The first narrative is a tale of dominance and capture. Powerful firms don’t just win in the marketplace; they write the rules of the game. Tech giants dilute AI regulation. Pharmaceutical companies shape drug pricing rules. Financial institutions weaken capital requirements. In this narrative, market power begets political power in a self-reinforcing cycle, allowing the strong to grow stronger while democratic institutions bend to corporate interests.

The second narrative tells of vulnerability and backlash. The most powerful firms face relentless scrutiny and intervention. Apple, despite being one of the world’s most valuable companies, was forced by EU regulators to dismantle core elements of its iOS ecosystem, allowing alternative app stores and payment systems that directly threaten its lucrative platform model. The very dominance that generated those profits made it a target. Meanwhile, Spotify – much smaller, less profitable, but loud and well-organized – successfully mobilized policymakers against Apple’s 30% commission. In this narrative, market power invites political scrutiny rather than enabling political influence.

Both stories are true, and the key to understanding when each applies lies in recognizing an inverse U-shaped relationship between market and political power. For firms, this means as they get more powerful in the market, they will have more opportunities to shape policy and regulation. But there’s a tipping point, when more market power will lead to backlash and scrutiny, ultimately constraining a firm’s ability to capture value. Good strategy is cognizant of this tradeoff – even if sometimes there are no good alternatives, and managing the risk is the only viable choice.

In this article, we provide a primer on the political economy of market power and its implications for firm strategy.

Capturing value

Capturing value is essential for any successful business. Nearly every firm that survives in the market creates customer value – solving real problems and meeting genuine needs. Yet most barely earn their cost of capital (see graph below), while the top-performing firms capture nearly 90% of all economic profit. The challenge for most businesses isn’t creating value; it’s capturing it.

The essence of capturing value is to “escape competition.” Without this, firms get trapped in a race to the bottom where rivals converge on identical products and profits erode to zero through relentless price competition.

Companies escape competition by building market power. This power stems from three distinct sources: strategic positioning (differentiation or cost advantages that separate firms from rivals), market structure (e.g. network effects, scale economies, or frictions that naturally limit competition), and competitive dynamics (e.g. endogenous sunk costs, learning curves, strategic conduct).

Yet the ability to create and sustain market power depends far more on the surrounding business environment than is often acknowledged. Competition policy, labor law, IP regimes, environmental standards, platform regulation, and sector-specific rules all shape which competitive advantages are available, durable, and legitimate. This is why political power matters. And why it’s important to understand its relationship with market power.

Does market power translate into political influence that can shape the rules in a firm’s favor, or does visibility invite backlash? Is there a tradeoff between aggressive value capture today and preserving a firm’s ability to capture value tomorrow? And for firms lacking market power, how can they reduce their dependence on more powerful players?

The gilded age logic: money buys power

To understand the conflicting perspectives on firm influence, we need to trace how the logic connecting market and political power has evolved. For most of history, the relationship seemed straightforward: money bought political power.

Economists, lawyers, and political scientists have long argued that market power and political power reinforce each other in a self-perpetuating cycle. The Gilded Age offers the canonical example: industrial titans such as Rockefeller’s Standard Oil and J.P. Morgan’s banking empire translated economic dominance into political influence through the direct corruption of legislators and regulatory capture. In Weimar Germany, IG Farben and Krupp’s market dominance gave them outsized political influence that they later used to support and profit from the Nazi regime.

The modern paradox: the inverse U-shape

In modern Western democracies, where politicians are accountable to voters, the relationship becomes more complex. Stanford economists Steven Callander, Dana Foarta, and Takuo Sugaya show that market and political power reinforce each other in a positive feedback loop, but that this loop is bounded. With too much market power, a wedge emerges between firm and policymaker interests. When firms are moderately powerful, politicians have incentives to offer regulatory protection in exchange for political support – such as job creation in key districts, campaign contributions, or favorable public positioning. But as firms become extremely powerful, this dynamic breaks down. Dominant firms have less need for political favors and greater ability to resist political extraction. Anticipating this loss of leverage, policymakers have incentives to constrain firm power before it becomes too strong. The implication is clear: there’s a sweet spot of market power where political influence peaks, but beyond that threshold, power becomes a political liability.

This isn’t just an economic model. Firms are cognizant of the relationship between market power and political power and behave accordingly. An analysis of three U.S. industries (internet companies, pharmaceuticals, and oil and gas) from 1997 to 2017 finds that increased concentration predicts higher lobbying spending three to four years later. When industries became more concentrated (a rough proxy for market power), lobbying expenditures rose; when concentration decreased, lobbying fell. The lag suggests firms first create market power, then translate it into political investments.

At the firm level, political activity similarly intensifies following mergers, i.e. when market power increases. Research on U.S. public companies from 1999 to 2017 shows that the average merger increases annual lobbying spending by $140,000 to $180,000 and raises the probability that firms establish in-house lobbying operations or corporate PACs for the first time. Together, the evidence suggests that market power and political power reinforce each other. But the fact that lobbying expenditures overall are comparatively small indicates that there is indeed an upper boundary.

Four mechanisms behind the inflection point

But what determines where that boundary is? And what other dynamics are at play that not just bound political power but actually push it down? The answer lies in four converging mechanisms: geography, hold-up dynamics, loss of political leverage, and the maturity trap.

Geography and representation. Market power is inherently about asymmetry: being different from and larger than others. Today’s dominant companies (tech giants in Silicon Valley, financial institutions on Wall Street, pharmaceutical firms in Boston and New Jersey) are geographically concentrated, while their suppliers, consumers, and business partners are dispersed across the country.

This creates a fundamental tension. Economic concentration allows firms to coordinate internally and deploy resources efficiently. But in democracies, political power flows from geographic representation. A senator from Montana or a representative from rural Ohio has the same vote as one from California, regardless of where corporate headquarters sit. When a company becomes large enough to threaten diffuse stakeholders (workers losing jobs, consumers facing high prices, small businesses squeezed by platform fees), those stakeholders can organize across many districts and states. Diffuse stakeholders overcome coordination problems through political entrepreneurs: activists, unions, trade associations, and competitors who aggregate grievances into coherent policy demands. A company concentrated in a few locations cannot match this distributed political coalition. There is also a dimension of legitimacy. As Mancur Olson, the “godfather” of collective action theory, noted: “Weak, diffuse groups have a paradoxical political advantage: precisely because they are weak and diffuse, the public sees them as less self-interested and thus comparatively trustworthy.”

The result: extreme market power becomes a liability when the affected many can mobilize the geographically dispersed levers of democratic power against the geographically concentrated few.

The hold-up problem. This political dynamic is reinforced by deeper economic logic. Once a firm makes substantial investments and becomes highly profitable, it faces a hold-up problem. Once factories are built and supply chains established, governments can change the rules. The firm is stuck (it can’t easily move or shut down), making its profits an irresistible target.

For moderately successful firms, government restraint makes sense: the tax revenue and jobs they provide outweigh the political benefits of intervention. But as profits grow, so does the government’s incentive to regulate and redistribute. There’s simply more money on the table, and fewer citizens who directly benefit from the firm’s success relative to those who resent its power. The firm that seemed untouchable at moderate scale becomes an irresistible target at extreme scale. Politicians face growing pressure to “do something” about concentrated wealth and power, whether through higher taxes, stricter regulation, or outright expropriation (e.g. oil companies in developing countries). The very dominance that generates extraordinary profits also generates extraordinary political vulnerability.

Loss of political leverage. As firms grow extremely powerful, they also lose bargaining power with politicians (this is the Callander et al model above). Moderately powerful firms are valuable political partners: large enough to deliver meaningful campaign contributions, jobs in key districts, and public support, but dependent enough to need regulatory favors in return. Dominant firms, by contrast, become harder to control and less reliant on political protection, reducing politicians’ incentives to accommodate them.

These three mechanisms converge to create an inverse U-shaped relationship between market power and political influence. At low levels of market power, firms lack the resources to influence policy effectively. As they grow, they gain the capacity to lobby, contribute to campaigns, and shape regulation in their favor. But past a certain threshold, the dynamics reverse. Their geographic concentration makes them vulnerable to coalitions organized across many districts. Their profits become too large for governments to ignore, triggering irresistible pressures to tax, regulate, or restructure. And they lose the mutual dependence that made them valuable political partners.

The maturity trap. The external dynamics are amplified by internal pressures tied to the corporate lifecycle. As companies mature, growth naturally slows. But investors still expect returns that justify high valuations. The result is predictable: firms shift from value creation to value extraction – higher platform fees, exclusivity agreements, product bundling. This shift is rational from a financial perspective but dangerous politically. What executives see as margin management, regulators see as exploitation. And extraction accelerates the path to backlash, pushing firms past the inflection point faster than market dynamics alone would.

Case studies

Contemporary examples illustrate the inverse U-shaped pattern. The Visa and Mastercard credit card network duopoly generated billions in interchange fees, but this very profitability made them targets for regulatory caps in the EU and antitrust scrutiny in the US. Amazon faces pressure over its treatment of third-party sellers. And, as previously discussed here, Apple lost out to Spotify and other app creators over distribution fees.

