In the weeks following the tragic deaths of 17 students and staff members at the Marjory Stoneman Douglas High School in Parkland, Florida, there were no formal governmental legislation updates on gun control.
Corporations, however, continue to step up by playing a larger societal role. Gun control, like equal pay, immigration, security breaches, and sexual harassment, are issues in which CEO activists are taking a stand. But, is it good or bad for reputation? And is it good or bad for business?
In A Sense of Purpose, his annual letter to CEOs, Chairman of BlackRock Larry Fink writes, “society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Walmart and Dick’s Sporting Goods limit firearms sales
In the face of Parkland (followed soon after by additional school and university shootings in Mount Pleasant, Michigan; Birmingham, Alabama; Seaside, California; Lexington Park, Maryland, among others), several major gun retailers have elected to limit their sales of firearms. This move raises the question: What impact will the limit of firearms sales have on the reputation of these companies?
And importantly, as companies such as Walmart and Dick’s Sporting Goods, among others, take steps to limit gun sales, what impact will it have on their bottom lines? After all, these retailers are suspending sales of products that have contributed to their revenue and, likely, profitability.
Reputation Institute’s data, over the past decade, has demonstrated that a strong reputation results in relatively stronger returns.
These two recent examples of retailers making controversial decisions that have a potentially positive social impact but could potentially limit profitability are instructive.
Case study: CVS stops selling tobacco
In late 2014, CVS announced that it would stop selling tobacco by the end of the year. This decision initially raised some eyebrows among investors as the company was turning away $2 billion in annual sales. Yet, CVS had two goals – to reposition itself as a healthcare company, using this announcement to create a public relations halo, and to continue to grow its highly profitable Pharmacy Benefits Manager and prescription business.
While CVS gave up short term revenue in support of this initiative, the overall business impact was positive. In the 18 months following the announcement in early 2014 the stock jumped by 66%, sales in 2015 grew by approximately 10% vs. 2014 and by January of 2016 CVS’s reputation score experienced significant gains into the mid strong range.
Case study: Walmart increases wages above minimum wage
Walmart was facing a barrage of negative publicity in February 2015 about low wages paid to hourly workers and announced that it would be giving pay raises to 500,000 full- and part-time associates, raising their salaries above the minimum wage. This increase was instituted in two stages, in April 2015 and again in February 2016 when salaries were raised to at least $10 an hour. While a number of other business issues impacted Walmart’s growth during this period, their reputation score still increased by approximately 10 points in 2016. (See Figure 1)
Figure 1: RepTrak® Pulse Scores for CVS, Walmart, and Dick’s Sporting Goods (2015 – 2017)
Source: Reputation Institute
What is the potential impact of taking a stand against firearms sales?
Based on these case studies, we can estimate that limiting firearms sales will positively impact companies taking that stance, but we can’t yet know the true reputation or business outcomes of the recent gun control actions taken by Dick’s and Walmart.
According to the New York Times, an early indicator is that mentions of Dick’s on Twitter were up 1200% with positive sentiment representing 79% of the total.
Image Source: Twitter
Yet a recent Wall Street Journal/NBC poll indicates 58% of Americans say gun ownership increases safety. The question remains: Will public sentiment supporting those who are advocating stricter gun control prevail and reward those companies limiting sales of guns, or will gun advocates boycotting these same companies have the greater reputational and business impact?
Reputation Institute’s 2018 GlobalRepTrak® 100 findings indicate the growing importance of a CEO who thinks beyond profit and aligns leadership with societal contributions and highly ethical behavior, but on this highly politicized issue the impact of these actions is far from clear.
Vice President, Consulting Director