The Shifting Relationship Between Business and the U.S. Government

ADI IGNATIUS: I’m Adi Ignatius.

ALISON BEARD: I’m Alison Beard, and this is the HBR IdeaCast.

ADI IGNATIUS: Alison, I spend a lot of my job now speaking with C-suite executives and other leaders, and there are things that they’ll talk about in the press, that they’ll talk about publicly. And then there are the closed door conversations that they have about the state of the world and about the role of business in it. Those conversations are often very different. Today, we’re going to be looking at the relationship between the business community and the government, how that seems to have changed in the US, and how business leaders can best handle this new environment.

ALISON BEARD: Yeah, I’m incredibly interested in learning more about how business leaders think about the world today, because so much of the uncertainty that we talk about really does come down to these political decisions, whether that’s changing tariffs and trade wars or military action that’s affecting every kind of business, not just the obvious ones. And I think it’s really hard for leaders right now to figure out if, when, how to react and even weigh in.

ADI IGNATIUS: Yeah. So look, we want to go big picture today and look specifically at how leaders are and how maybe they should be navigating these waters. Our guest is the Yale Professor Jeff Sonnenfeld, who’s also the founder and CEO of the Chief Executive Leadership Institute. He’s been very outspoken, criticizing President Trump, and we want to be transparent about that. But we wanted to speak to him because of his close connections to CEOs because of the closed door conversations he is having with the business community and because of his deep understanding of what it means when a government starts picking winners and losers in the economy. Here’s our conversation.

Jeffrey, thank you for being on HBR IdeaCast.

JEFF SONNENFELD: I’m honored to be with you.

ADI IGNATIUS: Look, I think of you as somebody who is in constant contact with CEOs who earns their trust through your discretion. What is the mood in the American C-suite right now?

JEFF SONNENFELD: The American C-suite is pensive. There are strong opinions, but don’t want to voice them individually because there’s a great fear of vindictiveness.

ADI IGNATIUS: A few years ago, I would’ve said, I think I probably wrote, many people wrote that Milton Friedman’s approach to economics, that Orthodoxy was over, that it wasn’t simply enough to focus on shareholders. You needed to take stakeholders’ interest into account more broadly. It wasn’t clear what came next, but it seemed like that old paradigm was dead. That now seems like a premature obituary. Is Friedmanism alive and well? Where are we in those terms?

JEFF SONNENFELD: Milton Friedman in that 1971 August New York Times magazine article never said the words that the only responsibility is the bottom line. The bottom line is an expression doesn’t appear there. He does refer to profits, but on paragraph 26 in there, he also talks about what you were just talking about, which the term for it was social amenities. He didn’t call it corporate social performance or corporate social responsibility or ESG or any of the other terms that came out at the time. Friedman didn’t use that language, but he called it social amenities to be a responsible employer in the community and talked about those duties.

And what I hear now, Adi, and this will be perhaps an odd response, is they’re saying, “why are these corporate titans not speaking out on this issue or that issue?” They are. They pick and choose their issues. Michael Dell, hugely successful, very high performing CEO. He’s tracking a hundred issues at any one time, he and his company, and they decide what’s most urgent and they’ll speak out. In his case, it’s been voting rights and women’s health and issues and Alcoa and Ford and others have been speaking out on tariffs. They pick their issues, but they’re wondering, where’s everybody else? Until just a few weeks ago in Minnesota, people were wondering where the CEOs are. Well, the CEO, 60 of them came out of Cargill and Medtronic and Target, and it made a huge difference.

In the election transition in 2020, where the President Trump came out and declared the election fraud and announced that he was the winner. Many CEOs then started calling and emailing and texting me to facilitate, to somehow pull together a group that to convene them overnight. We called 100 CEOs. We got 93 of them. They came out with a very strong statement. So CEOs spoke out on many occasions like that, but they don’t speak out on every issue.

ADI IGNATIUS: But I want to kick back some because it’s your tone, and I know you don’t mean this, but your tone is almost that anybody and everybody should be organizing to resist. And you have to remember, business flipped, right? I mean, business interests, particularly in Silicon Valley that tended to be blue, if not when they weren’t libertarian, kind of flipped red. They did not like what was happening in the Biden administration. They did not like the levels of control and regulation. And Trump offered an alternative that was very attractive to business. So I don’t want-

JEFF SONNENFELD: To some extent. And I’m mindful of who our constituency is. State capitalism isn’t what a lot of the business community was looking for. To have the arm twist of Intel and US Steel to have to surrender the private stakes to decide who the CEO can be, they had to give up 10%. It has confused things in ways that Milton Friedman never spoke for that. MAGA economics is very interventionist.

