The Shifting Relationship Between Business and the U.S. Government

On May 20, join me at HBR's annual leadership summit with master classes, interviews with the CEOs of AT&T and Mattel, and an interactive case discussion led by Harvard Business School Professor, Currie McCannie. For 25% off, be sure to grab your early bird ticket by April 14th. Learn more at hbr.org/leadershipsummit. See you there. I'm Adi Ignatius. I'm Allison Beard and this is the HBR Idea Cast. Allison, you know I spend a lot of my job now speaking with C-suite executives and other leaders. And there are things they'll talk about in the press, and then there are the closed-door conversations they have about the state of the world and about the role of business in it. Those conversations are often very different. Today we're going to be looking at the relationship between the business community and the government, how that seems to have changed in the US, and how business leaders can best handle this new environment. Yeah, I'm incredibly interested in learning more about how business leaders think about the world today, because so much of the uncertainty that we talk about really does come down to these political decisions, whether that's changing tariffs and trade wars or military action that's affecting every kind of business, not just the obvious ones. And I think it's really hard for leaders right now to figure out if, when, how to react and even weigh in. Yeah, so we want to go a big picture today and look specifically at how leaders are and how maybe they should be navigating these waters. Our guest is Yale Professor Jeff Sonnenfeld, who's also the founder and CEO of the Chief Executive Leadership Institute. He's been very outspoken, criticizing President Trump, and we want to be transparent about that. But we wanted to speak to him because of its close connections to CEOs, because of the closed door conversations. He is having with the business community, and because of his deep understanding of what it means when a government starts picking winners and losers in the economy. Here's our conversation. Jeffrey, thank you for being on the HBR IDA cast. I'm honored to be with you. Look, I think of you as somebody who is in constant contact with CEOs who earns their trust through your discretion. What is the mood in the American C-suite right now? The American C-suite is pensive. There are strong opinions, but don't want to voice them individually because there's a great fear of indictiveness. You know, a few years ago, I would have said, I think I probably wrote, many people wrote, that Milton Friedman's for approach to economics. That orthodoxy was over, that it wasn't simply enough to focus on shareholders. You needed to take stakeholders' interests into account more broadly. It wasn't clear what came next, but it seemed like that old paradigm was dead. That now seems like a premature obituary. Is Friedmanism alive and well? Where are we in those terms? Milton Friedman in that 1971, August New York Times magazine article, never said the words that the only thing that was going to happen is that the American C-suite was in the American C-suite. The only words that the only responsibility is the bottom line. The bottom line is an expression doesn't appear there. He does refer to prophets. But on paragraph 26 in there, he also talks about what you were just talking about, which the term for it was social amenities. He didn't call it corporate social performance or corporate social responsibility or ESG or any of the other terms that came out at the time. He didn't use that language, but he called it social amenities to be a responsible employer in the community and talked about those duties. And what I hear now, audience, this will be perhaps an odd response. Is there saying, well, why are these corporate titans not speaking out on this issue or that issue? They are. They pick and choose their issues. Michael Dell, hugely successful, very high performing CEO. He's tracking 100 issues at any one time. He in his company and they decide what's most urgent and they'll speak out in his case. It's been voting rights and women's health and issues and Alcoa and Ford and others have been speaking out on tariffs. They pick their issues, but they're wondering where is everybody else until just a few weeks ago in Minnesota, people wonder where the CEOs are. The CEOs, 60 of them came out of Cargill and Medtronic and Target and it made a huge difference in the election transition in 2020 where the president Trump came out and declared the election fraud and announced that he was the winner. Many CEOs then started calling and emailing and texting made the facilitate to somehow pull together a group that to convene them overnight. They called 100 CEOs, we got 93 of them, they came out to very strong statement. So CEOs spoke out of many occasions like that, but they don't speak out on every issue. But I want to kick back some because it's your tone and I know you don't mean this, but your tone is almost, you know, that anybody and everybody should be organizing to resist. And you have to remember, you know, business flipped, right? And you know, business interests, particularly in Silicon Valley that tended to be blue, if not, you know, when they weren't libertarian, kind of flipped red, right? They did not like what was happening in the Biden administration. They did not like the levels of control and regulation and, you know, Trump offered an alternative that was very attractive to business. So, you know, I don't want to, I don't want to, to some extent, and I'm mindful of who our constituency is, state capitalism, is it what a lot of the business community was looking for? To have