The question is of long-running research interest to Olga Hawn, associate professor of strategy and entrepreneurship at the University of North Carolina’s Kenan-Flagler Business School.

“I have always been intrigued by the gap between what companies say and what they actually do,” says Hawn. Her previous research on corporate social responsibility found that investors, though initially skeptical, ultimately saw value in corporate commitments to sustainability.

Currently, she and fellow researchers are examining investor reaction to politically charged debates on racial and gender equality.

After the death of George Floyd in 2020 caused a global reckoning on race, roughly 100 Fortune 500 companies pledged action on diversity. Investors initially reacted negatively (a dip in share prices), fearing a corporate stance on a polarizing issue would be bad for business, according to research by Hawn and fellow Kenan-Flagler professor Stephanie Mahin.

I have always been intrigued by the gap between what companies say and what they actually do.

–Olga Hawn, associate professor at the University of North Carolina

But when they analyzed consumers’ sentiments about such pledges on Twitter, the researchers found that companies that demonstrated authenticity about their commitments fared better than those that appeared to make pro forma undertakings. The lesson for companies, says Hawn, is “Take a stand.”

A different pattern emerged in relation to LGBTQ2S+ rights. Hawn and Aharon Mohliver, a strategy and entrepreneurship professor at London Business School, tracked shareholder responses to American company rankings on the annual corporate equality index (a measure of social responsibility) between 2002 and 2018. Companies that clearly picked sides either way on gender equality won backing from like-minded investors, while those that stayed on the sidelines were ignored by investors.

“There is an advantage to [stating] your position either for or against,” says Hawn, which hints (pending further research) at the merits of corporate authenticity.

How do we propel companies beyond “islands of sustainability”?

Professor Christopher Wright recalls what he told his business students in 2006, when the British government released its influential Stern Review on the Economics of Climate Change that called for environmental taxes: “The coal industry now is dead because the world’s economists have woken up, and we will price carbon emissions and it will be the end of fossil fuels.”

Wright’s assumption proved wrong, but it fuelled his interest in the “inherent contradiction” of companies that acknowledge the existential climate threat yet fail to respond.

“We keep doing what we are doing, which is to maximize shareholder value, continue economic growth and use coal, oil and gas to fuel all that,” says Wright, a professor of organizational studies at the University of Sydney Business School in Australia.

In his research, Wright examines a recurring pattern in which companies promise bold climate moves only for efforts to peter out because of bureaucratic inertia, pressure for quick profits and short-tenured leaders.

We keep doing what we are doing, which is to maximize shareholder value, continue economic growth and use coal, oil and gas to fuel all that.

-Christopher Wright, professor at the University of Sydney

Businesses alone cannot respond to climate action, Wright concludes. Despite some examples of what he calls “islands of sustainability” – businesses that pivot to a green focus – he notes “they can’t maintain the longevity because of the nature of the system.”

The co-author of Organising Responses to Climate Change: The Politics of Mitigation, Adaptation and Suffering, to be released this year, offers his admittedly unpopular remedy: global government intervention to price carbon and embrace renewable energy. “The problem is that the dominant political discourse is that government is the problem and let markets rule,” he concedes. “While we are in that fix, I don’t see any change happening.”

Still, he sees “pathways forward” through teaching and research to press for systemic change and equip a new generation of sustainability-conscious managers to reform corporate policies.

Wright, who uses op-eds, blogs, press interviews and social media to publicize his research, says academics in business schools and elsewhere need to “step out of the ivory tower and engage much more [than before] as public intellectuals” on the climate crisis. “It is bigger than a business case.”

A version of this story appeared in the spring issue of Corporate Knights magazine.

The post Should corporations be activists? appeared first on Corporate Knights.

IKEA, Nike and H&M are temporarily closing their Russian stores. Disney, Sony and Warner Bros. paused the release of new films in Russia. Apple, Samsung and Microsoft stopped selling their products there. McKinsey, Ernst & Young and many other top accounting and consulting firms said they are leaving the Russian market – possibly for good.