This is not a tech phenomenon. Walmart faced similar dynamics when it expanded beyond rural areas in the 1990s and early 2000s: its market dominance and aggressive expansion triggered coordinated opposition from labor unions, small business coalitions, community activists, and local governments across hundreds of towns. The company’s profitability and market power couldn’t overcome distributed coalitions organized across multiple constituencies.

Each case follows the same logic: firms that grew powerful enough to reshape entire markets also grew visible enough to attract coordinated opposition that they could not suppress through lobbying alone.

Strategies for sustainable market power

Dominant firms have several strategies to protect their position and avoid crossing into the danger zone.

Restraint in value extraction. The most straightforward approach is deliberately limiting profits or prices to stay below the backlash threshold. Microsoft, after its bruising antitrust battles in the late 1990s and early 2000s, adopted a more restrained approach to leveraging its Windows monopoly, avoiding the aggressive bundling practices that had drawn regulatory fire.

But restraint carries its own risks. When IBM unbundled its mainframe hardware and operating system in response to antitrust pressure, it eliminated the immediate regulatory threat – but also created the market for independent operating systems that enabled the personal computer revolution. IBM never recovered its dominance.

Preemptive compromise. Firms can negotiate settlements or voluntary agreements that address stakeholder grievances before governments impose harsher remedies. Visa and Mastercard’s recent interchange fee settlements with merchants, though expensive, helped preempt the Credit Card Competition Act, which would have imposed even more restrictive government mandates on their business models. Food companies have employed similar tactics: voluntary “front-of-package” labeling systems preempt mandatory traffic-light warning labels that consumer advocates and some governments favor.

Cultivating political support. Firms can align operations with politically salient national priorities, raising the cost of intervention. The strategy works by linking firm success to outcomes politicians cannot afford to jeopardize. Defense contractors maintain protection by providing capabilities essential to national security. Tech companies pivoted from ESG messaging to positioning AI dominance as critical to competing with China. Pharmaceutical firms emphasize their role in pandemic preparedness and health security. When constraining a firm means accepting strategic vulnerability, politicians face pressure to protect rather than regulate.

Geographic distribution. Firms can distribute operations and employment across many constituencies, making it harder for coalitions to organize against them. Lufthansa operates hubs in both Frankfurt and Munich, spreading political support across two of Germany’s most important states. Boeing similarly distributes production across Washington, South Carolina, and other states. This strategy increases operational complexity but fragments potential opposition, giving more politicians a direct stake in the firm’s success.

Creating dependencies. Some firms pursue a strategy of building platforms or infrastructure that other powerful actors rely on, making intervention costly. Cloud computing providers like AWS and Google have embedded themselves so deeply in corporate and government IT infrastructure that disrupting them would impose substantial costs on the broader economy.

Political economy of market power

Market power alone is insufficient for sustainable dominance. Firms must actively manage the political economy of power itself: understanding when their market position begins to generate political vulnerability, and adjusting their strategies accordingly. The firms that endure are those that recognize the inverse U-shape and position themselves on the right side of the curve, or deploy strategies to extend their time there before the inevitable descent.

The stakes of getting this balance wrong have never been higher. In 2024-25 alone, we’ve seen the EU’s Digital Markets Act reshape platform business models, CHIPS Act subsidies redirect semiconductor investment, and coordinated transatlantic pressure on Chinese EV imports. Political power is more important than ever. The firms that thrive will be those that recognize the inverse U-shape isn’t a fixed curve but a dynamic relationship, constantly reshaped by policy priorities, institutional contexts, and the geographic distribution of political authority. Market power remains essential for capturing value. But in an era where policy increasingly determines which competitive advantages are available, durable, and legitimate, the ability to navigate political economy has become a core strategic capability.

In this post, we revisit the well-known stories of two brands – Bud Light and Nike – to examine why companies wade into polarized territory, what drives those decisions, and what the consequences reveal about doing business in an era of values-based consumption. Our argument is that political controversies are not accidents; they result from commercial necessities. As ever, reality is more complicated than most Monday-morning quarterback-pundits would make you believe.

The Erosion of Mass-Market Dominance

For consumer brands, opportunities to reach consumers have never been greater – yet it has never been harder to cut through, stand out, and sustain relevance. A proliferation of brands now serves niches and subsegments that were once unimaginable. In 2024, U.S. trademark applications for new brands hit record highs, particularly in consumer goods, apparel, and wellness. At the same time, ever more brands are competing for consumer attention.

Consumer packaged goods (CPG) – food, beverages, cosmetics, and household supplies – have been at the forefront of this shift. For decades, CPG success rested on two pillars: mass-market brand building and close partnerships with mass channels to secure broad distribution. This model fueled stable growth and gross margins roughly 25 percent higher than those of non-branded competitors.

That model has been upended by the internet. CPG’s durable nature and significant share of consumers’ disposable income have made them prime targets for direct-to-consumer marketing and distribution. Large incumbents have steadily lost market share to nimble upstarts. As a 2022 Marketing Science study notes, “The rapid growth of smaller brands represents a striking, structural break in the historically high and persistent concentration of CPG categories and the dominance of large, national brands.” In their 2025 State of Consumer Products Report, EY concludes that “many big CPG companies are facing a relentless drift towards irrelevance.”

The shift is not only about greater choice. The rise of smaller brands has been driven by consumer preference for deeper alignment with their specific identities, tastes, and values. Consumers – especially younger ones – want brands that share their values and demonstrate social responsibility. Smaller brands with more homogenous customer bases are better positioned to deliver on this desire. And the fact that friends and families are by far the most important influencing factors for purchase decisions means that growing societal polarization directly translates into market dynamics.

The beer revolution

Few sectors have seen the mass-market model disrupted as profoundly as beer. For more than two decades, large domestic brands have steadily ceded ground to craft brewers and imports. Between 2010 and 2019, craft beer sales nearly tripled – from $10 billion to $29.3 billion. Even with modest declines in recent years, craft beer still accounted for roughly 25% of total U.S. retail beer sales in 2024. This transformation has been fueled by younger consumers, who tend to favor smaller, more authentic brands and exhibit weaker traditional brand loyalties.

As Steve Hindy writes in The Craft Beer Revolution: “The internet has arguably been the greatest ally of the craft beer revolution. Today nearly every craft brewer has a website and someone to talk directly to its customers and fans through social media.”

Craft beer brands have often embraced progressive causes – supporting LGBTQ+ rights, racial justice initiatives like the Black is Beautiful collaboration, environmental sustainability, and gender equity in brewing – to signal authenticity and social consciousness. By aligning with these movements and promoting “drink local” and anti-corporate independence, they’ve built strong emotional bonds with younger, urban, and politically liberal consumers who see their beer choices as extensions of their values.

Bud Light: Misjudging the Fault Line

This industry transformation set the stage for the 2023 controversy surrounding Bud Light’s marketing partnership with transgender influencer Dylan Mulvaney. The details are well known: An Instagram post by Mulvaney, thanking the brand for sending a can stating “Cheers to 365 Days of Woman Hood” was enough to ignite the ire of Kid Rock, the conservative base, and President Trump, and to become a lightning rod in the culture wars. Bud Light appeared blindsided by the backlash – first remaining silent, then issuing a vague statement about never intending to offend anyone with AB InBev’s CEO emphasizing on breakfast TV that “it was just one can”. The result was disastrous: conservatives viewed the response as weak, while liberals saw it as a lack of conviction, leaving both sides to abandon the brand.

The commercial impact was swift and severe. Within four weeks, sales of Bud Light – the #1 U.S. beer brand since 2001 – fell by 30%, with Coors Light and Miller Lite rapidly capturing its lost market share. The damage extended beyond Bud Light: AB InBev’s broader portfolio saw total sales volumes drop 14%. Two years later, the picture has only worsened. By September 2025, Bud Light’s market share had fallen to just 8.1%.

Why did Bud Light take such a risk? According to then–Vice President of Marketing Alissa Heinerscheid, the campaign was a strategic response to a deeper, long-term problem: “The brand was in decline; it’s been in decline for a really long time. And if we do not attract young drinkers to come and drink this brand, there will be no future for Bud Light.”

Bud Light’s core audience – older, male, and rural – was steadily shrinking. To secure the brand’s future, management aimed to broaden its appeal to younger drinkers and women by adopting a lighter, more inclusive tone. AB InBev endorsed the repositioning, reportedly increasing Bud Light’s marketing budget fivefold. In truth, this was less a radical pivot than an extension of existing efforts: Bud Light had long engaged with the LGBTQ+ community, sponsoring Pride events, releasing a Pride-themed can in 2019, and donating $200,000 to the National LGBT Chamber of Commerce in 2022.

The strategic error: What the brand overlooked were the deep ideological fault lines between its existing and target customer groups. Bud Light’s core consumers leaned heavily Republican, and while many had grown comfortable with brands supporting gay rights, transgender rights activism remains far more divisive among conservative audiences.

This was particularly risky in a category like beer – and light beer especially – where products are highly substitutable. Although consumers display some brand loyalty, it’s rarely based on taste or functional differentiation; blind tests consistently show that most drinkers cannot distinguish between leading brands. Beer is a fast-moving consumer good with minimal switching costs and heavy reliance on brand equity and reputation.

