When Should CEOs Take a Political Stand?

The departure of CEOs from President Trump’s business advisory councils began as a trickle and ended as a flood.

On Monday, August 14, Merck CEO Kenneth Frazier resigned from Trump’s American Manufacturing Council, responding to the president’s statement blaming weekend violence in Charlottesville on “many sides”—and drawing an immediate attack on Twitter. At midday Trump gave a prepared statement condemning racism, but by evening the CEOs of Under Armour and Intel had followed Frazier’s example and quit the same group.

The following day, according to the New York Times, members of the Strategic and Policy Forum, another advisory group, began a series of phone conversations about whether to step down. Then Trump gave a now-infamous press conference, again drawing equivalence between white nationalists and those protesting against them. On the morning of Wednesday, August 16, as other CEOs announced their resignations from the manufacturing council, the Strategic and Policy Forum met by conference call and agreed to disband. But before the decision could be announced, Trump tweeted that he had shut down both groups.

On August 16, a few hours after Trump’s tweet, Yale Insights talked with Professor Jeffrey Sonnenfeld, an expert on corporate leadership and the host of Yale SOM’s CEO Summit. He discussed the dramatic events of this week, the considerations for a corporate leader choosing to stand up to a volatile president, and the history of executives’ involvement in the political world.

Q: Can you explain what’s going on with the disbanding of the two business councils?

Looking back over the last 12 months, we’ve had a CEO get elected—President Trump. He purported to be one of the CEO community but really wasn’t, in that he was a business leader, and perhaps still is a business leader but he wasn’t one of the Fortune 500 titans the way he would like to present himself. So, he identified with that crowd, but he didn’t know them.

At one of our CEO Summits, when he came, many of these people right now that are leaving him, said at the time, “If he walks in the room at the Waldorf, we’re leaving.” So, some of the founders of these councils that were there walked out on him. And I told him that back in December and he laughed and he said, “Well, they’re all coming to see me now,” and they were.

People were fighting to get on these councils, even though 65% of the CEOs at our summits are Republican, very few of them—15% or 20% at most—said they were voting for him, which was a surprising anomaly—a gap—just in terms of the numbers. But, this wasn’t a leadership style that they emulated—what you saw on The Apprentice or his one-off style of having fights and the divisiveness, the contention wasn’t the way they operated, so they often were distancing themselves.

Once he got elected, people took the opportunity to join these councils, some of it for, candidly, the vanity. Some of it because, if they’re large government contractors, they had a reason to be there. They were enormously benefitting from getting the nod on major government contracts, whether or not they were in aerospace or infrastructure businesses.

Others thought that, well, he’s not the most learned of political leaders, but he’s smarter than his critics think. He’s just not going to read 60-page whitepaper documents. So, if you want to influence him, you have to be there. So many thought that they need to be at the table and that they could have some effect, and they thought that until recent weeks. They had some marginal contributions to diffusing some of the hostility, say, around NAFTA and the various fronts.

Now, what’s happened in the last few days, as we’ve seen the rhetoric and the hostility get sharper and sharper, and then the racial tensions boil over to hate-driven, murderous, torch-bearing, skinhead-type mobs of open KKK Klansman and Nazis saying such hostile things, and then actually leading to the murder of that poor young woman, and Trump to show such little sympathy over the loss and the desire to somehow blame all sides, when in fact, this is one of those times where the line’s drawn in the sand, there are good guys and bad guys and the bad guys were so bad that it was eroding his moral base of leadership. And CEOs attached to that were, I think, afraid that it was going to spill onto them. So, little by little they started to drop away, and then we saw the tidal wave. You know, it’s the old bit about a few drops getting through the dam or the dike, then we have a dam burst now, which is what happened.

But who was the first drop? I don’t know if you have the time to get into it. I could spend the next six years talking about the courageous model of leadership of the unbelievably fantastic Ken Frazier of Merck. The only thing bad you can say about him is that he went to Harvard Law School and he’s not a product of the Yale School of Management, because everything else about him epitomizes what this school stands for, and if you’d give me the chance, I’d love to talk about it, but I won’t throw you off.