In all, over 300 companies have announced plans to close stores, reassign staff or stop selling products in Russia since the invasion began on Feb. 24, 2022, according to a running tally by Yale management professor Jeffrey Sonnenfeld. Most recently, McDonald’s, Starbucks and Coca-Cola joined the list on March 8, 2022, announcing they would close stores and cease sales.

In some ways, these decisions fit in with a recent trend in which companies have increasingly staked out public positions on often controversial social and political issues, such as restrictions on trans rights and ability to vote. As business professors who study why companies engage in activism, we feel the same factors that have driven those decisions to speak out are at work over Ukraine.

But we also believe Ukraine stands out for one important reason: For many of these companies, it may have been one of the easiest stands they’ve ever taken – even if there is a financial cost.

Taking a stand

Corporate sociopolitical activism – the technical term we use – entails companies making public declarations or taking actions about significant social or political issues that extend beyond their core business.

Until relatively recently, companies rarely took stands on social or political issues.

That didn’t really change until the 2000s, when LBGTQ rights were under attack and major companies such as Walmart spoke out against bills that would have allowed discrimination.

Since then, there’s been a surge in companies taking proactive stands on issues ranging from climate activism and racism to abortion and voting rights.

For example, in the wake of the murder of George Floyd by police in Minneapolis in 2020, hundreds of CEOs signed a pledge against racial discrimination and created an organization dedicated to diversity, equity and inclusion. In 2021, the CEOs of Dell, American Airlines, Southwest Airlines and AT&T spoke out against a Texas bill aimed at making it more difficult for citizens to vote.

Others have taken more decisive action. Uber and Lyft said they would pay to defend their drivers if they got sued under a Texas law that allows anyone to sue a person who helps someone get an abortion. And in 2016, PayPal and the NCAA pulled business from North Carolina after the state passed a bill limiting LGBTQ protections.

Surveys show today’s consumers expect companies to live up to the values they espouse in their press releases, and big corporate groups such as the Business Roundtable even began urging companies to focus on creating value for everyone – not just shareholders.

Why companies speak out

More specifically, research has identified three major factors that typically drive a company’s decision to pursue corporate activism: employee beliefs, consumer pressure and the CEO’s personal involvement or conviction.

It’s not always clear what is driving corporate decisions to suspend operations in Russia, but it seems as if all three factors are at play.

IKEA, for example, cited the support and security of its workforce in announcing its “pause” in Russia and a donation of 20 million euros for humanitarian assistance for those displaced by the war. After a #BoycottMcDonald’s began trending on Twitter to protest its presence in Russia, the fast-food chain said it was temporarily closing its stores there. And Tesla CEO Elon Musk agreed to provide Ukraine with free satellite internet after a Ukrainian official requested it on Twitter.

A corporate no-brainer

But ultimately, the decision whether or not to sever a relationship with a country – even if temporarily – is very different from taking a stand on an anti-trans measure.

Even so, the speed with which U.S. and other Western companies have abandoned Russia is something we’ve never seen in our lifetimes. And it suggests the decision was likely a no-brainer.

For one thing, Russia’s invasion has been met with widespread revulsion in the West. And even before the war, the public’s perception of Russia in Western countries was very low.

One post-invasion poll found that 86% of Americans saw the invasion as unjustified – with broad bipartisan agreement – and another showed that half of the respondents would compare the actions of Vladimir Putin with those of Adolf Hitler.

And governments including those like Germany that have close commercial ties to Russia have strongly condemned its actions and joined unprecedented sanctions. About 80% of Germans said they approved of their government’s decision to sanction Russia and export weapons to Ukraine – or said it didn’t go far enough.

Ultimately, the Russian market is just not that big for companies in the U.S, such as Apple and Disney. For others, such as McDonald’s, which has been in Russia since 1990 and has about 850 locations there, days of pressure finally persuaded company officials they had to pull out.