Bud Light correctly recognized that values had become central to the modern consumer value proposition – a dynamic that had fueled the rise of craft beer over the past decade. But it misjudged the depth of the values divide within its own customer base, turning what was intended as a gesture of inclusion into a catalyst for division. In Bud Light’s case, the combination of a sharp ideological split and a highly substitutable product proved especially damaging.

Bud Light’s updated strategy reflects this lesson. The brand has doubled down on its conservative-leaning core audience, announcing a $100 million sponsorship with the Ultimate Fighting Championship. UFC president Dana White publicly emphasized that the partnership was “as much about money as it is about shared values,” underscoring the repositioning’s intent to realign the brand culturally as well as commercially.

Nike: Strategic Alignment

If Bud Light stumbled into controversy, Nike ran toward it. It deliberately stepped into the heat of the culture wars by making Colin Kaepernick the face of its 30th-anniversary Just Do It campaign, titled “Believe in something. Even if it means sacrificing everything.” Kaepernick had been a Nike athlete for years but lost his NFL contract over his political activism. The campaign was more than an endorsement – it was a bold declaration that Nike stood with him, and more fundamentally, that the brand stood for something.

Nike faced a strategic challenge not unlike Bud Light’s: how to maintain brand relevance and align its value proposition with the values of its next generation of consumers. For Nike, that meant connecting with younger, more diverse, and urban audiences. Analysts had begun warning that Nike risked drifting into “dad brand” territory, losing emotional resonance with younger demographics.

The strategy worked. Although Nike initially faced a sharp drop in sentiment, favorability, and share price, the company held its ground. Consumers responded with their wallets – sales rose 30 percent year over year. The campaign generated unprecedented attention, delivering an estimated $163 million in earned media. Most importantly, it rekindled affection for the brand and deepened loyalty among its core consumers, precisely because Nike had taken a stand. As marketing expert Lucas Bean noted, “You’re not boycotting Nike. They fired you as a customer.”

Why the boldness? Nike was following the logic of many high-equity brands: choosing to protect long-term brand value over short-term volume. Luxury labels routinely sacrifice lower-priced opportunities to preserve exclusivity; Nike applied the same principle to cultural relevance. Nike’s later struggles under CEO John Donahoe – when performance marketing replaced cultural storytelling – proved the approach’s necessity: According to McKinsey, since 2019 incumbent brands in the sports apparel market created $10-15b topline value, while the rest of the market created $70-80b. For Nike specifically, critics described the period as “an epic saga of value destruction.”

Under new CEO Elliott Hill, Nike is doubling down on storytelling-driven brand campaigns, launching “Why Do It” – a refresh of its iconic ‘Just Do It’ mantra aimed at reconnecting with younger athletes by emphasizing purpose over product. The shift signals Nike’s return to the strategy that made Kaepernick successful: values-driven brand building that deepens emotional connection.

Nike’s success where Bud Light stumbled comes down to alignment. Its stance resonated with both its existing and target consumers, reinforcing rather than fragmenting its base. And while sports apparel is not immune to substitution, brand equity and perceived authenticity carry real weight – advantages that helped Nike turn cultural controversy into commercial strength.

What Determines Success or Failure

The difference between Nike and Bud Light illustrates fundamental principles about values-based branding:

Customer base cohesion matters decisively. Nike’s customers were ideologically aligned with Kaepernick’s stance and the progressive values the campaign represented. Bud Light’s customers were ideologically fractured – its conservative core was fundamentally opposed to the values signaled by the Mulvaney partnership. A values proposition creates differentiation only when it aligns with customer base cohesion.

Market power provides a buffer – or its absence accelerates collapse. Nike had strong brand equity built on performance, innovation, and cultural relevance. Even customers who opposed Kaepernick faced switching costs (product quality, brand association). Bud Light competed in a highly substitutable category where taste differences are minimal and switching costs are near zero. Without market power to buffer short-term backlash, the brand collapsed rapidly.

Authenticity requires consistency over time. Nike’s support for Kaepernick was credible because it aligned with decades of brand positioning around athletic excellence, social justice (dating back to campaigns with athletes like Muhammad Ali), and cultural leadership. Bud Light’s outreach to progressive audiences contradicted its historical positioning and existing customer values, making the move feel opportunistic rather than authentic.

Values propositions constrain addressable markets. By taking a clear progressive stance, Nike accepted that it would lose some conservative customers – but bet that deepening loyalty among its core growth audience was worth more. Bud Light tried to straddle the divide, alienating both sides. In a polarized market, attempting neutrality or appealing to incompatible constituencies often produces the worst outcome.

Implications for Leaders

For brands navigating values-based positioning, several diagnostic questions emerge:

How ideologically cohesive is our customer base? If your customers span the political spectrum, values-based positioning is high-risk. If they’re ideologically concentrated, it can deepen loyalty.

What is our product’s substitutability? In categories with minimal switching costs (beer, CPG), values misalignment triggers rapid defection. In categories with strong differentiation or switching costs (athletic apparel, technology), you have more room to absorb backlash.

Does this stance align with our brand history? Values positioning that contradicts decades of brand positioning will feel inauthentic. Authenticity requires consistency.

Are we willing to accept a smaller addressable market? Values propositions trade breadth for depth. You may lose customers, but deepen loyalty among those who remain.

Do we have the conviction to hold our ground? Wavering after backlash – as Bud Light did – produces the worst outcome. If you take a stand, commit to it.

The Path Forward

These two cases took place seven and two years ago, respectively. Since then, political polarization has only deepened – intensifying both the risks and the opportunities for brands that engage in values-based messaging. Increasingly, companies across the political spectrum are defining themselves through explicit value positions, whether on social justice, sustainability, or patriotism.

Yet what is often overlooked is that these decisions are rarely ideological in nature – they are commercial. Both Bud Light and Nike faced the same underlying challenge: how to maintain relevance in a changing market. For brands whose traditional consumer bases are aging or fragmenting, values alignment becomes a vehicle for renewal – a way to reach new audiences, signal modernity, and create emotional differentiation in categories where functional differences have narrowed.

The real challenge emerges when a brand’s stated values clash with those of its existing customers, or when it signals a shift that alienates one group while failing to gain traction with another. As Nike’s experience shows, avoiding conflict altogether is not necessarily the safer option. Brands that remain neutral risk losing cultural resonance and emotional connection with the consumers who will drive their future growth. Yet, as Bud Light demonstrates, misjudging audience alignment – or overestimating how transferable brand equity can be across ideological divides – can rapidly destroy value.

In short, values-based branding is not about moral posturing; it is a strategic response to commercial necessity – one that will only become more important in the future. The test for marketers is not whether to engage with values, but how to do so in a way that authentically reinforces brand purpose, resonates with target consumers, and strengthens long-term equity.

Drawing on a novel dataset of more than 100 million LinkedIn profiles, the authors show that since 2010, growth in policy-related functions has outpaced nearly every other corporate department – expanding faster than legal, sales, or even engineering. Across all firms, the average policy team has doubled in size, while among the Fortune 100, teams have grown from roughly 40 to nearly 70 employees.

One of the paper’s most striking findings is that internal policy capabilities now vastly outnumber external lobbying roles. U.S. corporations collectively employ roughly 250,000 people in public policy-related positions – spanning global policy, regulatory strategy, and social initiatives. That’s about thirteen times the number of registered lobbyists (in-house and consultants) recorded in official disclosure data – or nearly twenty times if compliance-related policy roles are included (purely compliance focused roles are excluded).

Among the Fortune 100, the average firm employs around 52 policy professionals but only 18 lobbyists. Traditional lobbying roles, by contrast, have grown only modestly since 2010 – with virtually no expansion among the largest firms.

The results are not just of academic interest, Hall and Sun’s findings shed light on how firms allocate resources and organize themselves to manage policy and regulatory exposure, offering insights companies can use to shape their own approaches.

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How firms are reorganizing around policy

First, the paper provides benchmarks for previously unobserved firm-level investments. Unsurprisingly, policy and lobbying expenditures rise with firm size, but there are important industry effects as well. For instance, five of the ten largest employers of policy staff are pharmaceutical companies.

Importantly, the relationship between firm size and policy staffing is nonlinear. Growth is concentrated among the biggest and most politically exposed firms – particularly in technology, pharmaceuticals, telecommunications, and finance. These sectors have been at the center of regulatory debates for over a decade, and the data suggest they have responded by building durable internal policy infrastructures.

Second, the findings highlight how corporations are increasingly embedding political awareness within their strategic core. As Hall and Sun note:

“Across industries, corporate policy roles are not narrowly about lobbying for specific bills. Instead, they are about embedding political awareness deep into the organization, shaping product and business strategy, and ensuring the firm can navigate a complex, shifting regulatory environment.”

Policy teams are like a transmission belt between the firm and the policy process.

As we discussed here, companies that actively engage with policymakers adjust costs more quickly and flexibly than their peers, benefiting from an informational edge that helps them anticipate regulatory and policy shifts. This advantage also makes it easier to prepare for compliance with new regulations, adjust products and services, or spot opportunities to create new value. On average, this agility is worth roughly $90 million in annual cost savings per firm – not to mention the longer-term benefits of shaping business and product strategy.

As Berkeley’s David Teece and others have argued, such dynamic capabilities – the ability to sense, seize, and adapt to external change – are what distinguish successful firms. In an era of geopolitical uncertainty and regulatory flux, these capabilities are becoming indispensable.