ADI IGNATIUS: So Jeff, I think if you’re a layperson looking from the outside, I think it’s easy to say CEOs shouldn’t be kissing the ring of the emperor, shouldn’t be giving money for political purposes, that this is not normal, this is not okay. But I mean, would we do differently if we were CEOs? Isn’t it rational to do some of these things that are political in nature and seen partisan in nature, but are maybe necessary for the company’s best performance?

JEFF SONNENFELD: Well, the company’s assets are, of course, its strategic mission, its financial health, the technological niche that they have and the character of their leadership, but it’s also the reputation in the marketplace. That matters a great deal. We helped to spark by ranking them on an A through F basis, 2000 companies operating in Russia. Most of them left, only because Russia became an increasingly impossible place to do business and to stay alive, but also because of the reputation costs, not just the financial risk and the operational risks of being there, but also it was the reputational risks. So 1,200 firms pulled out that we’re very proud of. And that was six times the exit from South Africa, which had a lot to do in 1988 with the release of Nelson Mandela and the change of government there and the change of the apartheid system. It can make a big difference.

Similarly, when Ken Frazier acted as a solo player after the murder of a peaceful protestor in Charlottesville in 2017 in the summer, he pulled out of the business advisory councils. He told Merck, “This is my own decision. I’m not speaking for the company. You decide what’s right for the company, which is basically saying, I’m resigning if you don’t back me,” but he didn’t threaten them. They unanimously backed him, but so did roughly 200 other firms and the three different councils they pulled out. It took a little while, took a few hours and a few days, but it was a stampede. That really mattered. So collective action matters, but to spark collective action, you have to have some courageous individuals take a stand.

Now, when Harley Davidson is the CEO, and I just had him in my class yesterday, Matt Levatich was being targeted. Harley Davidson, I mean, my goodness, what could be more of an iconic brand than that? They’re very symbol, their mascot is the bald eagle is – because of EU trades restrictions in response to U.S. tariffs against the EU, he couldn’t get bikes that were 100% made in the U.S. into Europe. So he had to open a factory in Thailand and shut one down in Kansas City to make that happen.

Trump took that as a personal insult and said, “Don’t buy Harleys.” Well, the Harley riders are lean MAGA. So it had a huge hit to his sales. Now, only 3% of the global market, he’s the largest producer in the U.S. It was a very anti-American move by the president. The competition is all German or Japanese or Koreans and the stock plummeted. And the CEO, Matt Levatich, got fired. That was a cautionary tale. So you don’t act alone.

IBM, when Arvind Krishna wanted to influence the White House, he and Michael Dell and a small number of tech titans, I think, not putting the words in their mouth, but since the Business Roundtable failed to act, they did on their own and Trump would listen to them. He’s a rational guy. He’s a very smart person. He may not be the world’s expert on geography or history, but he’s very quick on his feet. He understood either enlightened self-interest or patriotic reasons, whatever he listened to the Tech Titans, not because they’re being bought.

Retailers tried the same thing. They had some marginal success on the tariff issues, but it took a stronger voice. The National Association of Manufacturers condemned the tariffs as did the bond markets after Liberation Day. Trump listened, it made a difference, but silence is not golden. But what we have seen is, with the exception of the National Association of Manufacturers, a certain cowardice from the trade groups, that’s who runs protective cover so that CEOs can take positions because if they work in aggregate, it makes a difference. But to go silence, no, that’s not a good thing for universities, law firms, or CEOs or the nation in general.

ADI IGNATIUS: So for people who are listening to this, and look, some people may think Sonnenfeld’s too political, he’s too anti-Trump. And they may find that some of the policies are acceptable, some of the policies are not acceptable. What do they do? I mean, because it’s hard. If you’re the CEO of Coca-Cola and you can get the CEO of PepsiCo to join with you, there’s some clout there. If you’re running a small and medium-sized business and you’re okay with some of what’s going on, but some of it seems not okay, what do you do? How do you function? Is there any role to play in societal political issues in this environment?

JEFF SONNENFELD: I’ve known Donald Trump longer than anybody in Trump 2.0. I’ve known him longer than anybody in Trump 1.0 administration other than his family members. And actually we have at all of our CEO forums, I have active members of the current administrations and family members had Ivanka Trump at our last summit. Jared will be at our next one. He’s probably come to at least a half a dozen. I helped and worked with the Trump administration on the earliest days of the Abraham Accords, which I think were brilliant, unorthodox and have been historic.

