they should be able to see content reshared without payment or liability. These arguments will now run into stiffer legal opposition armed with new evidence that these companies can and will take responsibility for content. On top of this, despite the risks these companies opened themselves up to by taking action, there are many who feel that they acted too late by allowing the Capitol riot to take place before they did anything about the extreme calls to action reverberating through user groups within their communities.

Companies Choosing to Take a Stand

Direct involvement of a company's product in carrying out an attack on the Capitol does suggest the need for at least a statement if not swift action. A number of companies, however, chose to make statements and take actions despite not being directly in the public crosshairs. A common pressure point that companies have used is suspending or reducing political contributions. Some companies like Microsoft Corporation (MSFT), Alphabet, The Coca-Cola Company (KO), and so on have suspended political action committee (PAC) donations to both parties. The Charles Schwab Corporation (SCHW) discontinued its PAC altogether.

Other companies like Walmart Inc. (WMT), Amazon.com, Inc. (AMZN), Morgan Stanley (MS), The Walt Disney Company (DIS), and more have specifically targeted PACs for the Republican members of Congress who voted against the certification of President Biden. For these members, known collectively as the objectors, what seemed like a political gesture has come with a significant financial consequence that will become apparent when their seats are next up for election.

The Bottom Line: What It Means for Investors

The Capitol riot was an unprecedented event in recent U.S. history, so it makes sense that the corporate reaction is also unprecedented. The question for investors is not whether the rioters, Trump, or the objectors should face consequences, but what the consequences will be for the companies taking more explicitly political action. This time, the risks seem small, as the actions mostly affect a political party that no longer holds power.

In the longer term, however, taking a stand in politics can make these companies a partisan target when power does change hands. This is the whole reason companies have trended toward apolitical giving. No matter who is in power, they want to be able to profit. For some companies, apolitical profits may no longer be worth the social costs, meaning that investors will have to become acquainted with measuring political risk like they would for a company in a less stable region of the world.

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Companies Enter Unfamiliar Territory With Firmer Political Stances - Investopedia
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