Given the rising demands for companies to take a stance on socio-political issues, along with the documented risks of doing so, leaders are right to think carefully and deliberately about how to engage.
In recent years, a growing number of business leaders have taken a public stance on important political and social issues ranging from inequality to climate change, gun control and immigration. And this is becoming less and less of a choice for them: Employees, customers and investors now expect corporations to speak up—and more importantly, to behave in accordance with their words.
I recently worked with the Canadian Centre for the Purpose of the Corporation (CCPC) to explore the advantages and risks of taking a stand on sensitive issues. In this article I will share my key findings. The complete report is available on the CCPC website.
A World of Issues
In 2020, in the wake of the death of George Floyd, a significant majority of Fortune 1000 companies tweeted support for the Black Lives Matter (BLM) movement from corporate Twitter accounts. Following Russia’s invasion of Ukraine, Microsoft said it would remove Russian state-owned apps, and Facebook, Twitter and YouTube have all blocked Russian state media from running ads. And more recently, Walt Disney Co. publicly opposed Florida’s HB 1557 law (known as the ‘Don’t Say Gay’ bill), which would limit discussions of sexual orientation and gender identity in schools.
This shift in corporate behaviour begs a question: Should corporations be weighing in on these issues? And what are the pros and cons of doing so?
On the one hand, research suggests that organizations can reap both reputational and financial rewards by taking a stand. In general, companies that state socially-responsible values are viewed as more trustworthy, are better able to attract top talent, and experience reduced wage requirements from their employees.
On the other hand, taking a stance on socio-political issues carries great risks. Given rising levels of political polarization, supporting one side of a divisive issue risks alienating and enraging those who hold the opposing position. Disney is currently experiencing this first-hand: Republican lawmakers sought to retaliate against its oppositional stance, ultimately abolishing its Reedy Creek Improvement District—the special taxing district for the land of Walt Disney World Resort, which has essentially let Disney run its own private government to date.
On top of these risks, even the benefits typically accrued from taking a stance can very quickly be undermined, particularly when they are perceived as inauthentic. Given rising levels of consumer cynicism toward corporations, navigating the delicate balance between positive issue engagement and judgments of inauthenticity presents a key challenge for leaders.
For the last seven years, my research team and I have examined how people evaluate the authenticity or inauthenticity of organizations. By authentic, we mean perceptions of an organization (or its leadership) being genuine versus fake. We are particularly interested in the factors that lead individuals to perceive an organization’s actions as inauthentic in the domain of espoused values, corporate stances and social responsibility.
An increasing body of research underscores the importance of authenticity judgments for brands and corporate image. In one survey, 62 per cent of people said they were ‘more likely to purchase’ from a brand they perceived to be authentic. This was particularly true of younger consumers, with 90 per cent of millennials saying brand authenticity was important.
Authenticity can also be a source of competitive advantage for niche firms, new enterprises and organizations undergoing diversification. Research shows that greater perceived authenticity draws more customers to restaurants, boosts attendance at sporting events and museums, engenders more positive reviews of products online and secures price premiums for consumer goods.
Despite the growing importance of ‘authenticity judgments’, people are also increasingly cynical of for-profit organizations. Public trust is at an all-time low, as is employee trust in leaders. Terms like ‘greenwashing’ and ‘pinkwashing’ have emerged to describe the public support of sustainability and LGBTQ-related issues despite an absence of discernible action (or even negative action).
Also read: Adaptive authenticity: A mighty tool for prosperity and sustainable growth
In our research we found that five principles affect perceptions of authenticity:
The business case for social values. The business case suggests that organizations should promote social values like diversity and sustainability because it is good for the bottom line; whereas the moral case suggests that these values should be promoted because it is the right thing to do. In a series of experiments, we found that organizations that espouse a business case are not only rated less favourably, they also subsequently demonstrate diminished concern for their stated values.
