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How to Handle a Boycott as an Entrepreneur

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    NEWSLETTERS

    NBC 6 South Florida
    Two participants smooched in the "National Same-Sex Kiss Day" demonstration held outside a Pompano Beach Chick-fil-A.

    Presciently enough, this interview was done hours before it was suddenly socially acceptable to eat at Chick-fil-A again. For those who haven't heard, the company's CEO, Dan Cathy, spoke out over the summer against gay marriage -- and fast-forward to this week, and the company has announced it will stop giving money to anti-gay groups. So, for some, the boycott is over.

    But this story isn't about Chick-fil-A, it's about how entrepreneurs can weather the storm of a boycott, how to react and why boycotts even happen. I called up Brayden King, the assistant professor of management at the Kellogg School of Management to find out more. He's a political sociologist who studies organizations and the effect that social movement activism has on corporate change and corporate policy-making, and his research is on the different tactics activists might use like protests and boycotts that influences companies' decisions to change a policy or practice that a lot of stakeholders are unhappy with. So, all in all, the perfect guy to talk to for this topic. Let's go!

    What sort of boycotts do you find that entrepreneurs or small business owners might be most often faced with?

    Brayden King: Boycotts are often related to big social problems that the activist community cares a lot about. The bigger the cause, the more likely you are to have heard of the cause and the more likely a company is to be targeted by activists in that category. So, for example, the environmental movement has been quite active. The consumer movement, back in the Ralph Nader days was a good example of the movement that was actively looking for businesses to target. So, what's interesting is that they tend to go after those businesses that are themselves quite visible in the larger public. So, they go after companies that tend to have high reputations or reputations that are seen as prestigious and that tend to attract a lot of media attention. The reason that they do that is because the activists are after media attention. They want the publicity that comes from going after a really high-profile target. And so they'll often ignore really bad offenders. For example, if you are a polluter, you may get ignored if you are small. Whereas if you were a less blatant violator of environmental policies but you happen to be a company that attracts a lot of attention because of your reputation or because you claimed that you are a socially responsible company, then you are more likely to be on the receiving end of activist ire.

    There are occasions when entrepreneurs are targeted and it's usually because they are involved in some sort of activity or practice that has become politically contentious. One of the examples that sticks out in my mind right now is the gay and lesbian movement. It's been very active in targeting business people who were supportive of Proposition 8 in California several years ago. One of those small businesses happened to be in Chicago. The owner of several local theaters was targeted by a local gay and lesbian activist group because he had donated a certain amount of money to Proposition 8, and this led to a boycott and also a fairly large protest for the city of Evanston outside of his theater. They eventually had to bring policemen in and break up the protests to get them to go home and allow people to go into the theater. The more involved a small business owner is in politically contentious causes, the more likely that he or she is to be the target of activists. Your reputation has value. That's the one source of leverage that activists can use against these organizations.

    Is there such a thing as bad publicity?

    Brayden King: Absolutely. I think that's what the Chick-fil-A thing showed us, that it was bad publicity to put themselves in a position where they had to defend themselves. There's been tons of research that shows that activists have very little impact on sales and revenue. Very little impact. Even people who are ideologically supportive of a boycott will not change their behavior when a company gets boycotted. It's just too easy to shop the way that you've always shopped. To go to the same pizza place or the same store. So, if you're boycotting Domino's Pizza, if it happens to be the pizza place that's on the way home from work, you're probably going to stop there. Especially if nobody else sees you doing it. So, consumers tend not to change their behavior, and for that reason, boycotts have very little impact on the sales revenue of a company.

    My research shows that on average a protest can lead to a same-day decline in stock price returns of about .4 percent. Which may not seem like a lot. That's still millions of dollars, if a company is worth billions of dollars. A .4 percent drop is actually quite substantial. What's the reason for that drop? Again, it's not because of those activists. It's simply that investors see value in reputation. They know that it will have a long-term effect on a company's ability to do business.

    What's the smartest way to respond to a boycott?

    Brayden King: Well, you want it to end quickly. The more media attention that a boycott gets, the more damage it can do to your reputation. The more quickly you resolve it, then the quicker that threat goes away and you can go on with your business. So, how do you resolve it? One option is you can just give in to whatever the activists demand. And if the acts of conceding are low enough, that's often what companies. So, the lower the cost of concession, the more likely executives of the company are to just give in and do what the activists are asking.

    Another way is to bring the activists in for ongoing negotiations. This is what a lot of companies do. You may not necessarily do what they asked you to do initially, but they are going to engage them in a dialog. And in so doing, you can often prevent a boycott from gaining additional momentum and doing damage to the company's reputation.

    The long-term solution seems to be to increase the amount of socially responsible practices the company does, by being proactive and seeking to build relationships with activists before something bad happens. The more you do this, then the perception is the more likely you are to withstand those sorts of attacks.

    David Wolinsky is a freelance writer and a lifelong Chicagoan. In addition to currently serving as an interviewer-writer for Adult Swim, he's also a comedy-writing instructor for Second City. He was the Chicago city editor for The Onion A.V. Club where he provided in-depth daily coverage of this city's bustling arts/entertainment scene for half a decade. When not playing video games for work he's thinking of dashing out to Chicago Diner, Pizano's, or Yummy Yummy. His first career aspirations were to be a game-show host.