Perhaps the CEOs of some of major corporations need a bit of a refresher on business. Their purpose is to maximize the profits that accrue to their shareholders. The firms do not exist to engage in political crusades. They exist to make money, and as much money as possible within the law. Political action is for those corporate leaders to pursue as part of their personal lives.
There are solid, practical reasons for this. For one thing, it is often unclear how a dive into some divisive social or political issue will impact the firm. Uncertainly is something that investors seek to minimize, not something to be deliberately injected into a firm’s operations. Hence, it’s a reckless thing to do.
Of course, firms do make contributions and fund lobbyists to advocate for their business. The ethics and desirability of this is a subject for debate, but that’s not the discussion here. The question is whether a firm should make business decisions based on the politics of its top management, or instead on the goal of profit maximization. The latest upheaval regarding Ivanka Trump illustrates the problem.
Nordstrom’s has decided to drop the Ivanka Trump line of women’s clothing, and offered this explanation: “Nordstrom’s claimed that the Ivanka Trump brand wasn’t performing well, but industry insiders tell Breitbart News that’s just not accurate. Nordstrom’s decision to mislead the public on why they are stopping carrying the Ivanka Trump brand is part of the fury out there among its longtime customers, who tell Breitbart News they’re cutting up their Nordstrom’s cards and won’t shop at the store anymore.”
So Nordstrom’s claims this is solely a business decision based on unsatisfactory profitably from carrying the Ivanka Trump brand. If so, this is a sound decision and the critics should drop the issue.
But not so fast. A corporate email seems to indicate otherwise: “An internal email sent last November 21 from company co-President Pete Nordstrom to employees affirmed they would continue carrying the brand, of which he wrote, ‘[It] has grown to be a sizable and successful business,’ according to Fortune.”
Well, which is it? Is the Ivanka line not performing well, or is it “a sizable and successful business?” The report continues, “[I]n reality, the brand wasn’t performing badly. Nordstrom’s came under political fire from a series of hardcore anti-Trump activists, according to People Magazine.”
Of course, the leadership of Nordstrom’s is perfectly within its right to make intelligent as well as stupid business decisions. The market will ultimately reward or punish the firm accordingly.
Much evidence weighs on the side that this was a decision made more on politics than on profitability. If that’s the case, it was a misguided thing to do. If the purpose of this decision was to make a political statement, not only did the firm eliminate a source of profits, but it irritated part of its customer base as well – some of whom will now engage in a boycott.
There’s much more to this story, but the point has been made. Evidence supports the proposition that the management of Nordstrom’s either caved in to leftist pressure groups, or was otherwise already predisposed to using the firm as a vehicle to attack the Trumps. It was a very poor choice, and it is the market that will have the last word and will make the final judgement on management’s actions.