Other research has found that the business case may impact the employee experience and the recruitment success. For example, espousing a business case for diversity may lead underrepresented minorities to identify less with an organization and, paradoxically, cause them to lose interest and motivation on the job. Other work has found that that espousing the moral case for diversity increases the promotion and recruitment of individuals from underrepresented groups.
These findings are not particularly intuitive to managers. In a study conducted by my Rotman faculty colleagues Sarah Kaplan, András Tilcsik and PhD candidate Patrick Rooney, participants with managerial experience were incentivized to correctly predict the results of these previous studies on the relative success of the case for diversity. Specifically, they were asked to predict how many women and minorities were hired and promoted under the different cases. The result: Subjects predicted that the business case was roughly 20 to 30 per cent more effective than it actually was. Thus, although the average consumer and employee finds the moral case for values to be more convincing, managers tend to greatly overestimate the effectiveness of the business case in motivating support.
Jumping on the bandwagon.
A related category involves the perception that a corporation is co-opting a social movement once that movement reaches perceptions of acceptability by the majority of the public. Be it Pride Day, International Women’s Day, Black Lives Matter or Earth Day, corporations can be quick to jump on the bandwagon. But many real-world cases underscore the inherent risks involved. One example is Nike SB, whereby Nike attempted to promote skateboarding and align itself with a set of traditionally counter-culture values like freedom and individuality. Nike’s entrance was met with a backlash from the skate community, which launched a ‘Don’t Do It’ campaign.
The success of communicating stated values hinges on perceptions of alignment with the organization’s lived values. On International Women’s Day, many corporations tweeted messages of support for gender equality. To the dismay of CEOs and corporate PR teams alike, a ‘bot’ was created that promised to immediately retweet companies’ tweets along with their current gender pay gap. The bot delivered on this promise and mayhem ensued (see example below). An onslaught of criticism from consumers followed, and many organizations deleted their original tweets to avoid further backlash.
Using archival data from Glassdoor.com, we examined whether misalignment between an organization’s stated values and employee perceptions of its lived values leads to perceptions of inauthenticity, driving more negative public evaluations. In one study, we collected the formal values statements of the S&P 500 firms and scraped the employee reviews of those workplaces from Glassdoor.com. Statistically controlling for a host of possible variables, such as firm size, employee tenure, pay and benefits, we found that congruence between the firm’s stated values (as captured by the values statements) and lived values (as captured in employees’ description of their work lives) significantly predicted public evaluations, with an effect that was twice as large as general negative sentiments toward the company.
My colleagues and I have also examined whether it matters if values are articulated as being currently held (e.g. ‘Innovation is at our core’) versus aspirational (e.g. ‘We aspire to be a leader in innovation’). We tested how external observers responded to tweets relevant to the Black Lives Matter movement coming from Fortune 1000 firms. The result: aspirational values statements were distrusted to the same extent as current values claims (or no claims at all) when those values appeared to be misaligned with embodied values. This is likely driven in part by beliefs that organizations are less capable of change than individuals.Also read: Go time: How leaders can learn to manage crises and uncertainty
One of the most difficult challenges leaders face today is managing a host of diverse and divergent stakeholder perspectives. This is particularly true for hot-button issues such as gun control, immigration and affirmative action, where employees and consumers may hold opposing opinions. In an era of rising polarization, opposing stakeholders on these issues can result in backlash and even boycotts. Examples include the backlash faced by Chick-fil-A for its historic support of charities with anti-LGTBQ stances; and Disney’s issues over its handling of the ‘Don’t Say Gay’ bill.
Columbia Business School Professor Vanessa Burbano recently found that when employees disagreed with their company’s stance on an issue, they performed worse, and when they agreed with the stance, there was no significant motivating effect. This data suggests that taking a stance entails mostly risks.
Given these risks, many might believe there are advantages to claiming neutrality —i.e. publicly declining to take a side on a socio-political issue. In one study, we asked employees to imagine a water-cooler conversation in which they were asked their stance on ‘affirmative action in the workplace’. When asked to indicate their stance confidentially, 52 per cent supported the issue, 24 per cent were neutral, and 24 per cent were opposed. But when asked what they would say in a conversation, the number stating a neutral position jumped to 61 per cent. That is, the number of people who claimed neutrality was more than double the number who actually were neutral.