But there have been things he’s done that I think are very important. I think he’s taken on some of the proxy rating firms that had an extortion scheme going. There’s some of the stuff that you were alluding to on antitrust isn’t exactly what many were bargaining for, but still there’ve been things he’s done. And certainly when it comes to cryptocurrency issues and things that there are advocates in those fields that say, “This is what we are looking for.”

When you put it all together, they shouldn’t go mute. He functions best when he hears from them. He just doesn’t want to be humiliated. You don’t have to insult him. You don’t have to make him feel like he’s a trapped animal in a corner slashing away to defend himself, but to engage in a useful dialogue, but he’s not going to respect you unless you’re coming in there with force that he has to reckon with.

When you take a look at how he embraces Mayor Mamdani, it couldn’t be more a political opposite. It’s because he respects the political force that Mamdani has with it, but certainly not in his views yet. They’ve come to some meetings on the minds on something. So there’s a way to do it that doesn’t put Trump in a bad spot, but you’ve got to understand him. And even a small business person in the community is not an even. It’s not an afterthought. It’s fundamental to American democracy.

When Alexis de Tocqueville came to this country in 1840 and he wrote that great book, Democracy in America, he came as a French tourist to understand how does the U.S. legal system work so well? And he said, “It’s not because of the tightness of the laws.” He said it’s because of the looseness of the laws as we adapt to circumstances and the only way they work, as he pointed out as if business leaders in the community, as well as clergy and other institutional leaders speak out to define the truth.

But if you deny the truth, he said democracy fails. And he called that social capital. Social capital, he said, is as important, if not more important than financial capital. And that’s what business leaders help produce by defining and standing by what the truth is as pillars of trust. If you look at the work done by Richard Edelman, the Edelman Trust Barometer shows us again and again that whose ascendant is my CEO, is the most trusted voice among employees, not sadly the clergy, not federal, state, local officials, not the-

ADI IGNATIUS: Not journalists.

JEFF SONNENFELD: Not journalists, not academia. But it’s my CEO. So if they’re trusted, then they should use that and find a way to be effective. That’s what makes democracy work. What hurts shareholders value the most and makes it hard for CEOs to lead?

It’s people that are using through grandiosity, divisive rhetoric that are through the grandstanding, dividing society and tearing the fabric of American society. That is not in the interest of shareholders, let alone the interest of average citizens.

ADI IGNATIUS: So a few years ago, the truism was that CEOs sort of had to speak out on social issues that their employers demanded, their employees demanded it, that the consumers required it that if you were silent, social media would interpret your silence in ways you might not like so that you had to speak up. I think we’re not there right now, right? But the fact is I think CEOs by and large are terrified of it. It may have been excessive before, speaking out on too many issues that were not relevant, let’s say, to the business they were in or their principles, their purpose, but also that they get slapped down for it.

But I find people say, look, but there has to be a red line. There may be issues that I really disagree with, my employees seem to disagree with. I don’t want to get in the middle of it, but I want to figure out what my red line is.

JEFF SONNENFELD: That’s again, how they have to work through collective action, through trade groups and not necessarily speak out alone. Work with the facts, don’t get caught up in fingerpointing, name-calling, and that whole slapdown, you’re never going to win that as people learned in the primary elections. But you can’t just go and concede everything, especially when it comes to the fabric of society or there’s really nothing worth fighting for.

ADI IGNATIUS: All of what you’re saying points to me, the fundamental takeaway from life in the Trump administration, which is uncertainty, the famously detested aspect for business, uncertainty. That’s tough, right? I mean, I’ve had a CEO tell me this is the most business unfriendly government in the history of America, ironically, with leadership that you think of as wanting to be pro business.

If you’re a business and you see all this going on, how do you play it? I mean, I guess you can have 95 scenarios and flip them every day, but this is a tough environment. And do you have advice on trying to navigate?

JEFF SONNENFELD: Business needs to have a predictable environment, and they invest at a minimum, a minimum in a five-year time span. And of course, with these volatile conditions, they don’t know what to do. So they’re hanging back.

Business leaders need not to concede, not to appease. Business leaders, church leaders, labor leaders, professional association leaders, university leaders, they have to fortify what the truth is, what Tocqueville called social capital. That’s what really matters. And tearing society apart by its thread by thread, pulling apart the fabric of society is not in the interest of any business.

ADI IGNATIUS: Well, so like Donald Trump, not like Donald Trump, whether you like or don’t like what’s happening now, do you find this business view this is the new normal? And when I say this, it might be a very expansive sense of presidential powers, the reorganization of the global order. Is business viewing this as the new normal or that this is a temporary aberration?

