The riot in the United States Capitol on January 6 was an unprecedented moment in American politics, but it appeared to be largely ignored by financial markets. Although none of the main index Aborted, the Capitol riot had at least one significant impact on the financial world: it encouraged and even forced certain companies to take a political stand.
Key points to remember
- Companies have traditionally avoided overtly political action, but the Capitol riot appears to be a game-changer.
- A slew of companies have suspended political contributions, with some targeting Republicans who opposed President Biden’s certification of victory.
- Taking political positions can impact businesses if and when power changes hands.
Sticking to untenable business for some
Companies traditionally see themselves as apolitical entities. It is not uncommon for corporations to donate equally to both major parties in the United States. Every time there is a transfer of power, they recycle the same press release of working with the incoming administration to bring positive results for their industry and their shareholders.
The Capitol riot, however, caused a number of companies to abandon the apolitical approach — at least for now. Some of these companies are seen as having little choice because the nature of their business required some form of action at the risk of losing customers. Others have chosen to take a political stance for their own reasons.
Companies forced to take a stand
Social media companies were at the forefront of companies forced to act. Facebook, Inc. (Facebook), Twitter, Inc. (TWTR), Alphabet Inc. (GOOGL) YouTube, TikTok, and smaller companies like Reddit all took action after the Capitol Riot to suspend accounts, redirect hashtags, and remove content.Given that some of these platforms were used to spread misinformation and stage parts of the Capitol Riots, this should come as no surprise. The implications of these actions will have direct impacts on these companies, but the statements indicate that they viewed inaction as a far greater risk.
Unfortunately for some of these companies, the reaction to the Capitol riots goes against some of their arguments of being platforms versus publishers. These companies have long argued that they are platforms (some also claiming impartiality) and therefore should be able to see re-shared content without payment or liability. Those arguments will now face tougher legal opposition, armed with new evidence that these companies can and will take responsibility for content. On top of that, despite the risks these companies exposed themselves to by acting, many feel they acted too late in allowing the Capitol Riot to take place before they did anything. or about the extreme calls to action that have trickled down to user groups. within their communities.
Companies that choose to take a stand
The direct involvement of a company’s proceeds in carrying out an attack on the Capitol suggests the need for at least a statement if not prompt action. A number of companies, however, chose to make statements and take action when they were not directly in the public eye. A common pressure point companies have used is the suspension or reduction of political contributions. Some companies like Microsoft Corporation (MSFT), Alphabet, The Coca-Cola Company (IS), and so on suspended Political Action Committee (PAC) donations to both parties. The Charles Schwab company (BLACK) completely abandoned his PAC.
Other companies like Walmart Inc. (WMT), Amazon.com, Inc. (AMZN), Morgan Stanley (MRS), the Walt Disney Company (SAY), and others have specifically targeted PACs for Republican members of Congress who voted against President Biden’s certification. For these members, collectively known as Objectors, what appeared to be a political gesture came with a significant financial consequence that will become apparent when their seats are next elected.
The bottom line: what it means for investors
The Capitol Riot was an unprecedented event in recent US history, so it makes sense that the corporate response was also unprecedented. The question for investors is not whether the rioters, Trump or opponents face consequences, but what the consequences will be for companies that take more explicit policy action. This time, the risks seem low, as the actions mainly concern a political party that is no longer in power.
In the longer term, however, taking a stand in politics can make these companies a partisan target when power changes hands. This is the reason why corporations tend to make apolitical donations. No matter who is in power, they want to be able to take advantage of it. For some companies, the apolitical benefits may no longer be worth the social costs, meaning investors will need to become familiar with the measure Political risk as they would for a company in a less stable region of the world.
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