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Frenemies: How to engage with ESG activists

Strategy

Best of frenemies: how to engage with ESG activists

Published 3 October 2022 in Strategy • 5 min read

Activists are waging campaigns against businesses – but collaborations between foes can reap benefits for corporations and wider society.

In December 2020, a small activist hedge fund named Engine No. 1 sent a letter to ExxonMobil’s board warning it was ready to wage an activist campaign against the supermajor. A year later, Engine won a stunning victory when it secured three seats on Exxon’s board with a mandate to pursue a future beyond fossil fuels.

Exxon is far from alone in being targeted by activism. Whether from their shareholders, employees, or consumers, companies across sectors are coming under sustained pressure from social and environmental movements to address environmental, social, and governance (ESG) problems.

But while activists are waging campaigns against businesses, there is an increasing recognition that collaborations between foes are going to be critical to making progress on ESG issues. For instance, a relationship between McDonald’s and the Environmental Defense Fund (EDF) reduced waste by 30% in the world’s largest fast food chain, eliminated 150,000 tons of packaging, and led to $3 billion worth of recycled products being purchased.

Despite their potential societal benefits, these vital coalitions face considerable obstacles because they bring together audiences who have conflicting evaluations of the same relationship. Despite the success of its tie-up with McDonald’s, EDF’s supporters rebuked the group for working with the “capitalist enemy”.

Fearful of alienating the donors and volunteers upon whom they rely for resources – and, ultimately, their survival – many activist groups shy away from cross-sector collaborations, at a time when ESG problems mean societies desperately need greater cooperation to speed up progress on tackling poverty, climate change, and other Sustainable Development Goals. Launched by the United Nations in 2015, the 17 SDGs can only be realized with strong global partnerships and cooperation.

The need for social approval is the biggest barrier to such collaborations. Activists who work with corporations are often labelled as “sell-outs” by their peer groups. In order to work with social movements to advance progress on pressing ESG issues, both sides will need to partner with the enemies of their own stakeholders and transition to being “frenemies”.

In my 2021 research paper Frenemies: Overcoming Audiences’ Ideological Opposition to Firm–Activist Collaborations, I studied the conditions under which these collaborations can thrive against a backdrop of opposition. To develop these insights, I studied the interactions between 136 environmental organizations and 500 of the largest US firms between 1988 and 2012.

Frenemies: How to engage with ESG activists

Proactively seek out partners before it’s too late

For such firms, the first step to fruitful partnerships is to be proactive in getting ahead of the curve of criticism. Many companies seek out collaborations with activists to repair already damaged reputations after being targeted by activists. That is simply too late. Once a company is branded an enemy of the movement, they are likely to be shunned by activist groups who fear reprisals from their peers.

This happened in 2013 when 70 environmental organizations scolded the EDF for collaborating with a group of energy companies that support “fracking” shale rock to extract oil and natural gas. The practice is opposed by environmental movements because it uses large amounts of water and chemicals.

To avoid such public disputes that damage reputations, companies need to be pre-emptive and form collaborations before the ire of activists is trained on them. As well as this, they should be choosing partners that have complementary expertise in areas where the corporation is lacking. McDonald’s collaborated with EDF, for instance, because of the group’s expertise in waste reduction and product life-cycle analysis.

Choose recognizable brands to boost credibility

The high status of EDF also made the tie-up look like less of a “greenwashing” effort. For-profit firms often face skepticism when they pursue ESG goals, leading to accusations of hypocrisy. But collaborating with prominent non-profit organizations with expertise in environmental and social issues can help firms overcome these perceptions. Their partner’s recognizable brand gives the companies greater credibility.

And don’t be afraid to choose groups that are openly critical of your industry’s practices – it sends a stronger signal that you are listening and are more willing to address ESG issues. But beware: supporters of these more radical groups are less forgiving of private sector collaborations. They often refuse corporate donations to preserve their purity.

Build a mutually beneficial relationship

In convincing them to work with rather than against you, it’s important to offer a symbiotic relationship. Stress that, because of the massive environmental, social, and economic footprints of a multinational corporation, you can effect significant positive change in society. Activists can tap into your firm’s market power and visibility, and ultimately shape responsible business practices.

For EDF, McDonald’s purchasing power offered the prospect of changing whole product categories and markets, as well as public opinion via its 18 million daily customers. The group was enticed by the idea of setting new standards for fast food chains that may seek to follow McDonald’s lead in cleaning up their acts.

When it comes to making such a collaboration a success, it’s important to improve levels of trust and understanding between both parties by learning from one another, sharing information, and being transparent. For activists, this can mean going inside the company and even working on the front lines to get a better sense of the business model. This can help come up with solutions that, while delivering societal benefits, are also commercially viable.

Companies face growing pressure from activist groups and stakeholders to do more to tackle ESG issues. But the problems facing society today are simply too complex to be solved by any one institution or sector. What is needed are close relationships beyond philanthropy that involve the commitment of resources by multiple parties to tackle an issue at a deeper level. Such ties can reap benefits for businesses and wider society.

 

This content is based on the Responsible Research in Business & Management award-winning research article, Frenemies: Overcoming Audiences’ Ideological Opposition to Firm-Activist Collaborations , which was published in the Administrative Science Quarterly.

Authors

Kate Odziemkowska

Kate Odziemkowska

Assistant Professor of Strategic Management at the Rotman School of Management, University of Toronto.

Kate Odziemkowska is an Assistant Professor of Strategic Management at the Rotman School of Management, University of Toronto. She received her PhD from The Wharton School, University of Pennsylvania. Her research focuses on nonmarket strategy with particular emphasis on firms’ formal collaborations and contracts with nonmarket stakeholders (e.g., activists, social movement organizations, local communities).

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