On many hot-button social issues like trans rights and gun control, the general public in the United States is split almost right down the middle, meaning taking a stand could alienate a lot of consumers.

But on the issue of Russia’s invasion of Ukraine, many companies likely were more worried about the risks to their reputation were they to do nothing. With so many other companies pulling out, it likely seemed better to explain to shareholders and customers back home why they’re leaving than why they’re staying.

Douglas Schuler is an associate professor of business and public policy at the Jones Graduate School of Business at Rice University.

Laura Marie Edinger-Schons is a professor of sustainable business at the University of Mannheim.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Despite the increased demand for purpose-led businesses, many corporate leaders continue to miss the mark on how to embed purpose into their organizations’ DNA. They’ve learned how to say the right things; they have been less effective at actually co-creating a better society. It may be tempting for a corporation to slap a statement of purpose on its website without transforming its business practices, but employees and customers are increasingly holding companies accountable for not following through. Big-ticket charitable donations for Black Lives Matter or encouraging employees to volunteer in their local community may make for feel-good headlines, but without deeper change they risk being derided as tokenistic marketing ploys – as was the case with a Pepsi ad pulled for co-opting the BLM protest movement.

To uncover why many companies are failing to embed social purpose into their business, we have to unpack the foundational systems used to do business, so much of which in North America is built on an economic system founded on slavery. In many ways, 21st-century business models echo the slave practices of generations past – so much so that we now call the worst corporate practices in distribution warehouses, on fishing vessels, in cocoa plantations and in sweatshops “modern slavery.”

The most striking parallel between slavery and contemporary business management can be found in the “task idea,” which 19th-century management pioneer Frederick Winslow Taylor described as “the most prominent single element in modern scientific management.” The task system is closely identified with Henry Laurence Gantt. Born to a slave-owning family in Maryland, Gantt developed a “task and bonus system,” which paired a flat task and a time wage with bonuses for overwork. It has a much longer history beyond Gantt and Taylor, and was one of the principal methods of organizing labour under slavery.

Management tools can separate us from our humanity.

—Caitlin Rosenthal, author, Accounting for Slavery

Contemporary business leaders are still trained to see “bonuses” as an essential management tool to reward overtime. The concept has been entrenched in our work culture across industries and has rarely been called into question. In the apparel industry, for instance, the concept typically drives the use of “piece rates,” where workers are often paid less than the legal minimum wage to try to meet gruelling production targets.

In addition to his task and bonus system, Gantt also developed a horizontal bar chart to track every worker’s progress for the day. The Gantt chart is still a popular scheduling tool, though business textbooks rarely highlight the slavery-era roots of these management systems.

“Our management tools can separate us from our humanity,” Caitlin Rosenthal told the Harvard Business Review. Rosenthal, a professor at the University of California, Berkeley, and the author of Accounting for Slavery: Masters and Management, studied account books from American plantations and found that slave owners developed management tools that are still in use today, including depreciation and standardized efficiency metrics – tools that “help maximize the value and the surveillance of human capital.”

“If you want to use those metrics for different purposes, then it’s going to be a difficult job,” Rosenthal added, calling it an “uphill battle to turn metrics produced to reveal profit into something that can help us to be more humane.”

Perhaps, then, we shouldn’t be surprised that today’s corporations are struggling to add social purpose on top of existing structures. That wasn’t the purpose of the modern corporation – companies aren’t built to be socially driven.

Fishing for change

In an era where employees and customers expect more from businesses, it may be time to reconsider how we incentivize labour. Giving employees an opportunity to make a difference at work, providing a platform that allows each employee to express their individual capability, and ensuring a collaborative environment to achieve more than each employee could do on their own are all things today’s business leaders must now see as a core element of their management strategy. Combining compassion with accountability can go a long way to creating a psychologically safe workplace and motivating teams.