the arm twist of Intel and US steel to have to surrender the private stakes of decide who the CEO can be, they had to give up 10%. It has confused things in ways that Milton Friedman never spoke for that. Maggie economics is very interventionist. So, Jeff, I think if you're, if you're a layperson looking from the outside, I think it's easy to say CEO shouldn't be kissing the ring of the emperor shouldn't be, you know, giving money to political purposes that, you know, this is not normal. This is not okay. But, you know, I mean, would we do differently if we were CEOs, you know, isn't it rational to do some of these things that are political in nature and seeing partisan in nature, but are maybe necessary for the company's best performance? Well, the company's assets are of course, it's strategic mission, it's financial health, the technological niche that they have and the character of their leadership, but it's also the reputation of the marketplace. That matters a great deal. We helped to spark by ranking them on an A through F basis 2000 companies operating in Russia. Most of them left not because only because Russia became an increasingly impossible place to do business and to stay alive, but also because of the reputation cost, not just the financial risk, the operational risks of being there, but also it was the reputational risk. The reputation of the risk of 1,200 firms pulled out that we were very proud of and that was six times the exit from South Africa, which had a lot to do in 1988 with the release of Nelson Mandela and the change of government there and the change of the apartheid system. It can make a big difference. Similarly, when Ken Frazier acted as a solo player after the murder of a peaceful protester in Charlottesville in 2017 in the summer, he pulled out of the business advisory councils. He told Merck, this is my own decision. I'm not speaking for the company. You decide it was right for the company, which is basically saying I'm resigning if you don't back me, but he didn't threaten them. He did not absolutely back them, but so did roughly 200 other firms and the three different councils they pulled out. It took a little while, took a few hours and a few days, but it was a stampede. That really mattered. So collective action matters, but to spark collective action, you have to have some courageous individuals take a stand. Now, when Harley-Davidson, CEO and I just had him in my class yesterday, Matt Levittitch was being targeted. Harley-Davidson, I mean, my goodness, what could be more of an iconic brand than that? They're very simple. Their mascot is the bald eagle is because of EU trade restrictions in response to US tariffs against the EU. He couldn't get bikes that were 100% made in the US into Europe. So he had to open a factory in Thailand and shut one down in Kansas City to make that happen. Trump took that as a personal insult and said don't buy Harley's. Harley-Writer's, or lean maga. So it had a huge hit to his sales. No, the only 3% of the global market. He's the largest producer in the US. It was a very anti-American move by the president. The competition is all German or Japanese or Koreans and the stock plummeted in the CEO Matt Levittitch got fired. That was a cautionary tale. So you don't act alone. IBM, when Arvind Krishner wanted to influence the White House, he and Michael Dell, and a small number of tech titans, I think, and not speak, putting the words in their mouth, but since the Business Roundtable failed to act, they did on their own and Trump would listen to them. He's a rational guy. He's a very smart person. He may not be the world's expert on geography or history, but he's very quick on his feet. He understood either enlightened self-interest or patriotic reasons, whatever he listened to the tech titans, not because he was there being bought. Retailers tried the same thing. They had some marginal success on the tariff issues, but it took a stronger voice. The National Association of Manufacturers condemned the tariff, says that the bond markets, after liberation day, Trump listened. It made a difference. But silence is not golden. But what we have seen is with the example of the Exception of the National Association of Manufacturers, a certain cowardice from the trade groups. That's who runs protective covers so that CEOs can take positions as if they work in aggregate and makes a difference. But to go silence, no, that's not a good thing for universities law firms or CEOs or the nation in general. So for people who are listening to this, and some people may think, "Son of Hell is too political, he's too anti-Trump," and they may find that some of the policies are acceptable, some of the policies are not acceptable. What do they do? I mean, because it's hard, you know, if you're the CEO of Coca-Cola and you can get the CEO of PepsiCo to join with you, there's some clout there. If you're running a small, medium-sized business and you're okay with some of what's going on, but some of it seems not okay, what do you do? Like how do you function? Is there any role to play in societal political issues in this environment? I've known Donald Trump longer than anybody in Trump 2.0. I've known him longer than anybody in Trump 1.0 administration other than his family members. And actually, we have, at all of our CEO forums, I have active members of the current administrations. And family members had a bonka Trump at our last summit, which I will be at our next one. He's probably come to at least a half a dozen. I helped and worked with the Trump administration on the earliest days of the Abraham Accords, which I think were brilliant on orthodox and have been historic. But there have been things