Third, the research underscores the emergence of a division of labor within firms. Policy professionals and lobbyists play complementary but distinct roles. Only 2 percent of corporate policy staff previously worked in government, compared with about 70 percent of lobbyists. Policy professionals are typically analysts or strategists with deep domain expertise, not political intermediaries.

For most firms, the two groups grow together. But among the largest companies, policy-related roles far outnumber lobbyists — especially when policy-related compliance positions are included. One explanation may be that lobbying faces diminishing returns, while the need for internal political insight scales with firm complexity. As organizations expand, the number of regulatory arenas doesn’t grow linearly, but the importance of integrating policy into business and product strategy does.

Key takeaways

Hall and Sun’s paper reveals how policy and regulation have become central to corporate strategy – not peripheral concerns. It provides some of the first systematic data showing how firms are institutionalizing political expertise, not just to influence government but to inform product development, risk management, and long-term competitiveness.

Facts & Implications:

• Scale matters: Policy functions have expanded faster than almost any other corporate role, especially among the largest and most exposed firms.

• Internal over external: Firms now employ far more policy professionals than lobbyists, reflecting a shift from influencing policy to integrating it into decision-making.

• Dynamic capabilities: Policy teams enhance a firm’s ability to sense and adapt to regulatory change — driving both compliance agility and strategic foresight.

• Competitive edge: Companies that embed policy expertise can anticipate shifts, shape the operating environment, and capture long-term value ahead of peers.

In short, Hall and Sun show that the modern corporation is increasingly a political actor as well as an economic one. The boundary between market and non-market strategy is disappearing – and firms that fail to develop internal policy capabilities risk being left behind in both arenas.

Equally significant is Ek’s vision for his next role: “I will spend more of my time on the long arc: strategy, capital allocation, regulatory efforts and the calls that will shape the next decade for Spotify.” Spotify’s rise from a Swedish startup to a global powerhouse is widely known. Less appreciated is how regulation and other non-market forces have shaped its trajectory – at its founding, on its road to profitability, and, as Ek makes clear, in its future.

Born in a pirate’s haven

To understand why, it helps to return to Spotify’s origins. When the company was founded in 2006, the global music industry was reeling from the impact of online piracy. Peer-to-peer platforms – most famously Napster – had pulled the rug out from under the major labels. Between 2000 and 2006, recorded music revenues fell by roughly one-fifth, and by the end of the decade they had dropped another 20 percent from their 2000 peak. The 2000s came to be known as the industry’s “lost decade” – a period defined by rampant piracy, the collapse of CD sales, and a slow, painful shift toward legal digital distribution.

Nowhere was piracy more widespread – or more socially accepted – than in Sweden. The government had pushed broadband rollout and personal computer adoption, leaving Swedes with internet speeds and prices Americans could only dream of. With Apple’s iTunes arriving late to the market, consumers had already formed deeply ingrained habits of illegal file sharing. Strong European privacy laws further complicated efforts to prosecute individuals for copyright violations.

As The New York Times put it, this earned Sweden the “notorious distinction as a haven for online pirates.” By 2006, the country even saw the rise of The Pirate Party, which transformed file sharing and free online culture into a political movement popular with younger voters. Fearing a backlash, mainstream parties avoided a hard line on piracy.

Strings attached

As a result, global music labels were more open to experimentation in Sweden than elsewhere. It’s important to recognize that with services such as iTunes, Rhapsody, PressPlay (owned by Universal and Sony Music) and MusicNet (owned by EMI, BMG, and AOL Time Warner) legal on-demand music services already existed. But they had failed to curb online privacy, in particular in places like Sweden.

Daniel Ek and Spotify set out to change this with a radically different model. Instead of charging per song or for a subscription, Spotify proposed an ad-supported model. Consumers would get free and convenient access, lowering the barriers to adoption, and offering a genuine alternative to “free” pirated music.

The major labels were initially vehemently opposed, arguing that giving music away for free would only further devalue their product. They doubted advertising revenue could ever compensate for the collapse of their traditional sales model. Yet faced with the dire situation in Sweden – and across much of Europe – they were willing to experiment. “It was not a coincidence that [Spotify] started in Sweden. The big record companies were very reluctant to license something like Spotify at the time, except maybe in a place like Sweden. At the time, the record companies talked about Sweden as a lost market”, recalls Rasmus Fleischer, a Stockholm based writer and author of Spotify Teardown: Inside the Black Box of Streaming Music.

But the experiment came with strings attached. First, Spotify’s launch was restricted to Sweden and a handful of other European countries. Ek had put a lot of effort into negotiating licenses covering the entire European market and the United States, but the record companies refused. Second, the labels secured highly favorable terms: they claimed 55 percent of all streaming revenue, with another 15 percent going to music publishers. Ancillary benefits further increased the share of revenue accruing to the labels.

Third – and most importantly – Spotify was required to offer a paid premium tier and work to convert free, ad-supported users into paying subscribers. This hybrid model proved decisive to its eventual success: roughly 90% of revenue comes from premium subscriptions. What was less obvious at the time was that it also set Spotify on a collision course with Apple.

Spotify’s beginnings reveal how policy and regulation influenced its course from day one, setting the stage for an even greater role in its future.

Building leverage against the gatekeepers

After proving its success in Europe, Spotify once again set its sights on the United States – immediately putting it on a collision course with Apple. For Steve Jobs, music was a cornerstone of Apple’s ecosystem and a key differentiator from Google, which lacked a comparable offering. Determined to protect iTunes, Jobs reportedly tried to dissuade major labels from licensing their catalogs to Spotify in the U.S., even going so far as to threaten to shut down iTunes entirely. In the end, however, the labels – still grappling with piracy, declining sales, and yearning for new sources of growth – relented and struck a deal with Spotify. It was a prelude to the battles that would come to define the rivalry between Apple and Spotify.

But first Spotify needed to get on the road to profitability. Spotify runs a two-sided marketplace, where it connects artists with listeners. However, on both sides it faces powerful intermediaries that wield bargaining power: the music labels on the supply side and the app store providers on the demand side. The latter would become more important over time as music streaming shifted from desktop computers to mobile phones. For Spotify to become profitable, it needed to reduce the power of these intermediaries.

On the supply side, Spotify’s challenge was to reduce its dependence on the three major labels. Goldman Sachs captured the core dilemma ahead of Spotify’s IPO in 2018: even if streaming grew, the labels’ dominance meant profitability would remain elusive. By controlling most of the catalog and exploiting complex royalty rules, they had little incentive to ease their grip. As the report bluntly asked: “Will the labels allow streaming services to ever make money?”

The problem was evident. In 2017, 87 percent of Spotify’s streams still came from the three majors (and Merlin, representing independent artists). That dominance translated into 84 percent of Spotify’s revenues being paid back to the music industry in royalties and related fees.

The playlist revolution

Reducing that reliance, however, proved far easier said than done. The majors exist for a reason: discovering, developing, and promoting artists who can attract listeners at scale requires time, expertise, and deep pockets. Spotify stumbled upon a workaround with the launch of curated playlists. Organized around moods and moments – Mellow Morning, Evening Chill – these collections became instant hits, and changed music discovery forever. Instead of seeking out individual artists, listeners would be guided by Spotify’s data-based curation. The shift was subtle but profound: instead of Spotify depending on the labels, labels now had to court Spotify to land coveted placements for their artists.

Over time, Spotify realized that a significant share of listeners cared more about the vibe than the name behind the song. It began sourcing or even commissioning cheap, anonymous tracks – often from session players or production houses – music with low royalties and virtually no artist visibility. Coupled with its aggressive push into podcasts, this strategy gradually loosened Spotify’s dependence on the major labels. By last year, their share of Spotify’s streams had fallen to 71 percent. It was a critical shift to enable Spotify’s path to profitability – a milestone it finally reached in 2024.

Taking on Apple

Since its launch in 2006, Spotify’s growth had shifted decisively to mobile. By 2014, four out of five new users were signing up via smartphones. That same year, Apple began enforcing its App Store rules more strictly, banning developers from steering consumers to cheaper payment options outside the iOS ecosystem. In the summer of 2014, Spotify adopted Apple’s in-app payment system and raised its subscription price to $12.99 to offset Apple’s 30% commission. Soon after, Apple introduced its own music service at $9.99. Not only did this put Spotify at a competitive disadvantage. Having to pay 30 percent of every subscription and potential future ancillary services significantly limited Spotify’s margin improvement potential, and therefore its long-term value.

Spotify first looked to Washington, D.C. for help, hiring prominent lobbyists and lawyers to make its case. But the Obama administration had little appetite to rein in one of America’s great tech success stories – nor did the Trump administration that followed. So Spotify turned to Europe. In 2014, a little-known Dane named Margrethe Vestager had become the EU’s top antitrust enforcer. The first Competition Commissioner in recent memory without an economics background, she brought a distinctly different mindset to the role.

Traditionally, antitrust enforcement focused on economic efficiency, targeting cases where companies blocked rivals. Vestager, however, prioritized fairness, shifting the focus to how dominant firms like Apple treated smaller players. The term began to dominate her speeches and policy papers, while references to efficiency steadily faded. Inheriting a case against Google from her predecessor, she quickly made the tech sector the stage on which her new philosophy would play out.