Instead of a bonus program based on efficiency or overwork, how about a profit-sharing or stock-option plan? That was the thought process of Eileen Fisher, a pioneering designer who responded to an emerging contemporary feminist sensibility that demanded easy-to-wear professional clothing. In the 1980s, Fisher started a clothing company that shared her name, and as her success grew, she thought about what would happen to her company after she retired. At first, selling seemed like the best option. She tested out the viability of an IPO: “I remember being up on stage and looking out at a roomful of men in suits – no women wearing my clothes, no conversation about clothes. It was all about the numbers. It was really just about the money,” she told CNN last year.

Knowing that investor-controlled, capital-focused companies hinder leaders’ efforts to adapt to a world of finite resources and growing inequality, Fisher decided to sell shares to employees instead of going public, and today 40% of the company is held by its employee stock ownership plan (ESOP). Her decision allowed her to keep her company’s actions aligned to its purpose. Eileen Fisher was also one of the first clothing companies to offset 100% of its carbon footprint, and it’s become a pioneer in advancing localized, sustainable production.

In a world that is dynamic and hyper-connected, and where companies are being held accountable not only for outputs but, more importantly, how those outputs are achieved, are organizational charts still relevant? Employees often have hybrid responsibilities that make it difficult to categorize them on an organization chart. Shifting a business’s structure toward one that drives profit through purpose is an evolution that will require fundamental operating and cultural changes, and it’s a difficult first step to navigate.

Purpose-driven companies are thriving

One of North America’s original purpose-driven companies, Dr Bronner’s, has become a leader in the personal care industry, with more than US$120 million in sales annually, by staying true to its original mission of serving people and the planet. In Honor Thy Label, a book released earlier this year, the company’s vice-president of special operations, Gero Leson, details the challenges of building – and ethically scaling – organic, fair trade and, most recently, “regenerative organic certified” agricultural supply chains across the Global South when those supply chains did not yet exist. The company motto of “all-one!” has permeated its business model in which social responsibility and environmental consciousness serve as uncompromising components of corporate structure, both in its global supply chains and at home in California. In a country where the median CEO-to-worker pay ratio exceeds 300 to 1, Dr. Bronner’s capped CEO salaries at five times that of their lowest-paid workers, who make a minimum wage of $18.71 an hour in a state where the minimum wage is $14.

You can call almost anything ‘purpose-aligned.’ We [prefer] ‘purpose-driving.’

-Maureen Young, director, Coast Capital Savings, Social Purpose Office

In Canada, where B.C.’s Coast Capital Savings is expanding its footprint, the credit union is leaning into social purpose, placing it firmly at the centre of its business strategy as it grows into a national organization. On top of the 10% in profits that Coast Capital Savings already invests into its communities, it’s applying a purpose lens to everyday business decisions, putting programs, initiatives and products into three categories: purpose driving (helping to advance the social-purpose economy), purpose neutral and purpose contra (or detracting from their mission).

“We initially used ‘purpose aligned’ as opposed to ‘purpose driving’ and quickly realized it was a weasel word,” says Maureen Young, director of Coast Capital Savings’ Social Purpose Office. “You could call almost anything purpose aligned. We eventually landed on purpose driving – placing an emphasis on maximizing purpose-driving actions and surfacing purpose contra and addressing them quickly.”

Corporate leaders that do the hard work of tying social purpose to all aspects of business with committed leadership and financial investment have generated sustained results, stayed relevant in a rapidly changing world, and deepened ties with stakeholders. The 2018 Global Leadership Forecast found that firms without a sense of purpose underperform the market by 40%, while purpose-driven companies outperform the stock market by 42%.

The future is tenuous but also ripe with opportunity for those who understand the need to truly connect with stakeholder expectations and are not afraid to turn business-as-usual on its head to create a human-centred economy. This may now seem like an option, but soon it will be the only way forward.

