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Economic Impact and Importance of Social and Policy Issues

Businesses want to locate in states that adhere to their core values and are using their economic might to change the political landscape.

Q4 2022
Editor’s Note: While some consultants who work with companies making location decisions believe that a state’s “social climate” is definitely taken into account when a firm makes a site selection decision, others feel that such decisions are not made based on current politics but rather by taking a longer term view. Read on for a take on this issue from a legal point of view.

The United States was founded on the idea that its elected officials are the voice of the people; however, dissatisfied with the polarized political divisiveness and the near gridlock in Congress, the people are looking towards other forms of representation — their employers. It has become increasingly common for employees to urge, if not demand, their employers stand up for them, take action, and help create change on their behalf. Many companies — motivated by their current workforce’s pleas and their desire to attract the best and brightest workforce — have accordingly prioritized aligning their social activism and corporate responsibility stances.

Within the past five years, there have been four major social and policy issues that have companies weighing in. While some criticize the private sector for being involved in public decision-making, others criticize businesses that remain silent or don’t do enough. This dichotomy has been shown in recent decisions regarding abortion laws, “bathroom bills,” voters’ rights legislation, and displays of the confederate flag. To truly understand how we got here, it is important to first assess the events that gave rise to the heated discussions, the economic climate surrounding the time of these events, and any initial corporate responses taken.

Abortion Laws
Abortion has been an item of deep political discord for many decades. There have been various opinions surrounding when the exact moment of life begins and whether abortion should be a viable option, and if so to what extent. Due to various moral and religious beliefs that are intertwined on this topic, the public’s extremely polarized opinions are firm and unwavering.

On June 24, 2022, the Supreme Court of the United States decided Dobbs v. Jackson Women’s Health Organization. This case involved a doctor at the only licensed abortion facility in Mississippi who challenged the state’s “Gestational Age Act” which bans all abortions after 15 weeks. In Justice Alito’s majority opinion, the court held, “[P]rocuring an abortion is not a fundamental constitutional right because such a right has no basis in the Constitution’s text or in our nation’s history.” This case effectively overturned the 49-year precedent set by Roe v. Wade, which held that under the Fourteenth Amendment’s inherent right to privacy, women had a right to choose whether to have an abortion. Post-Dobbs, this leaves the decision up to each state and its representatives to provide laws governing abortions. Since the decision was released, states, primarily located in the southeastern region of the United States, have adopted a near-total ban of abortions.

This decision, officially made on June 24, was originally leaked to the public on May 2, 2022. While the leaked opinion was merely a first draft, people have been either outraged or content at the likely outcome of the Dobbs case for months. Those unhappy with the decision focus on statistics indicating a likely increase in women dying due to being forced to carry an unwanted or dangerous pregnancy to term as well as other statistics showing minorities, minors, and low-income communities will be disproportionally impacted by this decision. On the other hand, some focus their discussion on this decision as a rightful return of power back to the states rather than the federal government. Additionally, others, who believe that abortion should not be legal from a moral conviction, approved of the decision due to the many state laws prepared to prevent women from terminating pregnancies after Roe v. Wade was overturned.

It has become increasingly common for employees to urge, if not demand, their employers stand up for them, take action, and help create change on their behalf. Corporate responses to the Dobbs decision have been varied. There has been a push on many businesses’ social media platforms to share with their followers and employees the information and resources available to them. Moreover, over 300 businesses have signed the Don’t Ban Equality statement. This statement, originally created in 2019, notes that “restricting access to comprehensive care, including abortion, threatens the health, independence, and economic stability of our workers and customers.” Another reaction to the controversial Dobbs decision taken by companies like Dicks Sporting Goods, Levi Strauss & Co., and the Walt Disney Corporation is pledging to pay for any employee’s travel expenses related to obtaining abortion care. While this pledge has come with the praise of many employees, there have also been discussions regarding potential consequences. First, there are potential issues with the employees having to specify why they are traveling and for what medical procedure. Additionally, if states have applicable aiding and abetting laws, companies could be facing legal hurdles with knowingly allowing and providing the resources to their employees to travel to receive an abortion procedure. Additionally, if companies are setting up funding programs offered only to women, there have been discussions of the viability of discrimination claims.