Spotify sensed an opening and began engaging with Vestager and her team. Emboldened by its successful 2018 IPO, the company felt ready to take on Apple directly. It assembled the necessary data, and, in March 2019, filed a formal antitrust complaint. A year later, the Commission opened an official investigation. Spotify leaned in with a public campaign “Time to play fair.”

Brussels changes the rules

Apple’s conduct also influenced broader policy. Just six months later, the EU unveiled the Digital Markets Act (DMA). Unlike traditional antitrust rules – which require lengthy investigations and proof of harm – the DMA stipulated that anti-steering practices were to be deemed per se illegal. The regulation entered into force in early 2023, with obligations taking effect in 2024. Around the same time, the EU issued its decision on Spotify’s original complaint, finding Apple’s anti-steering provisions in breach of competition law. This effectively removed Apple’s chokehold on Spotify’s pricing and bundling strategy, unlocking growth avenues that Wall Street has now baked into Spotify’s valuation.

By 2024, even mainstream business media was highlighting how regulation had shifted Spotify’s fortunes. Fortune dubbed it “The Year of Spotify,” framing its antitrust battles with Apple as a David vs. Goliath story reflected in their share prices. Analysts stressed that Apple’s App Store rules had long blocked Spotify from experimenting with new business models. As Barclays’ Kannan Venkateshwar put it: “Apple’s ongoing App store rule review in the EU will be an important factor to determine potential future states for pricing.”

With those rules now falling away under the Digital Markets Act, Spotify is testing fresh revenue streams – from audiobook sales inside the app to a new “superfan” platform. As Ek told investors, the potential upside is “quite significant.” Notably, Spotify’s recent price increases in the US were designed to drive bundle subscriptions of music and audiobooks, thereby materially lifting Spotify’s margins while the share of major content remained the same.

Meanwhile, in the United States, Epic Games launched a landmark case against Apple’s App Store rules in 2020. Although it lost on nine of ten counts, the courts ultimately struck down Apple’s anti-steering rule as unlawful, bringing U.S. jurisprudence into alignment with Europe’s emerging precedent. And while Apple continues to fight the consequences of the rulings and regulatory changes in both the US and Europe, the direction of travel is clear: the 30 percent Apple tax is history.

Next chapter: from offense to defense?

From its inception, Spotify’s business model and the regulatory landscape have been deeply intertwined. Rampant piracy and weak enforcement in Sweden created the opening for its ad-supported launch. Its later pivot to a hybrid free-plus-subscription model ran headlong into Apple’s App Store rules, sparking the Brussels antitrust battles that reshaped digital markets. Now, Spotify’s pivot to curated playlists and low-cost, anonymous tracks – strategies that weakened the major labels’ grip – has ironically positioned it as the industry’s new gatekeeper, inviting fresh regulatory scrutiny.

Musicians increasingly criticize Spotify’s meager per-stream payouts, which average just $0.003 to $0.005 per play, and its opaque royalty system, which they argue favors major rights holders. The platform’s playlists and algorithms wield outsized influence, dictating which songs gain traction and which fade into obscurity. The scale of influence is hard to ignore. Over 175,000 songs are released every day, yet even the biggest hits now churn through the Billboard Top 100 faster than before.

Empirical studies by economist Joel Waldfogel and others show that Spotify wields enormous market power over discovery and consumption: a placement on its flagship playlists can boost a track by tens of millions of streams. This ability to shape what listeners hear also enables Spotify to steer demand toward tracks with lower cost structures. As Bernstein Research put it: “Discovery is a cornerstone of Spotify’s unassailable moat in music streaming.” Reflecting this, Morningstar in October 2024 awarded Spotify its coveted “moat” rating, citing its scale and data advantage as a structural edge.

But Spotify’s power is now a double-edged sword. Labels are pushing for a larger share of revenues, artists for a more equitable distribution, and investors have bet big on Spotify’s ability to sustain subscription growth and expand margins. Those competing pressures are increasingly likely to spill over into the regulatory arena. Notably, while streaming royalties are negotiated in the market, other music royalty rates are set by regulators – ensuring policy will remain central to the business.

Daniel Ek has acknowledged as much, now framing regulation as central to Spotify’s future. The very strategies that fueled its rise – playlist dominance, reliance on low-cost “filler” tracks, and its growing role as gatekeeper – are drawing scrutiny from policymakers and critics. Having once used regulation to weaken rivals, Spotify may soon find itself defending against charges that it has become too powerful, and too harmful to artists. The Turkish competition authority has recently opened an investigation into Spotify, examining whether its algorithms unfairly favor certain rights holders and whether its subscription pricing is set at levels that disadvantage competitors and content owners. While the probe may be partly politically driven, it could be a sign of challenges Spotify will face elsewhere.

The coming wave of AI are likely to create another avenue of regulatory challenges. Generative tools are set to reshape copyright, raising thorny questions about who owns and profits from machine-made music, while distribution may shift again as platforms evolve into personal assistants. These are exactly the kinds of regulatory battles that will define Spotify’s place in the next decade. In that sense, Ek is right to make regulation one of his three core priorities. The question isn’t just whether it can again turn regulatory upheaval into opportunity – it’s whether it can avoid becoming the very gatekeeper it once fought against.

​For this week, we’ve pulled together ten charts that don’t necessarily predict what comes next, but capture the shape of this moment – and perhaps offer a glimpse of what’s to come. The question isn’t whether these forces matter, but how companies respond.​

We hope you find this as thought-provoking as we do. ​And, as always, we welcome your feedback.​

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1. Policy shocks are driving an unprecedented level of uncertainty

Global consensus is eroding. Donald Trump’s combative UN address this week made that clear. When policy becomes unpredictable, regulation, supply chains, investment, and long-term risk management all become harder.

The World Uncertainty Index, now at a record high, reflects this. It’s a level that has historically signaled weaker investment, hiring, and trade. What’s striking today is how closely it tracks policy uncertainty – a reflection of how much politics is currently driving global economic trends. For firms, this is less a forecast than a reminder: resilience and adaptability are essential. In a fragmented world, active engagement is critical to anticipate shifts, shape the rules, and stay competitive amid volatility.

2. Firm-level political risk is at record levels

Political risk has shifted from the margins to the center of earnings calls, as policy changes materially impact cost structures, affect growth opportunities, and force companies to rethink their operational footprint – and strategic positioning going forward. The latest earnings call season saw tariff impact and responses as the #1 topic raised by analysts.

At the same time, executives are increasingly looking to capture upside – whether through alignment with strategic government priorities, opportunities for advantageous regulatory change, or government support for industry consolidation. Deepening engagement with policymakers is front and center for leaders, and increasingly expected by investors.

3. Zero-sum thinking is on the rise – fueling government interventions and protectionism

Zero-sum thinking has crept into the center of American politics. Both parties share it, though they channel it differently. For Democrats, it often shows up as support for redistribution and higher public spending. For Republicans, it fuels restrictive stances on immigration and trade, where newcomers are cast as competitors for scarce resources. The logic is the same: if someone else gains, I must be losing. That belief doesn’t just drive polarization – it makes policy itself more volatile. Power shifts bring sharp reversals in taxes, trade, and regulation. For businesses, that means less predictability, higher risk, and an operating environment where strategy has to account not only for markets, but for politics that can turn on a dime.​

And the long-term picture may be even more consequential. Zero-sum attitudes are strongest among younger generations, and they correlate with declining social mobility. That suggests the politics of scarcity could become even more deeply entrenched over time, hardening divides and making consensus-driven policymaking even rarer. Today’s volatility isn’t a passing storm – it could be the climate of the decades ahead.​

4. Strong support for market regulation and protectionism among G7 countries is marking a new era of managed capitalism

Party manifestos may look dull, but they reflect what policy-makers believe will resonate with voters. When comparing their substance over longer time horizons, patterns emerge: U.S. policy-makers used to speak very differently about markets vs. Canada, France, Germany, Italy, Japan, and the UK (G7). Now they’re converging.

For much of the postwar era, the U.S. treated regulation as a sideshow and a problem in need to be rolled back. Globalization’s backlash and rising polarization have brought the US closer to the G7. Both are rewiring their economic priorities to emphasize not just growth, but protection – of workers, consumers, and industries.​

This isn’t a blip, it’s a cycle. Pro-regulation and protectionist sentiment is now running higher than it was before Reagan and Thatcher rewrote the economic playbook in the 1980s. The long arc of politics is bending away from open markets and toward a new era of managed capitalism.​

6. Voters push for economic decoupling – even if reality has resisted so far

The China trade shock of the 2000s, compounded by automation, wiped out millions of well-paying manufacturing jobs in the U.S. and across the West. Consumers got cheaper goods, but the losses weren’t shared evenly. They landed hardest on white, non-college-educated men, who watched stable factory jobs vanish and lower-paying service work take their place. That economic rupture didn’t just dent wages – it reshaped politics, driving polarization in the U.S. and fueling radicalization across Europe.

So it’s no surprise the electorate now craves something different: goods made closer to home, jobs that feel more secure. Both Trump and Biden have promised to bring manufacturing back, with limited success. Most countries also became more, not less, economically intertwined in recent years. But the policies – tariffs, subsidies, reshoring – are sticking. Which means the global economy is gradually shifting, towards becoming less open, less efficient, and more defined by politics than by markets.