he's done that I think are very important. I think he's taken on some of the proxy rating firms that had an extortion scheme going. There's some of the stuff that you were alluding to an antitrust isn't exactly what many were bargaining for. But still, there have been things he's done. And certainly when it comes to cryptocurrency issues and things that there are advocates in those fields and say, this is what we are looking for. When you put it all together, they shouldn't go immute. He functions best when he hears from them. He just doesn't want to be humiliated. You don't have to insult him. You don't have to make him feel like he's trapped animal in a corner, slashing away to defend himself, but to engage in a useful dialogue. But he's not going to respect you unless you're coming in there with force that he has to reckon with. When you take a look at how he embraces Mayor Mandami, we could be more a political opposite. It's because he respects the political force that Mandami has with it, but certainly not his views. Yet, they've come to some meetings on the minds on something. So there's a way to do it that doesn't put Trump in a bad spot, but you've got to understand him. And even a small business person in the community is not in even. It's not an afterthought. It's fundamental to American democracy. When Alexis de Tocqueville came to this country in 1840 and he wrote that great book Democracy in America, he came as a friend's jurist to understand how does the US legal system work so well? And he saw it's not because of the tightness of the laws. He said it's because of the looseness of the laws as we adapt to circumstances and the only way they work as he pointed out it's if business leaders in the community, as well as clergy and other institutional leaders speak out to define the truth. But if you deny the truth, he said democracy fails and he called that social capital. Social capital, he said, is as important, if not more important than financial capital, and that's what business leaders help produce by defining and standing by what the truth is, as pillars of trust. If you look at the work done by Richard Adelman, the Adelman Trust barometer shows us again and again that whose ascendant is my CEO is the most trusted voice among employees, not sadly the clergy, not federal, state, local officials, not journalists, not journalists, not journalists, not academia. But it's my CEO. So if they're trusted, then they should use that and find a way to be effective. That's what makes democracy work. What hurts shareholders value the most and makes it hard for CEOs to lead. It's people that are using through grandiosity, divisive rhetoric that are through the grand standing, dividing society, and tearing the fabric of American society. That is not the interest of shareholders, let alone the interest of average citizens. Deals not just another payroll platform, it's when your team might actually enjoy. HR, IT and payroll together finally. Vote in house, built for peace of mind. Visit d-e-l.com/hbrpodcast. So a few years ago, the truth was that CEOs sort of had to speak out on social issues. That their employers demanded, that the consumers required it, that if you were silent, social media would interpret your silence in ways you might not like so that you had to speak up. I think we're not there right now. But the fact is, I think CEOs, by and large, are terrified of it. It may have been excessive before, speaking out on too many issues that were not relevant. Let's say to the business they were in or their principles, their purpose, but also that they get slapped down for it. But I find people say, look, but there has to be a red line. There may be issues that I really disagree with. My employees seem to disagree with. I don't want to get in the middle of it, but I want to figure out what my red line is. That's again, how they have to work through collective action, through trade groups, and not necessarily speak out alone. Work with the facts. Don't get caught up in finger pointing, name calling, and that whole slap down. You're never going to win that as people learned in the primary elections. You can't just go and concede everything, especially when it comes to the fabric of society or there's really nothing worth fighting for. All of what you're saying points to me, the fundamental takeaway from life in the Trump administration, which is uncertainty, the famously detested aspect for business, uncertainty. That's tough. I've had a CEO tell me, this is the most business-friendly government in the history of America, ironically, with leadership that you think of as wanting to be pro-business. If you're a business and you see all this going on, how do you play it? I guess you can have 95 scenarios and flip them every day. This is a tough environment. Do you have advice on trying to navigate? Business needs to have a predictable environment. They invest at a minimum of five, a minimum of five year, the time span. These volatile conditions, they don't know what to do. They're hanging back. Business leaders, church leaders, labor leaders, professional association leaders, university leaders, they have to fortify what the truth is, what Tocqueville called, social capital. That's what really matters. Terrying society apart by its thread by thread pulling apart the fabric of society is not in the interest of any business. So like Donald Trump, not like Donald Trump, whether you like or don't like what's happening now. Do you find this business view this is the new normal? When I say this, it might be a very expansive sense of presidential powers, the reorganization of the global order. Is business viewing this as the new normal or that