Another large social and political issue exists in multiple states which have proposed so-called “bathroom bills.” While varying in specifics from state-to-state, the general goal of these bills is to require transgender individuals to utilize public restrooms for the gender they were born with rather than for the gender that they identify with.

The responses to these types of bills have been equally as split. Some believe that this is for the safety of everyone. Others believe that this type of legislation will not increase safety but will directly put transgender individuals in harm’s way. The major response by businesses to these bills has been to openly criticize them as discriminatory. Many corporations and business leaders have hosted discussions with or sent letters to legislators and elected officials urging them to prevent these types of bills from passing.

Voters Rights Legislation
There have been 380 restrictive voting bills introduced in state legislatures across the country. There is a big push for continuing to place heightened requirements on voting, primarily to ensure accurate and legitimate voting; however, these bills have been also extremely criticized as presenting barriers to minorities.

Displaying the Confederate Flag
Unlike abortion and voters’ rights legislation or “bathroom bills,” the confederate flag is a social issue without direct, controversial legislation. The confederate flag, originally created and used by the Confederacy during the Civil War, is seen by some to be a symbol of history and rebellion. To others it is seen solely as an image of racism, hate, and even a symbol of white supremacy. Even without direct legislation, this societal controversy has impacted economic development. For example, with deep roots in southern history, South Carolina had the flag flying on their state capitol building until July 1, 2000. It wasn’t until 2015, after the fatal shooting of nine church members of a historic Black church and photos circulated of the shooter posing with a confederate flag, that the state banned the flag from the statehouse grounds.

Many companies view taking a stance on any polarized topic could alienate half of their workforce and half of their consumer base. Even prior to the shooting that led to flag’s removal, there was much controversy within the state about the flag. For example, Maurice Bessinger a local barbecue business owner, saw the flag as a symbol of the state’s history and decided to continue flying the flag over his restaurant in Columbia, S.C. This personal support of the flag resulted in seven grocery store chains including Publix and Wal-Mart from removing his restaurant’s barbecue sauce from their shelves, effectively reducing his sales by 40 percent.

The removal of products or imagery that have associations with the confederate flag has been a huge effort for companies to eliminate risk of their company’s association with such controversial imagery; however, other companies that have continued to produce and sell confederate flags. Kerry McCoy, the owner of an online flag-making company that sold confederate flags, was asked about her decision to sell the flag in 2015 to which she responded, “This is America. Everybody has a right to be represented whether you are a history buff or a nut.” However, in 2019, she decided to stop selling the flag because she realized it has been associated with hate groups.

What Does it Take?
So how and when can businesses use their voice to enact change? There are really four main approaches that companies can take when faced with these challenging, polarized topics in a state where they conduct business. Businesses can (1) remain silent and neutral; (2) leave or threaten to leave the state; (3) threaten to not expand into the state; or (4) attempt to work with the elected officials.

Remain silent and neutral — Some companies have chosen to remain entirely neutral. Many companies view taking a stance on any polarized topic could alienate half of their workforce and half of their consumer base. While once the safest option from a public relations standpoint, this approach has been increasingly criticized.

Leave or threaten to leave the state — After a state has passed legislation or takes a stance on an area that affects a company’s employees, another option is to leave the state. This is an extreme response to the state and shouts the company’s view on the social or policy issue. Moving operations out of a state is extremely expensive. It would cause the uprooting and potential loss of employees who are unwilling to leave their homes. Thus, it is unlikely that many manufacturing or research and development companies will consider this a viable option; however, sports affiliations have historically used this tactic to encourage change and show their disapproval.

During the period of time when South Carolina flew the confederate flag on the statehouse grounds, the NCAA and SEC refrained from hosting tournaments and conference games in South Carolina. In 2017, two years after the state decided to remove the flag from the statehouse grounds, Greenville, S.C., hosted the SEC women’s basketball tournament and brought in an estimated $1.7 million to the local economy. By refraining from hosting games in the state, the NCAA and SEC demonstrated the economic power that they can withhold from states that demonstrate beliefs that do not align with the organization’s core values.

