Could SEC Political Spending Disclosure Affect Consumer Choices?
A new SEC rule in consideration may enable the culture of consumerism as political activism, which would force corporations to disclose which politicians they donate money to.
In an episode of 30 Rock, Jack Donaghy makes fun of Liz Lemon for making emotional purchases.
Liz points to her Toms Shoes look-a-likes and responds, "Every pair you buy, they give a pair to a child who was forced to work in the factory that makes these shoes!"
It's easy to laugh at campaigns that urge people to buy products for ethical reasons, but they are becoming more common in an era of Chick-fil-A sandwich boycotts and "buycotts." Now, a new SEC rule under consideration may enable the culture of consumerism as political activism by forcing public companies to disclose which politicians they donate money to. The SEC has put discussion of the rule on its agenda but has not indicated how swiftly it will act to put it in place.
It is unclear, however, if disclosure of political contributions would change where people shop or invest. Experts say maybe not, depending on the consumer and the product. Ethics-driven consumer decisions tend to apply more to clothing and shoes than dish detergent and house paint, says Olivier Toubia, a professor of business at the Columbia Business school, because we talk about things we wear with our friends and family. These details may not become intrinsic to our buying choices immediately, but like nutritional information, what was once ancillary could eventually make or break a purchasing decision.
"People do not only pick products based on their preferences for the product, but based on many other factors, including what the consumption of the product signals to others, and the emotional associations they make with the brand," Toubia tells Minyanville. "Indeed the effect should be more pronounced for products that are more 'social,' i.e., observed by and talked about with others."
This behavioral tendency explains why, in 2012, a Facebook (NASDAQ:FB) post about Urban Outfitters (NASDAQ:URBN) CEO Richard Hayne's political leanings went viral. Hayne and his wife donated over $13,000 to Rick Santorum, when he served as US Senator of Pennsylvania. Those donations stopped in 2005, well before his presidential campaign, but that did not sway the sentiments of young liberal customers, who were horrified to think the $70 they spent on gold oxford shoes could go to a sweater-vested conservative.
Rush Limbaugh's radio show also came under attack after he infamously called the Georgetown law student Sandra Fluke a "slut." Liberal groups urged people to stop buying products from his advertisers, causing some advertisers to pull out from his show. In 2005, Procter & Gamble (NYSE:PG) cut millions in advertising to pull out ads from the Will &Grace time slot after the American Family Association boycotted their products.
Now Mark Zuckerberg, the Facebook founder, and John Mackey of Whole foods (NASDAQ:WFM) join the ranks of CEOs whose politics may clash with their customers'. Zuckerburg will hold a fundraiser in Palo Alto, California, to support Chris Christie's re-election as governor of New Jersey. A November 2012 Pew Research Center Poll shows that social media users are more politically active and skew younger, as 92% of people aged 18 to 29 use social media in contrast to 57% of 50 to 64 year olds. Since young people tend to lean liberal, this could be bad news for Mark Zuckerburg's political involvement.
(See also: Mark Zuckerberg's Fundraiser for Chris Christie a Call for Bipartisanship?)
Mackey identifies as a libertarian and famously referred to Obamacare as fascist. He recently commented that global warming is "not neccessarily bad," a point of view that contrasts sharply with the image of liberal and environmentally sensitive Whole Foods customers. In an interview with the New York Times, he announced that he voted for Mitt Romney in last year's election, to which the interviewer said, "I imagine a certain percentage of Whole Foods customers will also boycott because of this."
Luckily for corporations, however, customers are good at rationalizing their choices, regardless of what ethical or practical considerations could be made, said Michael Norton, Associate Professor of Harvard Business School and co-author (with Elizabeth Dunn) of Happy Money: The Science of Smarter Spending (Simon & Schuster, May 2013).
Norton tells Minyanville of a study in which men explained their choice between two sports magazines: a swimsuit issue and a top-10-athletes issue. Instead of admitting they wanted to read the swimsuit issues for the models, the men came up with rationalizations, like, "it has more articles."
"Some consumers may shift their consumption in order to express political beliefs," Norton said. "But there are likely many who will continue buying the products they want -- but manage to convince themselves they are doing the right thing."
Ethical consumers, whether they buy for environmental, social justice, or religious reasons also tend to be higher-income, well-educated people, studies at Harvard University and Kansas State have shown. According to a 2005 Harvard study that looked at the number of people who favored fair trade coffee, people in the 31 to 44 age group as well as the highly educated constituted a more than proportionate share of fair trade coffee buyers. Kansas State's 2008 study of Wal-Mart (NYSE:WMT) and Whole Foods customers said these puchases connect to Abraham Maslow's hierarchy of needs, which place basic food and shelter at the end of the pyramid and self-actualization at the top. For instance, a customer may buy an expensive hybrid car because they can afford to concern themselves with environmental issues, as their basic needs have been met.
Will the same hold true when it comes to political support, which can have a direct impact on whether one's needs are met or not?
Vincent Amanor-Boadu, Ph.D., professor of agricultural economics at Kansas State University, says people may regard political affiliation as important, but a low-income consumer's decision to buy a certain brand depends on how well the media covers contributions and how many alternatives are available. For example, Amanor-Moadu points to a person living in the south side of Chicago. They may have one nearby grocery store that supports a political party they disagree with, but they will not necessarily stop shopping there if there is no credible alternative.
"If there is another store 15 minutes away they may be willing to spend the time, but it takes them another half hour they may not want to do that," Boadu said. " The more resources you have the easier it is to expand your choices. The switching cost is lower."
Boadu said a similar decisions exists for investors. Investors may gravitate to companies based on their behaviors and political leanings but they may reconsider depending on how much money they feel they can stand to lose.
"At what point in that discrepancy do you decide to switch? If you take 10% off (performance) or if you take 15% off? It's not black or white -- it's the availability of the options relative to consumers and investors," Boadu said.
Facebook may prove to be an excellent example of the personal conflict Boadu refers to. Young, liberal, and politically active Facebook users may want to boycott the social media site, but is there a credible alternative? Twitter is popular but it doesn't have the same appeal and variety of users as Facebook. Still, it's hard to picture billions of young people abandoning Facebook anytime soon.