Q: It’s important to talk a little bit about the first folks who, in the last couple of days, resigned, before the dam breaks. What can you tell us about these particular CEOs? What do they have in common, what do we know about their companies that might have influenced how they went about things?

Well, there are many who jumped on very recently Inge Thulin of 3M, Denise Morrison of Campbell’s Soup, Kevin Plank of Under Armor, Brian Krzanich of Intel. They’re honorable people, great leaders, but they aren’t the real brave pioneers that made this happen. I would turn to Bob Iger of Disney; even before Ken Frazier, he called it out and he named names, and he said what Trump was doing was wrong, for not clearly identifying hatred, hostility, condemning violence, and naming the bad guys, the Nazis and the Klan, and creating this general haze that these are friendly folks just out on a candlelit ceremony for the Daughters of the American Revolution and rocking chairs or something. That’s not what this was.

Bob Iger was very good at that. Meg Whitman, the CEO of HPE, was very courageous, out front, and naming names. And by the way, she and a person we welcomed here to school just a few months ago—the CEO of Unilever, Paul Polman—were the first to actually yell out an endorsement of Ken Frazier, because he walked out there by himself, because the Business Roundtable was dormant. They were silent. If we weren’t on camera being seen outside of this room, I would say they were cowardly. It was shameful. These people are way too honorable individually to act the way they did. They were acting—and I know just about all 22 members of the Business Roundtable’s board of directors. They’re great people, but they were as paralyzed and inactive as many well-groomed boards are when they fail. Wells Fargo, as individuals, the old board, they’re fantastic people but they failed collectively.

And, similarly here, the Business Roundtable dropped the ball, so Ken Frazier said, “Well, I’m not gonna stand for this. This racial intolerance, this hostility. Who’s next?” Here he is, he’s a guy who rose up from the gang-infested slums of north Philadelphia where his father was a 37-year janitor for UPS, but a very well-read guy. Read two newspapers a day, as did Ken’s grandfather. And Ken went off, becoming a lawyer, but always inspired by the Supreme Court Justice Thurgood Marshall to be looking at causes for justice, and he got involved in that.

Early in his career he defended some wrongly accused criminal defendants at a heroic trial. He was very successful in straightening out and unraveling the liability of Merck’s Vioxx. He had a lot to do with Penn State righting itself after the whole Sandusky football atrocious scandals, as a trustee there.

And their cure for river blindness, a drug they had, they realized that rather than be mercenary, under his mentor Roy Vagelos, Ken said, “We should donate this to places that really need it. They can’t afford it.” It’s such a horrible disease, and he worked with the Carter Center to make that happen, and Ken never had any personal grandiosity about this. Rapacious drug pricing? He’s been a leader going after abuses in biotech, naming the names of the bad guys.

But many of his peers in the CEO community—rightfully, and I often defend them—complain about activist shareholders making it so hard to invest in long-term America. He was always investing 12 to 15% of their revenues in a very successful drug pipeline for Merck, while bringing in very healthy profits, very good returns, a $40 billion company.

He’s done it all. What a great guy. And for him to just say, without being, you know, hostile to Trump, say, “I just can’t in good conscience stay on this board. I have to take a stand.” Trump attacks him, attacks his character. Outrageous. And, initially, it was only Paul Polman and Meg Whitman who came to his defense. Where was the Business Roundtable? So, that was shameful.

Then others came onboard. And of course, yesterday when Trump doubles down after he gets a re-do to try to correct his endorsement of “many sides, many sides contributed to the violence in Charlottesville.” He then, in a very misguided—as they call it, rogue—press conference yesterday, where he was supposed to be talking about infrastructure with Gary Cohn, his economic advisor, the former president of Goldman-Sachs, and Elaine Chao, Secretary of Transportation, and Steven Mnuchin, the Secretary of Treasury, at his side, he does a couple of seconds on the infrastructure message—which is the message of the day—and veers off defensively then into attacking back on how, in fact, it was really all sides contributed to this violence, equivocating these peaceful demonstrators to these violent, torch-bearing, skinhead mobs.

