Summary:

–Actions taken by activist groups targeting companies can generally be divided into two categories: « extra-institutional » actions (boycotts, demonstrations, etc.) and « intra-institutional » actions (legal action, votes at shareholder meetings).

– When organizing boycotts, activists must make many strategic decisions: whether to target the industry as a whole or just one company; whether to target a company directly, its suppliers, or its customers, etc.

– It is difficult to draw conclusions about the impact of these actions. However, companies whose image has been tarnished are more likely to give in to the demands of activist groups. The legitimacy of the demand in the eyes of the public is also an important variable.

Usefulness of the article: The « Stop Hate for Profit » campaign highlights the sometimes conflictual relationship between companies and activist groups. This article presents some of the economic and strategic literature addressing these conflicts in order to highlight some of its findings.

The « Stop Hate for Profit » campaign, which has been targeting Facebook since June 2020, illustrates the sometimes conflictual relationship between companies and activist groups (such as associations) seeking to influence their behavior. In early July, around 1,000 companies (including Adidas, Coca-Cola, Starbucks, etc.) decided to stop using Facebook’s advertising services until the social network took a number of measures to moderate hateful content online. These demands include, among other things, the removal of Facebook groups expressing supremacist, anti-Semitic, conspiracy-theory, climate-skeptic, and other similar views, and the implementation of transparent and automatic measures to moderate hate speech. [1]

Since the mid-1990s, and especially in the last ten years, these oppositional relationships between companies and activists have been the subject of extensive economic literature and, more generally, corporate strategy literature. Without claiming to be exhaustive, this article summarizes some of this work to highlight the strategic aspects of these relationships.

1. Which activists, which strategies?

Thanks to the creation of a database on the actions of environmental activists in the United States between 1971 and 2003, Eesley et al. (2016) show that it may be useful to consider two categories of activists:

· Those with a more radical ideology that is not particularly favorable to businesses, often linked to « traditional » social movements, who favor « extra-institutional » actions such as boycotts, demonstrations, etc.

· Those who, on the contrary, seek to influence companies from within, using traditional institutional means such as legal action and votes at shareholder meetings. This group is made up of activist investors but also religious associations (in the United States).

These two groups use different means and will have different impacts on companies. While the former seeks to attract media attention and thus influence the company’s image, the latter group will instead influence the company from within or its investors and their perceptions of risk (environmental in the study) in order to change their behavior.

2. Some strategic dilemmas

Let us now consider in more detail the groups that use « extra-institutional » actions (boycotts, petitions, demonstrations, etc.). What strategic decisions should these groups make? Once again, without claiming to be exhaustive, we can draw on existing literature, notably Baron and Diermeier (2007), to understand some of the strategic dimensions to be considered.

· Target a single company or the entire industry?

If a group of activists wants to change a practice common to an entire industry, it seems fairly intuitive that the group would target all companies involved in that industry rather than a particular company. However, several factors may lead activists to target only one company. For example, it may be easier to initiate a boycott against a single company in order to rally other citizens. Indeed, in the absence of substitute products, it can be very costly or complex for consumers to boycott all companies, whereas boycotting a particular product (and buying a competitor’s product) does not constitute a significant sacrifice. Baron and Diermeier (2007) provide an intuitive example: it is relatively easy for motorists not to buy gasoline from a particular company, but convincing them to boycott the entire industry (i.e., to stop buying gasoline altogether) would be prohibitively expensive, both in monetary terms (replacing their vehicles) and in terms of time (finding alternative modes of transportation).

Furthermore, Baron and Diermeier (2007) explain that targeting a single company can pay off when considering the dynamic aspects of opposition:

– Targeting a single company can enable activists to achieve a quick victory (as long as it does not give in, the targeted company knows that it is losing market share to its competitors). Thanks to the media coverage of this victory, they could benefit from increased funding or better recruitment of volunteers.

– By capitalizing on this initial victory (and the financial gains, recruitment, etc.), activists can now target the competitors of the first company and be even more demanding.

– The first targeted company can anticipate that its competitors will be targeted in the short or medium term. By giving in quickly, it can minimize the costs associated with conflict and then take advantage of the period when it finds itself the « only virtuous » company while its competitors are under attack.

– Furthermore , when the first company is targeted, its competitors can anticipate that they will be targeted one day and accept the activists’ demands « in advance. »

· Should the target be attacked directly or indirectly?

Similarly, it may seem simpler to target a company « directly » in order to change its practices. However, it is also possible to target its customers and suppliers.

For example, Baron and Diermeier (2007) explain that the Rainforest Action Network’s campaign to prevent logging in primary forests did not target the companies that were cutting down the trees (such as Boise Cascade), but rather the companies that used the wood and interacted with end consumers. This choice is relatively intuitive: for these companies, the media cost—in terms of public perception, and therefore end consumers—of a campaign was much higher. Furthermore, these companies could change their wood supply without completely changing their business model. Once the main client companies had been targeted and had committed to changing their practices, the demand for wood from primary forests was greatly reduced. Suppliers—the companies cutting down the trees—had no choice but to develop a new offering or close down.

3. Mixed results?

The question of the results of activist group actions is central to the empirical literature on the relationship between activists and companies, but this question faces practical difficulties. In particular, it is necessary to differentiate between the effect of an action (a boycott, for example) on its target—such as a decrease in stock market value, a decrease in sales, or a deterioration of « image, » etc.— – and the fact that the target changes the behavior that was denounced by the activists. The difficulty is that it is sometimes hard (especially for researchers) to observe whether the targeted companies actually change their behavior or simply make statements about their good intentions.

