Cashing in on the culture wars? CEO activism, wokewashing, and firm value

Research Summary: In this article, we examine under what conditions CEO activism-the practice of corporate leaders to take public stances on sociopolitical issues-can create firm value. In our model consumers care about the type of firm they buy from, but also understand that corporate leaders can make false or misleading statements to pander to valuable demographics. We show that, although the profitability of CEO activism is severely compromised by this wokewashing, under some conditions credible, value-enhancing sociopolitical communications can still take place. We characterize (i) when corporate leaders prefer to stay silent; (ii) when wokewashing is so widespread that no credible communication is possible; and (iii) when instead some credible communication can take place. We also show how an intrinsically motivated CEO can destroy or increase firm value. Managerial Summary: Many corporate leaders take public stances on sociopolitical issues and observers suggest that this practice can sometimes create firm value. A problem with the idea, however, is that, if taking a certain stance is indeed value enhancing, then many other CEOs may be tempted to take the same stance opportunistically. In this article, we study how CEO activism can be profitable when wokewashing is a real concern. We show that credible, value-enhancing sociopolitical communications require controversial messages, as significant opposition from consumers with different worldviews is necessary to ensure the credibility of communications. Far from being a "bug," controversy is a feature of credible CEO activism. We also demonstrate that a CEO's intrinsic motivation to take a stand can sometimes create value by making communications more credible. Obliquely, then, a CEO not primarily motivated by profits may be the best at maximizing profits.