Q: So when CEOs are making decisions like this—whether to take a public stance on a social issue—what are the dynamics in how they make the decision?

Some of it has to do with, of course, what’s in the strategic commercial interest of their business; do they have to be there because, say, a large government contractor has a reason to be there? Do they feel if they’re not there that somebody else gets the business?

And Trump was very good about playing one off against the other: Boeing versus Lockheed, and Merck versus Pfizer, and GM versus Ford, and the rest. That same schoolyard tactic is what he so successfully used in the Republican primaries. Or if you go back to The Apprentice, or take a look what he does with China versus Russia, he loves playing one off against the other. Divisiveness is the essence of even his cabinet, and that’s led to the dramatic meltdown.

So, CEOs didn’t see that, weirdly enough, getting onboard. Many of them who didn’t support him said, well, this is a call to national service. What we have seen this afternoon is the first time in our lifetime, the first time in our parent’s lifetimes if our parents are alive, our grandparents or in this nation’s history, we’ve never seen business leaders turn down, collectively, the call to national service at the request of the commander in chief. It’s never happened. We’ve even had some pretty unpleasant times. A guy named Roger Blough got into a pretty nasty battle as the CEO of US Steel with JFK. It was awful. It spilled over and had a lot to do with the subsequent founding of the Business Roundtable.

Then business got a terrible image and they thought they’d try to cleanse their image in 1972 after spiraling down after 10 years of hostility with government. Business leaders still came when called. Eisenhower had the CEOs of General Motors and General Electric at the same time on his board. Ironically, with the same name: Charles Smith. It was a little confusing.

But, we’ve never had business leaders turn away, and now they are, because they’re saying, if we’re being played one off against the other, if we don’t let this divide and conquer scheme to work—as Ken Frazier of Merck proved that he could puncture it—then, as Ben Franklin said, “If we don’t hang together, we shall surely hang separately.” They recognized, if we hang together, we can beat this and don’t have to be there to be on these panels.

But, a second reason they were there is, this is a guy who has a short attention span. We’re very smart and we can influence, productively—not just for our commercial interests, but for the larger good of the nation, economic policy. So, they want to be there and not to have darker forces be the only sources into his ear. So, that’s the second reason they would be there.

And thirdly, candidly, I was amazed at the personal vanity of it, how some of them fought to be there for that reason; to look like they were among the anointed, or as the Puritans would say, to be among the elect, the high achievers. So, there’s a certain status-driven aspect that a few of them—not many—that a few of them had. And maybe there were some who politically were very supportive of Trump.

But that was the calculus they went through over the weekend and over the last 24 hours. I’ve heard from just over two dozen CEOs of Fortune 500 firms, maybe almost three dozen by now, and they’ve all been telling me they’ve been having emergency board meetings, ad-hoc sessions or conference calls, looking for guidance. People don’t realize this, but Ken Frazier even checked in with his board before he moved, and they supported him, which was fantastic.

But, as in other areas, when does a CEO just operate out of their own convictions? Because, fundamentally, the most valuable possession they have is their character. And, the shareholders’ most valuable possession is institutional trust, not market share, not shareholder return, it’s their institutional trust. They lose that, then they’re out of business.

Q: So maybe you can explain why it matters in the bigger picture for CEOs to distance themselves from the President. And do you see this having an impact on the administration beyond sort of a terrible PR hit?

We’re in uncharted waters right now. As I’m sitting here, CNBC, as I sat down, has just asked me to try to assemble a group of CEOs, which I don’t know if I’ll be able to do, for tomorrow, and try to figure out, what does corporate America do collectively? What advice do we have for them?

We’ve never been in this situation. They have denuded the president. The emperor is naked. Richard Neustadt, the great Harvard presidential historian, had once said that the essence of presidential power is to never use it. It’s the potential that is its source of strength. Once you pull that lever, if nobody responds, then you’ve got a problem.