Shilpa Tiwari is executive vice-president of social impact and sustainability at Citizen Relations and the founder of Her Climb.

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Benevity began above a shawarma shop in 2008. Former CEO Bryan de Lottinville launched the firm to boost companies’ charitable contributions by helping them see social purpose as an investment, not a handout. Today, Benevity helps companies increase employee and customer engagement with a “gamified” platform that makes it easy and fun for firms, staff and clients to pursue their interests in donating to charity, volunteering, grant-making or taking positive social action. It then tracks the impact of their contributions. Benevity says companies that engage their people in social missions enjoy 57% lower employee turnover – and that saves major clients such as Microsoft, Apple, Telus, Kroger and Visa tens of millions of dollars a year.

With more than 650 employees and two million users, Benevity has processed donations worth more than $7 billion to 300,000 global charities. In December, Benevity became a rare Canadian “unicorn” – a company worth more than $1 billion – with its purchase by London-based private-equity firm HG Capital. Two months later, HG brought in some new partners, including two “strategic minority investors”: Bono and Skoll’s Rise Fund, and U.K.-based Generation, an impact-investment firm cofounded by Al Gore.

About the same time, de Lottinville stepped down as CEO. He was replaced by Benevity’s chief financial officer, Kelly Schmitt – a welcome sign that the new owners want current management to lead the company forward. And that’s important, because the plague year 2020 made many organizations value shared purpose. “It was the year that cemented the new role of business as a source of trust, hope, connection and empathy,” says Benevity’s chief impact officer, Sona Khosla. Now, she says, organizations have to develop systems to support those ideals. That means Benevity is expecting another big growth year; it plans to hire 300 new employees.

Khosla is also overseeing a new research arm, Benevity Impact Labs, which monitors industry trends, collects data and explores new issues, such as mental health, to help organizations better understand and measure social action. “We want people to support causes they care about, when they want to,” she says. “We’re using capitalism for all it can do.”

Benevity sees vast opportunities to expand by being a force for good. Beyond “HR,” it is helping clients embed purpose in their product and marketing experiences. The company offers workbooks and toolkits to help companies lean into events such as Pride or Earth Day, and it’s now helping clients evolve “corporate social responsibility” initiatives into strategic ESG (environmental, social and governance) programs. At the far end of the supply chain, Benevity is increasingly doing the cheque-processing for small charities, relieving corporations of a frustrating chore while helping struggling non-profits get paid sooner.

Bono hasn’t stopped by Benevity’s offices on the banks of the Bow River. Al Gore hasn’t dropped in for coffee. But leaders from Generation and Rise now sit on Benevity’s board, so the new advisors seem serious about helping. And why not? As Khosla says, most companies with ESG programs can measure their governance and environmental progress – but have no clue how to measure social impact. (Many charity professionals still refer to “the giving glow.”) Benevity is leading the race to promote, quantify and normalize goodness. If that doesn’t deserve A-list support, what does?

The post Calgary’s billion-dollar Benevity bets that good deeds are their own reward appeared first on Corporate Knights.

Since it was founded in 1971 by a group of west coast mountaineers looking for a place to buy reliable and affordable gear, MEC has vowed to do business differently by building a co-op with democratic principles, as an alternative to private ownership. The company says its grassroots foundation still exists, which is to “make things happen, deal fairly, find strength in community, and inspire adventure.”

Nearly 50 years later, the Vancouver-based company has grown to 22 stores across Canada and strengthened its sustainability efforts through responsible product sourcing, a commitment to shrink its environmental footprint and the championing of social causes.

MEC was the first Canadian retailer to publicly disclose its list of factories and their locations, is a longstanding Bluesign member (ensuring the use of sustainable ingredients and production in the textile industry), and traces its down and wool to ensure that animal welfare standards are being met. The company has also recognized and worked to correct some of its own flaws over the years, including low representation of people of colour in promotional materials.