When looking at variables that can be measured without too much difficulty—such as market valuation—it is not always clear that activist actions are effective. Analyzing the existing literature, King (2008) suggests, for example, that only a quarter of boycotts have an impact on their target and that there is (at best) mixed evidence of their influence on companies’ market capitalization. Analysis of the stock prices of targeted companies sometimes shows a decline in market valuation (e.g., Davidson et al., 1995), but sometimes also shows counterintuitive results. For example, based on 54 boycotts (or threats of boycotts) that took place between 1980 and 1993, Koku et al. (1997) observed abnormally high and positive cumulative abnormal returns on average in the short term after boycotts or threats of boycotts, with no long-term impact. According to them, this result could be the consequence of strategies adopted by the targeted companies, which may launch promotional campaigns or mobilize supportive consumers (organizing « buy-cotts ») in response to short-term boycotts. This latter finding is also interesting because it shows the difficulty of « naively » using « easily observable » variables (stock prices, sales, etc.), as companies’ responses to boycotts can mitigate or reverse the observable effects. This does not mean that boycotts are ineffective, as these responses (mobilizing public relations resources, developing promotions, etc.) can be costly for companies.

This is why King (2008) does not conclude that these strategies are ineffective, but rather that it is necessary to assess on a case-by-case basis whether companies have effectively responded to activists’ expectations. He therefore creates a variable indicating the targeted company’s recognition of the legitimacy of the activists’ demands, followed by actions to implement a large part of these demands (a public statement such as « we are considering… » would not be counted as a real concession). To illustrate this dependent variable, King presents the case of Warner Records, which, following a boycott organized by a police association in Dallas, re-recorded and released a new version of an album without a song entitled « Cop Killer » (King 2008, p. 405). He then looked at 144 boycotts (53 of which led to concessions) affecting publicly traded American companies between 1990 and 2005 to examine the conditions under which a company is more likely to give in. King suggests that targeting large, well-known companies that are already facing difficulties (declining sales or image) will increase the chances of success in getting them to give in to activists.

By studying approximately 600 conflicts between companies and environmental activists between 1971 and 2003 (these may include boycotts, but also lawsuits, petitions, etc.), Eesley and Lenox (2006) confirm that companies that are vulnerable, or at least have relatively few financial resources (compared to activists), are more likely to give in to activists’ demands. They also emphasize the importance of the « legitimacy » of activists’ demands in the eyes of public opinion[2]. Intuitively, the more important the activists’ demands are perceived to be by the public, the more likely the targeted company is to give in. Although this is very anecdotal in the article by Eesley and Lenox (2006), it is worth noting that demands related to climate change were perceived as the least legitimate in the sample (in the United States between 1971 and 2003).

Returning to the example that inspired this article, it is difficult to predict whether the boycott against Facebook has already had or will have an impact. However, Facebook falls into the category of companies whose image has recently been tarnished (think of the Cambridge Analytica scandal, for example) and which, according to King (2008), are therefore most likely to give in. The context in the United States this summer (the anger and riots linked to the murders of African Americans) and the approach of the presidential elections highlight and may make these demands for greater moderation of Facebook content « legitimate » in the eyes of the public (even if we should not divide the polarization of American society). However, it is too early to determine whether the « stop hate for profit » campaign has had a real impact and whether Mark Zuckerberg will go beyond the few proposals already announced. [3]

4. Conclusion

Using the case of Facebook and the « Stop Hate for Profit » campaign, this article introduces the literature on conflicts between companies and activists. In particular, it highlights some of the strategic choices highlighted in the literature and the often mixed results of these actions.

In conclusion, we can also note the growing interest of the social sciences and management studies in these issues of opposition between companies and activists and, more generally, in the links between companies and civil society. For example—and although this is a very partial indicator—the ScienceDirect platform from publisher Elsevier shows that the number of articles published containing the terms « boycotts » and « strategy » has tripled in twenty years (from 80 in 2001 to 248 in 2020). This increased interest on the part of researchers may reflect greater demands on companies by citizens and will enable a much more detailed analysis of the strategic relationships between companies and their stakeholders.

References:

Baron David P. and Diermeier Daniel, Strategic Activism and Nonmarket Strategy, Journal of Economics & Management Strategy, 2007, Volume 16, Number 3, pp.599–634

Davidson, Wallace N., Worrell, Dan L., and El-Jelly, Abuzar, Influencing Managers to Change Unpopular Corporate Behavior through Boycotts and Divestitures: A Stock Market Test, Business & Society, 1995, Vol. 34, Issue 2, pp. 171-196.

Eesley Charles and Lenox Michael, FIRM RESPONSES TO SECONDARY STAKEHOLDER ACTION, Strategic Management Journal, 2006, V.27, pp.765-781.

Eesley Charles, Decelles Katherine A. and Lenox Michael, THROUGH THE MUD OR IN THE BOARDROOM: EXAMINING ACTIVIST TYPES AND THEIR STRATEGIES IN TARGETING FIRMS FOR SOCIAL CHANGE, Strategic Management Journal, 2016, V.37, pp.2425-2440.

King Brayden G., A Political Mediation Model of Corporate Response to Social Movement Activism, Administrative Science Quarterly, 2008, Vol. 53, pp. 395–421

Koku, Paul Sergius, Akhigbe, Aigbe, and Springer, Thomas M., The Financial Impact of Boycotts and Threats of Boycott, Journal of Business Research, 1997 , vol. 40, issue 1, pp. 15-20.

Rehbein Kathleen, Waddock Sandra, and Graves Samuel B, Understanding Shareholder Activism: Which Corporations Are Targeted? BUSINESS & SOCIETY, 2004, Vol. 43 No. 3, September 2004, pp. 239-267