Right now President Trump is saying he’d disbanded these councils. Well, people are saying, “We quit.” And it’s pretty clear; even this morning he was saying he could replace anybody who quits, he’s got four people who want every spot that opens up. It turns out they’re all leaving. That wasn’t true. There’s an old parable about a construction foreman who is being pushed by his workers, that, “We need to take a break, we need to take a break,” and he says, “No, nobody takes a break until I say it’s break time.” So they all just walk away and take a break. So, he yells “Break!” as they’re leaving to their backs. That’s what Trump was trying to do. They’ve announced it on their own.

So, he’s lost his power. He’s lost his ability to coerce them. So, different bases of power. Were this a classroom, we’d see he’s lost his legitimacy as a source of power; he has lost identity power, sense of reference that people would have to identify—be like him; he’s lost, apparently, coercive power; and, the reward power, you know, what he can do with government money. So, he’s lost a lot of the classic power bases. The information control, that he is in the center of things, he’s pretty much lost the five core power bases that we would usually teach. He’s got to scramble.

So, General Kelly I think has an implicit understanding of these things. His chief of staff looked pretty downcast yesterday at the press conference. I think he’s going to reach out to Steve Schwarzman and some others in the business community who still want to take a constructive role. They’re great patriots and they’re going to want to see, can they still be of assistance. And they can be, potentially, but it’s a long shot. This is not a very contemplative or reflective person.

Once in a debate with him in Kuala Lumpur I got him to admit he’s failed, but basically he was talking about other people’s failures, what he learned from their failures. He never wants to admit failure. He has hair-trigger defensiveness to any criticism, and he loves to divide and conquer. All those qualities that seem to give him a source of strength from the schoolyard onward have failed him now, and he needs to show contrition. I don’t know that he’s capable of it.

Anne Mulcahy of Xerox, just so many great leaders, David Neeleman of Jet Blue, people who, after they had a setback—Jamie Dimon of JP Morgan—would be incredibly helpful to him now. They admit setbacks, that they make mistakes. They don’t look weaker, they look stronger. But this is getting a 71-year-old autocratic personality to be retrofitted. It’s very hard to see how that happens.

But, if he was able to acknowledge he’s made mistakes and show contrition, the American public is enormously forgiving. Jim and Tammy Faye Baker, or Jimmy Swaggart, or any of these televangelists, when they’d run out there with tears streaming down their faces talking about how they’ve sinned, they’d be back in business in a few days. And Trump could talk about what he’s learned and reflect on it, and put together some cross-cutting panels of disparate parts of society, but it’d be—it’s very hard.

Before Thomas More got beheaded by King Henry VIII, he talked about how precious and how fragile institutional trust is. He said it’s like having a liquid cupped in your hands; once you separate the fingers, it’s forever gone. I should have just used that on CNBC. I didn’t think of it. He just separated the fingers. So, he’s lost that trust. How do you restore it? It’s a pretty tough job.

Q: How do you think this is going to impact CEOs, to see what’s gone on?

Well, they have a lot more time to not be now going off to Washington as frequently. We have a Yale CEO caucus this September 19th, coming up. We were going to take a look at the first nine months of the Trump presidency. I can assure you, we already have a packed house, and I assure you that it’s going to be a lot of candid discussions coming. But people are looking for answers tomorrow; they don’t want to wait a few weeks.

So, I think a great weight, burden, is now thrown onto the Business Roundtable. They used to know how to pick up the ball and run with it. Tom Watson, Jr., of IBM, Reginald Jones of GE, which is Jack Welch’s predecessor, and Irving Shapiro of DuPont, Clifton Garvin of Exxon, these people knew how to handle something like this and provide leadership.

The Edelman Trust Barometer survey for this past year shows that every sector of society has fallen away in terms of public trust, with the exception of corporate titans; it’s still at the top. And academics do pretty well, but clergy have fallen, the media has fallen, and of course politicians have been plunging. So, we look to these people to tell us the truth, to be corporate titans. This is their chance. The Business Roundtable could rise to the occasion. The American Chamber of Commerce is riddled with ideologies that are not as embracing as the Business Roundtable could be. They’ve got a great board there, it’s just not functioning well. But this would be a chance for the business community to now try to fill some of the leadership void.