JEFF SONNENFELD: Well, I think they are alarmed. They thought that we had more checks and balances in the system than we do. We want to take big chances. Some things will work, some things won’t work, but that’s what drives a free enterprise system, is to have somewhat more unbridled risk taking. And now they see we’re having unbridled risk taking in government. That scares the dickens out of them. They want that to be on the business side, but not in government, which needs to be a reliable backbone.

ADI IGNATIUS: If someone is listening to this and their attitude has been, for the most part, I just want to keep my head down. I don’t want to get in trouble. I don’t want to get dragged into anything messy. On the other hand, I worry about the stability of America. I worry about the excessive use of, let’s say, presidential power in ways that I don’t think are good for the country. What do I do? And collective action, you’ve said before, but with whom? How? If you’re not comfortable in this situation right now, what do you do?

JEFF SONNENFELD: You want the truth to prevail. There was a great member of the Harvard faculty who died a few years ago, unfortunately, Ash Carter, who was Secretary of Defense. Ash Carter was a brilliant physicist. But when he was secretary of defense, he did a fantastic job, but he was challenging many of his fellow members of the Biden administration on a number of fronts, and particularly John Kerry. But before he became a secretary of defense, he was in under-secretary roles, and he was brought up under the Alien and Sedition Act for telling the truth, having to do with Ronald Reagan’s Star Wars program. And he saw what some of the technical infeasibilities were in a private study to Congress that got leaked. They were going after him. The business community stood behind him, as well as a significant number of government leaders saying, “You can’t get brilliant young people to go into government if you’re going to criminalize what they do.”

Jerome Powell probably didn’t get everything right. I’ve had some short differences with him in the Federal Reserve and decisions he was making. But to try to terrorize people like Ash Carter or Jerome Powell, that matters to business leaders. To replace the head of the Bureau of Labor Statistics because you don’t like the numbers coming out. It’s the kind of thing that Putin does. Putin suppresses all of his national income statistics because he finds them be unfavorable and he makes up numbers each morning and nobody except the IMF believes those numbers.

But it’s important for business leaders and government figures to endorse the truth or the system doesn’t work. Anybody can run out of a restaurant and not pay in a big city, but there has to be a foundation of trust for a system to work. And that’s what CEOs are doing, I think, a pretty good job of fortifying. They just can’t be the only ones. They need to know for all those people who want stakeholder democracy to work, don’t sit home and eat your steak, go out and do something, speak up. And that’s what matters.

So institutional leaders across the face of the nation have to speak out. And sometimes you speak out in support. If you like what’s going on and you think a certain war is a just war, you think that there’s evil that has to be combated, or if you think that there’s a different approach to peace such as the Abraham Accords. Well, there’s nothing wrong with endorsing that. A lot of CEOs that I worked with, such as Steve Schwarzman and the CEO of AT&T and others came over and joined us in Bahrain at the launch of the Abraham Accords.

That’s a great thing, but it was CEOs going above and beyond the bottom line. A point that you raised before, which often has come after me, say in some places at the public, since the Wall Street Journal, I’ve been set up in debates, they say, “Well, it’s a slippery slope.” If you get involved in this issue, then you get involved in that issue, and then you wind up having to take positions on a whole host of things unrelated to the business.

Business leaders should stay in their lane. I say, “What lane is that? The breakdown lane?” The societal context of business matters. You decide what are your priorities and you practice triage. CEOs and their boards need to practice triage. Don’t take a position on every issue. Don’t get caught up in the slippery slope nonsense either. So there’s every issue or slippery slope. Don’t fall for either cliche. Use judgment.

That’s why you’re there instead of an AI program to make decisions. What do you think matters to your constituents, to your companies, to your shareholders, your employees, your customers? And then you pile at the companies you see as best acknowledging those issues that matter most to you.

ADI IGNATIUS: That’s a good point to end on. Jeff, thank you very much for being on the IdeaCast.

JEFF SONNENFELD: Oh, thank you so much, Adi.

ADI IGNATIUS: That was Jeffrey Sonnenfeld, Senior Associate Dean and Professor at the Yale School of Management. Next week, Allison sits down with Harvard Kennedy School’s Julia Minson to talk about her research on disagreement.

If you found this episode helpful, share it with a colleague and be sure to subscribe and rate IdeaCast in Apple Podcasts, Spotify, or wherever you listen. If you want to help leaders move the world forward, please consider subscribing to Harvard Business Review. You’ll get access to the HBR mobile app, the weekly exclusive insider newsletter, and unlimited access to HBR online. Just head to hbr.org/subscribe.

And thanks to our team, senior producer Mary Dooe, audio product manager, Ian Fox, and senior production specialist, Rob Eckhardt. And thanks to you for listening to the HBR IdeaCast. We’ll be back with another special episode on Thursday. I’m Adi Ignatius.