MEC’s past environmental, social and governance (ESG) performance landed the co-op in the top spot on the Corporate Knights 2020 Best 50 Corporate Citizens in Canada ranking, based on data from the company’s public disclosures for the period from Feb. 26, 2018, to Feb. 24, 2019, which is its 2018/19 fiscal year. (The data doesn’t reflect impacts from COVID-19.) MEC’s overall score of 85.2% was a significant increase from its 2019 ranking, when it placed 17th, with an overall score of 66%.

“MEC has a very compelling, powerful social purpose,” says Coro Strandberg, a sustainability strategist and president of Vancouver’s Strandberg Consulting. “It doesn’t surprise me that a social-purpose company would become a global sustainability leader.”

MEC’s top marks in the ranking come largely in three areas: clean revenue, CEO-to-average-worker pay ratio and gender diversity on its board and executive leadership team. The company’s clean revenue score – a measure of revenue from all goods and services that have clear environmental and, in some cases, social benefits – was 100%. MEC had the highest clean revenue percentage in this year’s ranking in comparison to its retail industry peers.
For the 2018/19 fiscal year, the MEC Label produced 80 fair-trade-certified products, and more than 1,100 products were made with environmentally preferred materials (including organically grown or recycled content, responsibly sourced down and Bluesign-approved textiles). In fact, 88% of MEC Label clothes and sleeping bags were Bluesign approved, and the company is striving to hit 100%.

MEC also scored well for its ratio of CEO-to-average-worker pay, which, according to its disclosures for the 2018/19 fiscal year, was 15:1. (The smaller the ratio, the smaller the gap between CEO and employee earnings; by comparison, Zara’s parent company, Inditex, has a ratio of 357:1.) MEC says the calculation is based on regular wages, overtime, vacation pay and bonuses for all MEC employees, both hourly and salaried staff, in the 2018 pay calendar year.
It also increased its ranking based on the number of women in executive roles. MEC maintains a 50% ratio of women on its executive management team, which is the highest score in its industry in Canada, according to data sourced by Corporate Knights, and the fifth highest in the world within its industry.

In 2018, former MEC CEO David Labistour acknowledged in an open letter that the company was underrepresenting people of colour in its marketing and advertising and vowed to do better.

CEO Phil Arrata, who took the top job in July 2019 after serving on MEC’s board from 2015 to 2018, wasn’t available for an interview for this article. In an email through a company spokesperson, Arrata said MEC “is dedicated to being inclusive” among its more than 2,700 employees and its customers. “We want to make sure that everyone feels welcome at our stores, distribution centres and home office,” Arrata stated. “I am very proud of the many MEC staffers who have been integral to the development of the initiatives we have in place right now.”

Arrata also renewed the Outdoor Industry CEO Diversity Pledge, to hire and support a diverse workforce and leadership team, among other promises. In January, MEC made changes to its workforce, saying it would convert about 950 casual, non-permanent roles into full- or part-time jobs with benefits to reduce staff turnover and improve customer service.

The changes are part of a restructuring to restore the co-op’s financial health. “While MEC is not profit-driven in the same way as the retailers we compete against, we still must be profitable to ensure we deliver great service to our members, elevate employee experiences and continue to contribute to the communities where we live, work and play,” Arrata wrote in an open letter in January.

The company’s challenge going forward will be to sustain its ESG performance amid an extremely difficult financial situation. MEC said it lost $11.5 million for the year ended Feb. 24, 2019, on sales of $462.4 million. The results included $8.5 million in restructuring and reorganization costs. The previous year, it saw a profit of $11.7 million on sales of $454.8 million. In April, the company said the economic impact of COVID-19, which forced the retailer to temporarily close its brick-and-mortar locations, “is severe” and sales “have experienced a drastic decline.”

How MEC emerges from the coronavirus shutdowns, including its ESG actions and commitments, will determine its future growth.

Brenda Bouw is a freelance writer and editor, as well as an author and ghostwriter based in Vancouver. 

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