In a time of increasing political polarization, banks and financial institutions are finding themselves thrust into the spotlight on some of the thorniest public policy debates. While this may be expected on issues like cryptocurrencies or access to financial data, the public is notably looking to banks and financial institutions instead to take positions on a diverse range of policy issues not typically associated with the industry.
The frustration with politicians in Washington and the broken governing process is proof of the vacuum in today’s public policy landscape. Policy conversations that used to be discussed through a political lens are now being focused on the C-suite as public political pressure on business to advocate for societal good beyond profits becomes commonplace.
Yet if banks were already losing the political long game at this time last year, the situation today is no less bleak. In fact, it is worse because people fed up with government inaction against policies they do not like have decided to skip the representative political process and its inherent roadblocks of checks and balances, resulting in a new normal where political pressure is brought to bear on banks and financial institutions — whether these firms like it or not.
Three recent issues in the news — energy infrastructure, marijuana and guns — illustrate the challenge the banking industry is facing as political pressure on all sides forces new considerations of risk and due diligence as part of any business or investment decision.
First, on energy and the environment, environmental activists are pressuring banks to divest from pipeline and other energy infrastructure projects. This type of demand is a relatively new tactic to undermine not just companies producing oil and gas, but those firms that are transporting it as well. European and U.S. banks are facing unmitigated reputational risk, and even physical intimidation, due to their business decision to finance and support this important economic sector. Activist pressure has also led cities to remove funds from certain banks and even consider creating city-run banks as an alternative to those that are expected to deliver financial performance for investors, suggesting that this pressure will not soon relent.
Second, when it comes to navigating the regulatory no man’s land between state laws that legalize marijuana and federal laws that criminalize it, banks are subject to the whims of federal administrations that determine policies affecting whether they can serve their customers. Companies operating or investing in this sector find themselves unable to find a bank to serve their needs. In addition, small community banks in states where marijuana is legal are finding themselves turned down for access to national banking networks, further exacerbating an already ambiguous position that will not become clearer until there is a policy solution.
Lastly, in light of the tragic school shooting in Parkland, Fla., banks are being discussed as an answer to the contentious gun control debate. Where legislators have been unable to pass laws that some hope might prevent troubled students from getting weapons, a New York Times columnist has suggested the financial industry can change its "terms of service to say that it won’t do business with retailers that sell assault weapons, high-capacity magazines and bump stocks," thereby circumventing traditional routes of policymaking entirely. It is a sign of the times that chief executives in the industry are contemplating these ideas, but those that do so need to recognize that every action has a reaction, and activist demands on business may only increase until their objectives are completely achieved.
Quote"The nature of today’s professionalized and digitized activism cannot be swayed, satiated or appeased for long."
The good news is that this fraught environment, which features companies needing to react to the latest passionate, emotionally driven outcry, does not need to catch banks off-guard or send corporate communications and government affairs teams scrambling. While there may be legitimate policy debates to be had, banks serve an important public good and need to defend their reputations and continue to do business for the sake of their customers. Likewise, their customers need to know their bank will be with them in tough times.
That means finding ways to mitigate the political pressure and potential reputational harm as they are caught in contentious public debates the political system no longer seems capable of resolving. This can be done by first filtering activist demands through their institution’s values and the interests of their key stakeholders, particularly shareholders and customers, to help determine what issues really matter and go to the core focus and reputation of the firm. Then, with this understanding, banks should ensure they fully understand the true nature, motivations and influences of the activists exerting pressure, as well as the issues, coalitions and alliances connected to those activists. It is only with that understanding that banks can better anticipate future pressure and properly inform their response to the inevitable unforeseen development.
Although the initial instinct may be to succumb to the political pressure, capitulating to activism is not the answer. The nature of today’s professionalized and digitized activism cannot be swayed, satiated or appeased for long. And there will always be the next viral cause or offense, along with the incumbent activist groups, ready to boost attention to those issues.
It has become clear that this new age of increased activism will focus on strategic pressure points for those activities and policies activists oppose, including access to capital from financial institutions. Banks and financial institutions need to recognize this new reality and engage smartly with opposition or face unexpected consequences.