7. With AI job displacement, the politics of belonging may turn even more nationalistic

AI is the technology of the moment. Goldman Sachs estimates that 6–7 percent of U.S. jobs – particularly in accounting, legal services, administrative work, and middle management – could be displaced if AI adoption accelerates. Anecdotal evidence and Goldman’s own modeling (see graph above) suggest that about 2.5 percent of jobs have already been displaced, even in these early stages. That may sound modest compared with some of the more alarming predictions, but it’s still significant. The U.S. manufacturing decline wiped out about 9 percent of the workforce – and it unfolded over three decades. AI diffusion could move much faster.

That’s what makes it politically perilous. When stable, middle-class jobs vanish, the social contract frays even further. Workers pushed out of well-paying jobs often adopt zero-sum worldviews – that someone else’s gain must be their loss. Such mindset fuels polarization and nationalism, empowering politicians who cast trade or immigration as existential threats. The risk is that AI won’t just transform work – it will further transform politics.

8. Political polarization is shaping how people view the economy, and increasingly how they behave

It’s not just trade and immigration policy. Polarization now runs through every corner of the economy. The University of Michigan’s Surveys of Consumers highlight a sharp partisan divide in sentiment: supporters of the party in power report greater optimism, while those out of power are markedly more negative. Independents usually sit in the middle, anchoring national averages. Baseline levels differ, but expectations still move in parallel – with striking reversals during presidential transitions as partisans switch sides. ​​

And there’s more: researchers at Columbia Business School have identified a compensatory consumption pattern. When their party is out of power – and their sentiment generally falls – consumers lean more heavily on the marketplace, gravitating toward politically aligned brands. In this way, consumption becomes political expression, with dollars serving as another way to cast a vote.​

9. Consumers are looking to align their wallets with their values

Ipsos’ new Global Trends survey captures a striking trend: across the world, consumers are increasingly willing to pay extra for a brand that reflects their identity. The share went up beyond 50% from just 39% a decade ago. This change matters less for what it says about price sensitivity than for what it says about politics and culture. Consumption is no longer just about products; it’s about signaling who you are and what you believe. Brands are becoming a medium to express identity, part of a broader move toward what Ipsos calls an “escape to individualism.” And that means the marketplace isn’t just where goods are bought and sold – it’s where people increasingly locate, and perform, their sense of self.

9. Spending power is clustering at the top, making the economy more susceptible to policy shocks

Consumer spending is tilting ever more toward the top. High earners now drive a disproportionate share of purchasing power and discretionary spending, which means that “aggregate demand” is to an increasing degree determined by the confidence and choices of the wealthy. That concentration doesn’t just shape markets – it shapes whose preferences matter.

And here’s where it gets interesting: affluent consumers are also the ones most likely to care about whether a company reflects their values. So brands aren’t just chasing dollars, they’re chasing identities. They’re tailoring themselves to the politics and social leanings of the people with the most spending power. The market isn’t just reflecting inequality – it’s reinforcing it. And it carries a cluster risk: when consumption depends so heavily on a narrow, wealthy cohort, a shock to their confidence or behavior can ripple disproportionately through companies and the entire economy.

10. Political consumer activism is on the rise, giving consumers growing influence over firms’ bottom lines

The Cracker Barrel episode was just the latest reminder: political consumer activism is growing, led by wealthy households but increasingly embraced by younger buyers. The share of Americans taking part in boycotts or “buycotts” rose again in 2024, with Gen Z driving much of the increase — nearly a third now say they’ve spent money to support a company’s political stance, up from just 17 percent a year earlier.

This activist bloc isn’t huge, but it matters. These consumers tend to be wealthier, more partisan, and more likely to overlap between boycotting and buycotting. That combination gives them real influence over the bottom line, even if they represent only a slice of the population.

And the broader trend is pointing the same way. In 2019, 61 percent of Americans said corporations should steer clear of political and cultural debates. By 2025, that number had dropped to 49 percent. Among Gen Z, millennials, and Democrats, support for corporate activism now outweighs opposition. Sidelines are disappearing for companies – as consumers push them directly into political and cultural battles.

These ten charts don’t just capture turbulence — they show a political economy being rewired in real time. Markets are responding to polarization, protectionism, technological disruption, and consumer activism. The old rules of predictability are weakening, and the line between economics and politics is disappearing. For companies, volatility is not a passing storm but the environment in which they now operate.

The recent clash at Cracker Barrel – first with its customers, then with Donald Trump – wasn’t really about breakfast menus or branding. It was about something far bigger: the way politics now threads through every corner of corporate life. What used to be a disagreement over branding choices has become a proxy fight in the culture wars. And for company leaders, it’s a structural challenge that demands a new way of thinking.

This piece is not a playbook. It’s a primer, an evidence-based exploration of how polarization is reshaping business, from the workplace to the marketplace to the boardroom. Our goal is to identify the underlying forces at play, not to prescribe a strategy. Why? Because effective strategy starts with a clear understanding of the playing field. Before you can decide where to compete – or how to win – you need to know the terrain.

Here’s what we’ll cover:

• How polarization is rewiring the workplace, from hiring to site selection to executive alignment – and why this matters for risk exposure and operational resilience.

• The new rules of polarized consumption, where brands are no longer just selling products, but symbols of identity, and how this reshapes brand, product, and corporate strategy.

• The financial and regulatory fallout when companies – intentionally or not – become political actors, and what this means for investor relations and compliance.

• The strategic tensions this creates for leaders who must balance stakeholder demands, legal risks, and long-term value.

This isn’t about telling you what to do. It’s about giving you the fact base to ask the right questions: Where is our organization most exposed? How are our peers navigating these tensions? And what opportunities might we be missing?

So consider this a briefing, not a manual. The goal is to help you see the issue in three dimensions – so you can decide where to probe deeper, where to shore up defenses, and where to tread carefully.

So here we go – and as always, we welcome your feedback.

Polarization in the workplace

Deciding where to live and where to work are among the most consequential choices people make. Because individuals tend to prefer the company of like-minded others, Democrats and Republicans increasingly sort themselves into different places – not only across states and regions, but also within cities and neighborhoods. In the most heavily Democratic-leaning areas, for example, the chance of encountering a Republican neighbor can be as low as 7 percent. Increasingly, these decisions are shaped by political identity. Research by the Federal Reserve Bank of Philadelphia documents that the likelihood of selling a house and moving places increases significantly if a person of the opposite political party moves in next door.

This geographical sorting provides the backdrop for polarization among firms and consumers. Looking at data from more than 34 million Americans, a recent study finds that coworkers are about 10 percent more likely to share a party than geography alone would predict. Even after controlling for education and industry, the effect remains: workplaces are measurably more partisan than chance would allow. For instance, tech firms (especially in coastal cities) lean strongly Democratic, while industries like oil & gas, real estate, or manufacturing lean more Republican.

And it’s not because people are becoming more liberal or conservative. Party registration barely shifts when workers change jobs. Instead, people are choosing where to work in ways that reinforce their politics. In surveys, both Democrats and Republicans say they would give up 2 to 5 percent of their salary to work at a company aligned with their values. For the most committed partisans, that willingness to trade pay for political alignment is even higher. The takeaway is that politics is now a workplace amenity, like flexible hours or health insurance – something people factor into career decisions.

Executive teams are an even more pronounced case of workplace polarization. Research shows that since 2016, corporate leadership has grown far more politically homogeneous. Executive teams are increasingly stacked with people from the same party, not because leaders are changing their minds, but because turnover weeds out those who don’t fit (the same pattern holds true for corporate boards). Misaligned executives are about 25 percent more likely to leave their firms, and those who remain often behave differently – selling more stock when their party loses power, holding on when it wins.

And there’s another layer: the imbalance isn’t evenly split. The executive class leans heavily Republican, sitting at around two-thirds of the C-suite.

The result is that politics is now part of the fabric of corporate America’s top ranks. Companies aren’t just run by managers; they are shaped by leaders whose decisions reflect their own political worldviews. And that means business decisions – whether to stay, invest, or speak out – are being filtered through the same political divides that are fracturing the rest of American life. It also means that there is greater potential for conflict, if executives are leaning one way and the workforce another.

Site selection is no longer just about taxes, labor costs, or infrastructure, but about political alignment

And polarization doesn’t just shape who runs companies. It determines where they expand, and even who they partner with. Research on more than 220,000 new establishments – the individual stores, offices, factories, and facilities that firms open – finds that companies avoid placing them in regions that are ideologically distant from their existing operations. In other words, geography itself is becoming politicized: site selection is no longer just about taxes, labor costs, or infrastructure, but about political alignment.

Politics also factors in when choosing who to work with. Firms are more likely to partner when their politics line up. Interestingly, these partnerships tend to be more cooperative and more profitable. M&A is also more likely among politically aligned firms, and aligned firms make post-merger integration easier. Political identity is shaping not just who runs companies, but also who they choose to do business with.

