Corporate governance is now a political battlefield
Companies are trapped by politics and chained to comply
Business and politics have always been intertwined, but today, the line between them has all but disappeared. Companies aren’t just adapting to political pressure, they are being forced to comply.
As a result, companies are thrashing in the uncertainty.
WHY IT MATTERS: What began as a backlash against perceived corporate activism has now escalated into direct governmental pressure shaping business decisions.
Semafor had a great write-up this past week on this new business pain.
CEO optimism is fading as Trump pushes ahead with trade restrictions, while business-friendly deregulation has yet to materialize.
WHAT HAS CHANGED: Businesses went from believing that flattery could hold the President’s more radical agenda at bay, but the gutting of federal institutions and the pace of Executive Orders have left companies with no path forward.
As one executive puts it in the Semafor article, “Everybody’s paralyzed.” When that happens, growth is slowed tremendously. As a result, foreign markets have outpaced the US and consumer confidence has dropped. This couldn’t come at a worse time, as the LA wildfires, only the first natural disaster impacting 2025, could lower GDP by $4.6B.
Amidst this uncertainty, ‘resilience’ is the new business term. Unfortunately, building resilience is an action and many are “sitting on their hands.”
Not every company is sitting on its hands. Some have chosen alignment with Trump’s policies arbitrarily. Yet, there is one emerging example of how material the decision to align can be.
The first governance test is underway
The global entertainment company Paramount has long been at the forefront of diversity. Star Trek is an early example, with the first interracial kiss on television and every episode featured a diverse crew. Exploring the stars was something for everyone.
Today, Paramount runs a remarkable research-based initiative called Content for Change. Per Paramount’s website:
Content for Change is using data-driven insights to transform the Paramount creative ecosystem—from the content we produce to the creative supply chain that powers it to the culture that underpins everything we do.
Paramount also has several pages of related programs and a chart in its ESG report for “Measuring Employee Diversity.”
And why wouldn’t it? Since 2020, Paramount has stated that Diverse & inclusive content was its MOST material issue with Workforce diversity & inclusion in that upper right quadrant.
But Paramount has a problem. They need something from the US government.
Paramount has reportedly been in merger talks with various parties since late 2023, due to a period of financial weakness as “companies weather what could be a tough period of transition for Hollywood.”
On July 7th, 2024, Paramount and Skydance announced a merger. One of the hurdles that needs to be cleared is FCC approval. The US FCC “regulates interstate and international communications by radio, television, wire, satellite, and cable in all 50 states, the District of Columbia and U.S. territories.” Per its website, it is overseen by Congress, however, the Presidential pressure is real.
The President is suing Paramount (CBS) around an interview with Kamala Harris on 60 Minutes. His new selection for the FCC, Brendan Carr, is involved in reviewing and approving the merger. While Carr states that he is not involved in the litigation, he has opened the complaint against 60 Minutes to the public.
So, what do you do when you have a business decision that needs federal approval, and you’re dealing with this complexity?
You adapt. You make a choice. You comply.
Cue Variety’s headline proclaiming “Paramount Is Rolling Back DEI Initiatives to Comply With Trump Mandates.”
We’ve gone from an anti-ESG push due to perceived values and political intervention in business to ACTUAL political intervention in business.
Paramount can take little comfort in knowing it isn’t alone. Other companies needing federal approval are facing the same tactics from the same agency.
Verizon needs FCC approval for a $9.6B purchase of Frontier, yet the FCC chair is picking this time to run a probe into Verizon sticking with its DEI policies. Unlike Paramount, Verizon is taking this different approach, at least for now.
What comes next?
For now, I’ll be watching both of these examples. However, progress will likely only play out in the courts with fresh eyes on the business judgement rule.
…the rule states that boards are presumed to act in "good faith"—that is, within the fiduciary standards of loyalty, prudence, and care directors owe to stakeholders.
And we’ve seen the business judgement rule apply in lawsuits around DEI. The perpetually annoying National Center for Public Policy Research filed a lawsuit against Starbucks for its DEI policies. It lost spectacularly, and the court stated:
[t]his Complaint has no business being before this Court and resembles nothing more than a political platform.
But these M&A activities from Paramount and Verizon are not lawsuits. Federal agencies are exercising the President’s will to make a decision that impacts a business.
THE TAKEAWAY: Even when a company’s most material issues are at stake, they may have no choice but to ignore what matters most to the business if they need something from the federal government.
Paramount and Verizon illustrate a broader and troubling trend where material business decisions are no longer just shaped by market forces, stakeholder interests, or strategic goals, but by political pressure. This goes well beyond the manufactured ESG backlash of the last few years.
Corporate governance and resilience are at risk if businesses can no longer operate based on materiality but instead must appease political forces. This year will test whether companies will push back or if this new compliance with political agendas will become the cost of doing business.
It isn’t about ESG anymore, but the very foundation of corporate decision-making.
If you thought the cost of sustainability compliance was high, you ain’t seen nothing yet.
