Images of customers burning a company’s products going viral on Twitter might lead you to think that a company’s share price might also be torched, but for Nike, the opposite has proven the case.
For the 30th anniversary of its ‘Just Do It’ campaign, the sports clothing giant decided to make a statement, hiring Colin Kaepernick to front the ads.
Kaepernick, an American football quarterback, is a controversial figure in the US since he chose to kneel during the national anthem at the start of games to protest against the disproportionate shooting of African-Americans by police.
President Donald Trump condemned his actions, while others responded by setting their Nike sneakers on fire, in some cases while still wearing them.
Despite the backlash in some quarters, Nike’s campaign has also been lauded by others. The company’s stock has risen 6% since it announced the partnership.
So should investors really fret about companies getting political or is it all just bluster?
Robert Lloyd, a fund manager at Blue Whale Capital, says ultimately it is the bottom line, not the noise that is important.
‘In general, 95% of what could be considered “political risk” ends up being immaterial to a company’s results, although you would sometimes think it is much more important if you looked at the headlines in the papers,’ he says.
‘The Colin Kaepernick ad is a good example of this – it’s probably a clever stunt from Nike in some ways, but it’s difficult to see how it materially moves the needle over the long-term.’
Lloyd says that he considers stock-specific political risk when investing in the same way he analyses other issues around governance.
However, for Lait, rather than focusing on the alignment of a company’s politics, it is about whether he understands the impact of any campaign that a company is running.
‘It’s just messaging. Really it is how they manage to use their social network. Some companies are just bad at it, and some are exceptional, but it really matters because that’s how businesses engage more and more with their consumers.
‘Nike is probably one of the best at that because of all the scandals with the child labour in the 1990s and awful supply chain issues. Nike had to clean that up so much that they are so aware and are winning because of that awareness.’
With social media so prevalent now, brands can have more direct interaction with their consumers than they had in the past, which is something investors need to be aware of.
‘Now they get real-time feedback loops from these customers. There are people burning Nike sneakers in America and so you get this immediate reaction.’
Despite being admirers of Nike’s marketing abilities, neither Lait nor Lloyd hold the stock in their funds currently.
Although it can be difficult to materially measure the impact of political posturing, in the long-term, Lloyd still sees some danger.
‘Where it becomes material is when a political stance or political pressure results in management teams de-prioritising shareholders. Facebook is a good example of this recently.’
He points out that due to political pressure, Facebook has changed the way it structures its business for tax purposes, in a way that will reduce the level of revenue and profits it could otherwise achieve.
However, Lloyd notes that over time this could be a good thing for the business if it can serve to placate the politicians who could otherwise seek to impose ‘draconian regulations and anti-trust measures’. But in the short-term, he highlights, it is painful for its shareholders.
‘It is not so much about being political, it is about them lobbying a government to get what they want and I think paying attention to that is very important,’ says Lait.
As an example, Amazon’s lobbying bills have gone up four-fold in the last couple of years, according to Lait, totalling several billions of dollars.
He tends to avoid consumer companies because he sees a tendency for brand values to go up and down quickly, given shoppers can be fickle. ‘Nike is a case in point and highlights the vulnerability of these companies to political missteps,’ says Grieves.
‘Most companies are pretty good at staying away from trouble. In terms of left versus right in corporate America, most companies want to keep out of it as far as they can.’
This notion is seconded by Lloyd, who asserts, in general, most companies he looks at prefer to stay neutral and avoid taking any overt political stance at all.