Polarized consumption

The sorting we see inside offices has a mirror image outside them – in the marketplace. Politics doesn’t stop when people leave work; it follows them to the checkout line. Four out of five consumers believe that brands have a political affiliation, and six in ten say they buy from – or boycott – brands based on whether those brands align with their identity. The evidence is everywhere: in surveys, in who follows what on social media, and in Nielsen scanner data that tracks what people actually put in their carts.

Geography makes it even clearer. In 2024, Trump carried 74 percent of congressional districts with a Cracker Barrel, but only 22 percent of those with a Whole Foods. Shopping patterns now map neatly onto political divides.

The same holds true across individual brands. Among the 300 largest consumer brands, about one in eight have strongly partisan customer bases, and more than a third are at least moderately partisan (see graph below). Blue Bell ice cream tilts heavily Republican, while Goya leans strongly Democratic. These aren’t anomalies but part of a broader pattern: smaller, niche brands often thrive by targeting one side of the political spectrum, while the biggest national names – Kraft, Coca Cola – remain broadly bipartisan.

Sometimes this polarization is intentional; often it isn’t. “I never thought I would see the day when our products were so heavily politicized, but they are,” Ford C.E.O. Jim Farley remarked about electric vehicles. Sales are growing quickly, but adoption breaks sharply along partisan lines. In blue states, EVs are cast as a climate solution; in red states, they’re dismissed as a government mandate. Neither Ford nor the majority of buyers set out to make a political statement. Yet in a polarized environment, products are signals of values – Prius versus Pickup, even if it’s an electric pickup, such as the Ford F-150. What begins as a decision about technology, cost, or design becomes, in the public eye, a reflection of identity.

After 2016, the divide sharpened. Liberals, shaken by Trump’s election, shifted most – buying not just more of the brands they already favored but branching into new ones that signaled their values. Conservatives polarized too, though less dramatically.

Researchers at Columbia Business School even identified a compensatory consumption pattern: when people feel their political identity under threat, they turn more strongly to the marketplace to reaffirm who they are. Brands become a form of political expression, and dollars another way of casting a vote.

What Americans buy, follow, and try is no longer just about price or quality. It’s a reflection of who they are and where they stand.

When brands take sides: partisan speech and CEO activism

While many companies and executives would prefer to stay out of politics, internal and external pressure is forcing them increasingly to take a stand.

Over the past decade, corporate speech has grown far more political. Roughly two-thirds of major consumer brands now use language that signals political identity, whether in social media posts or public statements. The signals lean heavily left: words tied to climate change, equity, or gun violence appear far more often than conservative cues. Explicit partisan communication has spiked as well. A decade ago, fewer than one in a hundred corporate tweets carried partisan overtones; today it’s more than one in twenty

That shift shows up at the executive level, too. CEOs increasingly treat politics as market strategy. They weigh the polarization of their customers before deciding whether to speak out. When employees and consumers lean Democratic, activism becomes far more likely – even for executives who personally lean Republican. Speaking out can energize employees and consumers who see their values affirmed. However, it also risks boycotts, political scrutiny, or reputational blowback.

The impact of controversy illustrates both the promise and the peril. When the CEO of Latino-food producer Goya praised Trump in 2020, he triggered calls for a boycott. Yet sales jumped 22% nationally and more than 50% in Republican counties before fading within weeks. When Dick’s Sporting Goods and Walmart tightened their gun policies, store visits fell 3–5% in conservative areas, but the decline disappeared within 10 weeks. These are examples where the effects were sharp but fleeting. Nike’s Colin Kaepernick campaign, by contrast, shows how controversy can strengthen a brand: conservatives burned sneakers, but Nike’s younger, faster-growing liberal consumer segment rallied harder, leading to rising sales and refreshing the cultural relevance of the brand that is at the core of its success. Bud Light shows the opposite dynamic: its partnership with transgender influencer Dylan Mulvaney sparked a conservative boycott that stuck with sales nearly 30% lower year-over-year and still depressed a year later.

Progressive speech tends to deliver bigger, longer-lasting gains

What ties these cases together is that the average consumer rarely changes behavior. The swings come from the most politically engaged. Studies find that when a company takes a stance, aligned consumers increase their spending by nearly 20% , while opponents cut back their spending by merely 11%. Democrats are especially likely to “buycott,” rewarding brands that signal their values, while Republicans lean more on boycotts. The result is asymmetric: progressive speech tends to deliver bigger, longer-lasting gains, while conservative backlash, though sharp, fades faster.

That makes the composition of a customer base decisive. For firms whose audiences lean strongly one way, controversy can mobilize allies and deepen loyalty For brands with broad, politically mixed followings, the same stance risks activating opponents as much as supporters – and the fallout is harder to contain.

Size compounds that risk. Smaller brands often make politics part of their identity from the start – Ben & Jerry’s, Black Rifle Coffee, Oatly, Patagonia, BrewDog – and thrive by turning polarization into strategy For large, mainstream brands, the calculus is different. Nike shows that when the stance aligns with its base and growth audiences, it can succeed even at scale. Bud Light shows how misjudging that balance can spiral into a crisis.

For much of the past decade, progressive language carried more reward than risk, but the ground has shifted. With Trump back in office and red-state legislators and regulators increasingly assertive, terms like “equity,” “DEI,” and “climate change” are no longer neutral; they’re political flashpoints. Brands perceived as “woke” in conservative states – or “regressive” in progressive ones – now face heightened scrutiny not just from customers, but from attorneys generals, lawmakers, activist shareholders, and even supply chain partners.

The Bud Light controversy illustrates the stakes: Texas and Florida AGs launched inquiries into Anheuser-Busch’s marketing, accusing the company of deceptive trade practices and misleading consumers about its values. Meanwhile, conservative-leaning distributors filed lawsuits, arguing the backlash breached contractual obligations to protect brand integrity and devalued their businesses.

Firm polarization and financial markets

The financial fallout from polarization isn’t limited to sales or reputation. Investors don’t reward or punish corporate speech uniformly – they reward alignment and penalize misalignment. When a company’s politics match those of its investors, trust deepens, coverage improves, and capital flows more freely. But when they don’t, the costs add up – literally.

Analysts exhibit partisan bias: Those aligned with the president’s party issue systematically more optimistic ratings, while misaligned analysts revise earnings forecasts downward by roughly 11% more pessimistically per quarter. Over time, these biases depress valuations and tighten financing conditions. Banks follow the same pattern with misaligned lenders charging ~7% higher loan spreads (about 14 basis points) compared to aligned bankers.

These numbers may seem small in isolation, but finance is about compounding. A few basis points here, a few pessimistic revisions there – layered across markets and quarters – embed politics directly into the cost of capital.

The ripple effects extend further:

• Fund managers allocate capital along ideological lines. Democratic-leaning managers underweight “socially irresponsible” stocks (e.g., tobacco, guns), even if they’re profitable, while Republican managers overweight them.

• Shareholder votes on ESG proposals and judicial rulings on corporate misconduct are increasingly partisan.

• Media coverage skews partisan, with aligned outlets amplifying favorable narratives, with trading volumes spiking when partisan cues dominate headlines, as investors trade in opposite directions.

In the short term, stock-price reactions to partisan corporate speech are modest – typically just a few basis points of abnormal return. But the long-term impact hinges on audience composition: For companies with strongly partisan customers and investors, alignment can deepen loyalty and reduce uncertainty. For companies with broad, politically mixed constituencies, the same stance creates fragility: higher volatility, reputational drag, and elevated financing costs as misaligned analysts and bankers downgrade their assessments.

In a polarized market, politics isn’t just a risk – it's a material factor impacting both top and bottom line.

No business outside politics

Polarization now runs through work, consumption, communication, and capital – not as passing noise, but as a structural force that business can no longer wall off from its core.

That reality demands a more integrated view of strategy. Brand, product, strategy, communications, investor relations, and government affairs can’t operate in silos; the political meaning of one decision inevitably bleeds into the others. A product launch can become a flashpoint, a tweet can shift investor sentiment, a state policy fight can shape where stores open.

This piece hasn’t offered a playbook. It’s a primer – a fact base for seeing how polarization reshapes the terrain of business. Before debating strategies, which we will do in future issues, firms need to recognize the contours of that terrain: politics matters, everywhere. The choice for companies isn’t whether to be political – they already are. It’s whether to shape that politics deliberately or stumble into it by accident.

My argument is that public affairs — whether you call it government relations, lobbying, or advocacy — needs a venture capital mindset. To be riverian. Too often, a failure to appreciate the fundamentally probabilistic nature of advocacy holds organizations back.

This view is shaped by more than 20 years in the profession, but it is also grounded in strong empirical evidence. In short, a River argument for a field that, in my experience, too often behaves like Village people.

It’s also the starting point of something new: this is the first in what will be a regular column on the role, importance, and mechanics of non-market strategy for corporate success. Every Tuesday, Matthis Kaiser and I will share our thoughts here in this Substack newsletter.

I hope you enjoy it – and as always, I welcome your feedback.

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Why Public affairs needs a venture mindset

Public affairs operates with a paradox. On paper, it’s one of the most profitable business activities around. Companies that lobby tend to post stronger revenues, enjoy higher margins, and face less risk of disruption by new entrants. This isn’t correlation – it’s causation. The data is clear at the aggregate level.

