April 22, 2022

Thought of the Week:

The Walt Disney Company is among the world’s most sophisticated global enterprises. So, how, in the span of just over a month, did it put itself in the position of jeopardizing the special status it has enjoyed in the state of Florida for more than 50 years? A status that has effectively allowed the company to operate as its own municipal government, and a position it has leveraged to flourish to become the state’s largest private employer, with nearly 80,000 jobs. The special tax district Florida created specifically for Disney allows the company to govern the land housing its theme parks; exempts the firm from numerous regulations, taxes, and fees; and permits the company to manage its resorts in the state with little to no red tape. What tripped Disney up, and has trapped the company in a web of controversy since early March, is a piece of state legislation formally known as the “Parental Rights in Education” bill or the “Don’t Say Gay” bill by its detractors. As a company, Disney initially refused to comment on the bill, but prompted by employees and fans to speak out, within days, changed its position and publicly opposed the bill at an annual shareholder meeting. Because of Disney’s outspoken opposition, Florida lawmakers retaliated, giving final approval to another bill that would eliminate Disney’s special tax district; this measure has already been sent to Governor DeSantis who has made clear he will sign it. The entire episode can be explained as a company not fully appreciating the cultural and public policy environments in which it was operating. Disney’s mishandling of the situation from the outset serves as a lesson that can inform corporate decision-making. On balance, companies no longer have the luxury of avoiding culturally sensitive issues, and coming late to the game by trying to placate the most vocal stakeholders holds risks of its own. The lesson is for companies to establish a set of values; to continually communicate those values to employees, suppliers, customers, and other stakeholders; and, most importantly, to have the courage to defend those values. Cultural and social issues are not going away—last year it was voting rights in Georgia; later this year, with a Supreme Court decision looming, it will be abortion. Companies need to be prepared for the pivot the Business Roundtable outlined in its Statement on the Purpose of a Corporation—a pivot from prioritizing shareholders to committing to lead their company for the benefit of all stakeholders, including customers, employees, suppliers, communities, and shareholders.

Thought Leadership—from our Associations, Think Tanks, and Consultants:

Charlie Cook’s Concrete Theory of Politics. Whether Republican or Democrat, Washington political types are obsessed with the question of whether things will change between now and the November midterm elections. While Democrats are plaintively looking for any sign of improvement, Republicans are terrified that their party will do something to “screw things up.” Although the perceptions, impressions, and convictions of voters in any given election cycle are soft and somewhat malleable at first, they gradually harden over time. With just seven months until the general elections, Democrats have a narrow window with which to chisel away at public opinion. The primary challenge confronting President Biden and the Democrats is the issue contamination—that is, once voters get mad at a president over one issue, that view infects how voters perceive that president and party on everything else. For President Biden, and by extension, his party, the original sin was being as dismissive about the threat of inflation as his predecessor was about the Coronavirus two years ago. Making things worse for Democrats is that this election will not be a choice between two opposing visions for the country. In a midterm election, with one party controlling all levers of government, it’s a straight referendum on the president, not Republicans. Midterm elections are never about the party no longer in power, either in the White House or on Capitol Hill.

White House Political Commitments Make it Difficult to Fight Inflation, Says Eurasia Group. Last week, reports showed year-on-year inflation at 8.5%; at the same time, the Biden administration announced increased domestic content requirements for federally-financed infrastructure projects and a repeal of Trump-era reforms to the National Environmental Policy Act (NEPA), requiring stricter environmental and climate impact evaluations for new infrastructure projects. The renewed rules will apply to the many infrastructure projects to be funded by the bipartisan infrastructure bill (BIB), increasing costs and timelines for new projects. The two actions highlight the dilemma the Biden administration faces as it struggles with high inflation and low approval ratings—they have political commitments, in these cases to organized labor and environmental groups, that are making it difficult for them to act on other political promises, including lowering costs and delivering new infrastructure projects to taxpayers. While the White House has attempted to deflect blame for rising prices on everything from Vladimir Putin to choked supply chains to industry concentration, President Biden and Democrats will continue to struggle politically as voters see only marginal benefits from their actions.

CATO’s [Updated] Case for Free Trade. Free trade is under greater attack today than it has been in decades. Despite continued public support for foreign trade and globalization generally (even during the COVID-19 pandemic), a bipartisan group of American politicians, pundits, and policy wonks are increasingly skeptical of, or downright hostile to, the long-standing consensus in favor of trade liberalization. The present skepticism of free trade is misguided. While international trade inevitably disrupts some American companies and workers, China’s economic model, authoritarian government, and geopolitical ambitions represent an unprecedented challenge for both the U.S. and the global trading system. Although complicated, corporatist rules contained within trade agreements are worthy of criticism, the economic, political, and moral case for free trade is as strong now as it was when Adam Smith penned The Wealth of Nations almost 250 years ago. The benefits of trade and globalization are both undeniable and irreplaceable. Just as importantly, the alternative to free trade—protectionism—not only would fail to resolve the concerns of trade skeptics, but it would make us all poorer and less safe. Far from undermining these conclusions, the events of the last few years have only reinforced them. Read: The (Updated) Case for Free Trade.

In Other Words (Quote): 

“If your words are ‘defund the police,’ they’re going to think you mean that. And they know the world is on fire…They know things are upside down. They know they’re afraid, they know there’s a pandemic. So why are you going to just say you want to do something that you actually, maybe, don’t want to do?”

Rep.  Spanberger (D-VA) diagnosing the headwinds that vulnerable Democrats face in November.

Did You Know:

According to World Robotics, there were 3 million working industrial robots, 109,000 “professional” services robots, and about 32 million blue-collar “consumer” robots at work around the world last year. Japan was the largest robot-maker, producing 136,000 new robots in 2020, or more than a third of the 384,500 new robots installed worldwide. Korea is the world’s most roboticized economy, with nearly 932 robots per every 10,000 factory workers. China is home to the world’s largest operating robot workforce; over 800,000 robots were working in Chinese factories at the end of 2019, and 168,400 more came online in 2020. By industry, the largest numbers of robots in China and Korea go to electronics assembly and semiconductor production; in the United States and Germany, they are in the automotive industry; and in Japan, robots are used in automotive and electronics equally.  

GRAPH of the Week:

Do social concerns outweigh the environment when U.S. consumers judge a brand’s “sustainability?” A new survey would seem to indicate they do. In fact, eco-associations—climate, pollution, and conservation—are not necessarily what drives purchases of sustainable products. When it comes to buying, today’s consumers are most attracted to brands that they connect to fair prices, fair working conditions, and fair wages. Consumers increasingly associate sustainable products with “fairness” writ large, and this broader focus on all-around corporate citizenship could turn current sustainability-related differentiators into expected standards. However, sustainability features still trail product performance, quality, price, and convenient access among basic purchasing criteria.

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