this is a temporary aberration? Well, I think they are alarmed. They thought that we had more checks and balances in the system than we do. We want to take big chances. Some things will work. Some things won't work. But that's what drives a free enterprise system is to have somewhat more unbridled risk taking. And now they see we're having unbridled risk taking in government. That scares the dickens out of them. They want that to be on the business side, but not in government, which need to be a reliable backbone. If someone is listening to this and their attitude has been, for the most part, I just want to keep my head down. I don't want to get in trouble. I don't want to get dragged into anything messy. On the other hand, I worry about the stability of America. I worry about the excessive use of presidential power in ways that I don't think are good for the country. What do I do? Collective action, you've said before, with whom? How? What do I, if you're not comfortable in this situation right now, what do you do? You want the truth to prevail. There was a great member of the Harvard faculty who died a few years ago. Unfortunately, Ash Carter, who was Secretary of Defense, Ash Carter was a brilliant physicist. But when he was Secretary of Defense, he did a fantastic job, but he was challenging. Many of his fellow members of the Biden administration and a number of fronts, particularly John Kerry. But before he became Secretary of Defense, he was in undersecretary roles. He was brought up under the Alien and Sedition Act for telling the truth, having to do with Ronald Reagan's Star Wars program. He saw where it's on the technical infeasibilities were in a private study to Congress that got leaked. They were going after him. The business community stood behind him as well as a significant number of government leaders saying, "You can't get really young people to go into government if you're going to criminalize what they do." The Jerome Powell probably didn't get everything right. I had some short differences with him in the Federal Reserve and decisions he was making. But to try to terrorize people like Ash Carter or Jerome Powell, that manages to business leader to replace the head of the Bureau of Labor Statistics so you don't like the numbers coming out. It's the kind of thing that Putin does. Putin suppresses all of his national income statistics because he finds it unfavorable. He makes up numbers each morning and nobody except the IMF believes those numbers. But it's important for business leaders to govern figures to endorse the truth or the system doesn't work. Anybody can run out of a restaurant and not pay in a big city. But there has to be a foundation of trust for a system to work. That's what CEOs are doing. I think a pretty good job of fortifying. They just can't be the only ones. they need to know for all those people who once stay colder to mock to work, don't sit home and eat your steak, go out and do something, speak up. And that's what matters. So institutional leaders across the face of the nation have to speak out. And so does speak out in support. If you like what's going on and you think a certain war is a just war, you think that there's evil that has to be combated. Or if you think that there's a different approach to peace, such as the Abraham Accords, well, there's nothing wrong with endorsing that. A lot of CEOs that I work with, such as Steve Schwarzman and the CEO of AT&T and others came over and joined us in Bahrain at the launch of the Abraham Accords. That's a great thing, but it was CEOs going above and beyond the bottom line, you know, a point that you raised before, which often has come after me, say, in some places at the public, as a Wall Street Journal, where I've sat and set up in debates, they say, well, it's a slippery slope. If you get involved in this issue, then you get involved in that issue, and then you'll wind up having to take positions that are a whole host of things unrelated to the business, business leaders should stay in their lane. I say, what lane is that? The breakdown lane? The societal context, the business matters. You decide what's your, what are your priorities? And you practice triage. CEOs and their boys need to practice triage. Don't take a position on every issue. Don't get caught up in the slippery slope nonsense, either. So there's every issue or slippery slope. They don't fall for either cliche. Use judgment. That's why you're there instead of an AI program that make decisions. What do you think matters to your constituents, to your companies, to your shareholders, your employees, your customers, and then you pilot the companies you see as best, acknowledging those issues that matter most to you? That's a good point to end on. Jeff, thank you very much for being on the idea. FF. Oh, thank you so much, Adi. That was Jeffrey San infeld, senior associate dean and professor at the Yale School of Management. Next week, Allison sits down with Harvard Kennedy Schools Julia Minson to talk about her research on disagreement. If you found this episode helpful, share it with a colleague and be sure to subscribe and rate IDA casts in Apple podcasts, Spotify, or wherever you listen. If you want to help leaders move the world forward, please consider subscribing to Harvard Business Review. You'll get access to the HBR mobile app, the weekly exclusive insider newsletter, and unlimited access to HBR online. Just head to hbr.org/subscribe. And thanks to our team, senior producer Mary Do, audio product manager Ian Fox, and senior production specialist Rob Eckhart. And thanks to you for listening to the HBR IDA cast. We'll be back with another special episode on Thursday. I'm Adi Ignatius.