And yet, zoom in on any given company and policy issue, and the effect of lobbying looks vanishingly small. Outcomes often seem beyond a company’s control, leaving executives frustrated and feeling at the whims of politicians and regulators who “don’t get” the business. This gap, between clear long-term returns and murky short-term impact, clouds decision making in many organizations. Surveys consistently show that between a third and half of public affairs professionals see their biggest challenge as convincing senior leaders of the value of their work.

Home runs matter, strikeouts don’t

Here’s what’s often missed: Advocacy is a numbers game. On any single issue, a company’s influence may be tiny on average. But the stakes are usually large enough that the expected value is positive. A string of lobbying “misses” isn’t failure – it’s the natural cost of playing the game. Because every so often, opportunity arises, and a company’s advocacy makes a decisive difference: blocking a high-stakes regulation, securing a favorable rule that unlocks innovation, or landing a subsidy that tilts the competitive playing field. And when that happens, the payoff more than covers the losses.

This logic – that success comes from making many calculated bets – is foundational in venture capital. Sixteen out of twenty venture investments fail outright. Three deliver modest returns. But one delivers such outsized returns that makes it worth the effort. As Stanford’s Ilya Strebulaev and venture builder Alex Dang put it in The Venture Mindset: home runs matter, strikeouts don’t. Companies need to have the same mindset to be successful in public affairs.

The measured ROI of lobbying is 140%-156%

The analogy with venture capital is more than just a mental frame. It’s an empirical reality, known intuitively by seasoned practitioners and documented in top-tier economic research. Let’s look at some numbers: One of the most sophisticated studies on the economics of lobbying shows that lobbying improves the likelihood of an individual favorable policy being enacted (or an unfavorable policy not being enacted) by just half a percent on average. The effect is small because lobbying efforts often cancel each other out, and because each additional dollar faces diminishing returns, due to real-world constraints like competing priorities, institutional bottlenecks, and public opinion. And yet, despite that tiny average impact, the measured ROI is significant: between 140% and 156%.

This might still feel abstract, so let’s make it concrete with a visual. The graph below is a simulation I built using the parameters from that study. As you can see, most lobbying campaigns lose money – the bars cluster near or below zero ROI. But a few deliver very strong returns, and a handful generate extraordinary gains. Those rare wins (the bars far to the right with 40x, 50x, even 70x returns) pull up the average, marked by the dashed line. This is why lobbying, like venture capital, remains so valuable over time: most bets fail, but the occasional “home run” more than pays for the rest. You don’t need to win often. You just need to win big a few times when it counts.

But this also means organizations must be ready for long streaks without visible success. Nate Silver makes the same point in his book using the example of professional poker. Poker, for pros, has a positive expected value. Yet even the best players have a losing year almost half the time – and an 11% chance of losing money over an entire decade. In advocacy, there will also be stretches with no or only small wins. Policy diffusion across different US states or EU countries also means that returns are often clustered: if you win in one place, you might also win in a lot of other places and vice-versa. The good news for companies is that lobbying generally offers better odds than poker, but it still requires strategic patience.

For some companies, the gains run into billions.

Real-life examples show just how extraordinary lobbying payoffs can be. Take the American Jobs Creation Act, which granted a temporary tax holiday on repatriated earnings. For some companies, the gains ran into billions, with estimated ROIs as high as 22,000%. Many firms benefited, but those that invested most heavily in lobbying captured the largest share. Similar “home runs” have come from energy subsidies, shifts in telecom regulation, and changes to payment services rules. And this is just a snapshot of what has been documented in academic journals and case studies. Every year, companies score hundreds of policy victories, small and large, giving them an edge over those companies that don’t lobby.

No wonder venture capitalists now lobby aggressively, with prominent VC firms having built large policy and communications teams. It is not just that their investments, like Crypto, are increasingly interfacing with politics and regulation. They understand the probabilistic nature of lobbying and are drawn to the big payoffs it offers. “It was a huge bang for a relatively small outlay,” an executive recently told The New Yorker for a portrait of how tech and VC firms entered the lobbying game. “It turns out the ROI on politics is way better than anyone suspected.”

You can’t miss the shots you don’t take

Venture capital and lobbying share another critical trait: they’re both contact sports. In venture capital, the lifeblood is deal flow – the steady stream of investment opportunities that doesn’t just appear on Sand Hill Road doorsteps. It’s earned through relentless networking, relationship-building, and hands-on engagement. As Chris Dixon, a leading VC, puts it: “Success is probably only 10% about picking the right investments and 90% about sourcing the right deals.”

Public affairs works the same way. Impact comes from showing up, building trust, and staying close to those who shape policy. The best results go to those who combine deep preparation with constant engagement, not those who wait for issues to land on their desk. Too many firms only mobilize in crisis, but the real gains come from steady involvement, which not only opens doors but also sharpens internal agility.

The value of political foresight: $90 million in annual cost savings per firm.

Research shows that lobbying firms adjust costs more quickly and flexibly than their peers, benefiting from an informational edge that helps them anticipate regulatory and policy shifts. This advantage also makes it easier to prepare for compliance with new regulations, adjust products and services, or spot opportunities to create new value. On average, that agility is worth about $90 million in annual cost savings per firm. Active policy engagement also pays off in pivotal moments, such as defending against an unwelcome takeover attempt or bargaining for a higher acquisition price.

Other studies find that political risk is priced into equity markets: companies exposed to higher political risk face higher premiums, while those that actively manage it through lobbying lower their cost of capital. For context, the market risk premium has historically been about 5–7% annually, while the political risk premium is 0.5–1.0%. Smaller, yes – but still meaningful, especially in politically sensitive sectors like energy, healthcare, and defense, where even half a percentage point can move billions in valuation.

In other words, the firms that step onto the field and take repeated swings don’t just capture outsized wins when policy breaks their way – they also become more resilient, more agile, and ultimately more valuable thanks to the informational edge that comes from continuous engagement.

Play the long game

If you have read until here, it won’t come as a surprise that lobbying and venture capital alike require companies to play the long game. That’s not just because odds of winning are low in any single case. It’s because returns take time to materialize. In venture capital, returns on any particular investment usually follow a J-curve. Lobbying works the same way, especially when the goal is to change policy rather than merely block it. Building relationships, credibility, and ideas that can gain traction takes years. Most existing policies are there for a reason – they reflect past consensus. Overturning that consensus is never quick.

Timing adds another layer of difficulty. State legislatures may only meet for a few weeks each year; miss the window and you wait another cycle. Crises can push your issue down the agenda. Elections can put lawmakers in campaign mode, unwilling to take risks. The policy process has its own rhythm, and companies must be prepared to wait it out.

But patience pays.

Consider Spotify: For nearly a decade, it waged a relentless campaign against Apple, filing complaints with regulators, rallying allies, and framing the fight as a David-vs-Goliath struggle for fair competition. Like a VC backing a startup, the returns weren’t immediate. But persistence paid off: as antitrust pressure mounted and new regulations were passed in Europe, Apple was forced to loosen its grip, slashing its infamous 30% “tax” on in-app purchases. The result? A direct boost to Spotify’s margins and share price, proving that – just as in venture capital – the biggest lobbying wins often take years to materialize, but their impact can reshape entire markets.

Context matters

Lobbying is always context-dependent, and the contrasts between the United States and Europe are instructive. Both systems share the same probabilistic dynamics and positive payoff structure, but their outcomes diverge. In the U.S., politics skews toward polarized, winner-take-all results. In Europe, the process is more compromise-driven, which means lobbying there is more likely to produce incremental gains but far less likely to deliver dramatic “home runs.”

The policymaking rhythm is different too. In Brussels, most of the real work happens before a bill is even drafted; once a proposal makes it onto the legislative agenda, adoption is highly likely. As seasoned lobbyists know: In the U.S., you kill bills. In the EU, you kill ideas.

For companies, that’s the venture-capital tradeoff in practice: Europe rewards steady singles, while the U.S. offers the occasional grand slam. In other jurisdictions, the mechanics will be different yet.

River or Village?

So what’s the point of all this? Why write this post – and why ask you to read it? Because too often the role of public affairs in corporate success is misunderstood. Companies chase short-term fixes and underutilize advocacy, dismissing it because its returns are harder to measure and slower to materialize.

How much is your informational advantage from lobbying worth? It’s hard to say in any single case, because there’s no firm-level counterfactual. Economics lets us measure effects in the aggregate, but leaders understandably recall more easily when regulation has been costly or burdensome. With rising regulatory density, it’s easy to overlook that, absent advocacy, outcomes could have been worse. It’s also hard to see long-term benefits – higher barriers to entry, more favorable competitive dynamics – or to remember past wins after a string of misses.

What I wanted to show with this article is that the evidence is clear: advocacy has significant positive expected value. Much of that value comes from knowing where policy is headed. At the same time, public affairs is a high-variance, high-reward game. It takes a riverian mindset to be successful.

If you accept this reality, the implications follow: invest steadily, not episodically. Treat advocacy as a portfolio of bets, not one-off campaigns. Set expectations for J-curve payoffs that take years to appear. And calibrate your approach globally. This is the starting point for success; it is how uncertainty becomes advantage.

As governments shape markets more directly than ever, companies that fail to adopt this mindset won’t just miss opportunities – they’ll fall behind. The River, as in so much else, is winning.