Another example of a corporate response of leaving a state is when, following the passing of voters’ rights legislation in Georgia, the MLB moved the All-Star game from Atlanta to Denver. This move was praised by those impressed by the MLB’s sticking to its core values of diversity and inclusion. On the other hand, it was extremely criticized by those who believe that politics have no place in sports. While sports affiliations have been no stranger to avoiding areas of the country based on conflicting values, this decision was more drastic than others such as those taken by the NCAA or SEC, which have simply forgone areas that continued to fly the confederate flag; the MLB had decided upon Atlanta and then actively changed the location. It was then further criticized four months later when the MLB hosted the World Series in Atlanta.

Ultimately, businesses and organizations bring in a wealth of economic benefits when hosting meetings, conventions, and sports games in a city. A business that refuses to locate in a specific state for social and policy reasons not only reinforces that it cares about the concerns voiced by its employees but also shows local and state governments the power that it wields over their economies. It provides leverage when it comes to public-policy decisions by showing a willingness to leave if the government passes controversial legislation.

Threaten to not expand into the state — When businesses are looking to expand into other states, it offers state and local government jobs that will be created and capital investment into the area. This prospect makes the site selection process extremely competitive. State and local governments can offer businesses many various economic incentives including grant funding, property tax reductions, credits against employee withholdings, and even employee training programs. The competitive nature of these deals offers room for businesses to have open conversations with the state. One New York technology firm leveraged the creation of 350 jobs and $6 million investment to convince the state to remove the confederate flag from the State House dome stating that the confederate flag flying in the capital was a deal-breaker.

Meet with elected officials – Prior to the enaction of legislation that impacts their employees, employers can work together with elected officials to ensure their employees concerns are being heard and attempt to prevent legislation from harming future economic development within the state.

A business that refuses to locate in a specific state for social and policy reasons not only reinforces that it cares about the concerns voiced by its employees but also shows local and state governments the power that it wields over their economies. The most recent example of companies attempting this approach comes from Indiana where there have been 55 abortion restrictions enacted. Additionally, there is a current bill proposed in the Indiana Senate that restricts nearly all abortions except for cases of rape or incest and includes a reporting requirement for completed abortions. On July 25th, the Senate committee approved the bill to be decided by the full Senate. In response to this pending legislation, 67 top business executives have signed a letter to Eric Holcomb, the Governor of Indiana, who has been a proponent of further restrictions on abortion care. This letter urges Holcomb to veto the bill stating that abortion restrictions will make Indiana an impossible choice for companies committed to building an inclusive workplace and will make it more difficult to attract and retain top talent. Indiana is no stranger to companies coming together to influence legislation. In 2015, after the state passed the Indiana Religious Freedom Restoration Act, businesses were able to work with the state elected officials to come to a solution that prevented the discrimination of the LGBTQ community.

Another example of companies working with executives before legislation is passed involves the “bathroom bill” proposed in 2017 in Texas. The bill would have restricted transgender individuals from using their identified-gender bathrooms and required them to use the bathroom of the gender assigned at birth. This bill was killed after 720 businesses and their leaders, including 46 Fortune 500 companies, publicly condemned the bill. The NFL and NBA warned that the passing of this bill would hurt Texas’s chances of hosting major events. Among these businesses, LGBT rights organizations, the Texas Association Against Sexual Assault, and the Episcopal church also opposed the bill.

In Sum
At the end of the day, people want to be heard and respected. As companies are gaining more and more influence in the political landscape — through their large economic impact in states’ economies as well as their political campaign donations — more and more employees are looking to see how businesses wield this responsibility and whether it aligns with their personal core values. It not only impacts their decision as to where to work, but also where they live. Each individual decision multiplied by the magnitude of the number of people who work in the United States shows the true economic impact and importance of these social and policy issues and responses from major employers.

Note: Summer Associate Taylor Conley contributed to this article. Taylor is a law student at Pepperdine in Malibu, California, and works from the firm’s LA office.

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