Despite the intuitive appeal of neutrality, my Rotman colleague Katy DeCelles and Gabrielle Adams of the University of Virginia have found that people are skeptical of neutrality—both in individuals and organizations. In one study, we exposed participants to a CEO’s tweet indicating a position in favour of, as opposed to being neutral toward, implementing affirmative action in the workplace. The ‘neutral CEO’ was rated as less authentic than the CEO who held the opposite stance as participants, and similarly immoral. This effect is driven by the perception that neutrality is an inauthentic impression-management tactic. Taken together, research suggests that, while being in the minority position entails great risks, verbally ‘staying out of it’ may not be as effective as people think.
Illusion of understanding.
When companies give surface-level treatment to serious issues, there is evidence that this creates an illusion that they truly understand the issue at hand, which leads to an absence of deep organizational learning. Evidence suggests that public-facing diversity and environmental statements or disclosures in the absence of corresponding internal changes can delay organizational learning and improvements. Why? For one thing, symbolically managing potential reputational threats reduces concerns over such threats, diminishing motivation to course-correct. On top of this, masking problems can inhibit the opportunity for organizations to identify those problems and store this knowledge from experience.
The Solution: Embrace an Authentic Purpose
While the research discussed herein may make navigating social issues seem like a minefield, I would argue that all of these issues stem from one core problem: a failure to articulate and commit to the organization’s true, authentic purpose.
Purpose is ‘why’ a company exists, outside of profit maximization. It should be aligned with business strategy, but it should also allow a company to decide what it will stand for over the next several decades. Having a clear and overarching ‘why’ can serve as a compass, facilitating choices that seem aligned with a coherent set of values. Classic examples include Patagonia’s commitment to sustainability, 3M’s commitment to using science and technology to improve everyday life, and MEC’s commitment to transparency.
Rather than being a ‘soft’ concept, data has emerged to suggest that purpose yields hard results: Purpose-oriented companies have higher productivity and growth rates, more satisfied employees, lower turnover rates, and 30 per cent higher levels of innovation.
So, how do businesses arrive at an authentic, deeply embedded purpose? My team and I have identified ‘five Cs’ of corporate purpose.
It can be tempting to rely on a grab bag of socially desirable values, but I advise leaders to be aggressively selective. Most corporate values statements include claims of ‘integrity,’ ‘diversity and inclusion,’ ‘excellence’ and ‘teamwork.’ These are all good things, but they say little about the company’s identity—and even less about its embodied values. Uncovering purpose requires deep reflection on which values are core to the company’s (true) identity.
One underutilized means of uncovering and clarifying purpose is bottom-up in nature and involves actively collaborating with employees and community members. Typically, when leaders attempt to understand their stakeholders, they engage in a process of perspective taking, trying to put themselves in their shoes. Perspective-taking is great, in theory, but it relies on an ability to imagine the other person’s perspective accurately. And a wealth of research suggests that people tend to insufficiently adjust away from their own perspectives in doing so. A helpful tool is to seek out, and collect data around, the actual perspectives of employees and other stakeholders rather than making top-down assumptions. What values pop up most consistently when employees write reviews about your company on Glassdoor.com? What do your employees think makes you different from competitors? In terms of anticipating how your stakeholders will respond to your stance on a social issue, try to get as many perspectives as possible.
Active collaboration with stakeholders is particularly useful when attempting to engage with issues relevant to social movements or specific subcultures. Let’s return to the example of Nike Skateboarding. In response to the ‘Don’t Do It’ backlash, Nike made some significant changes: It began only selling the SB shoes in specialty skate shops; it collaborated with small, independent skate companies; and it recruited famous skateboarders to occupy key leadership positions at Nike SB. Thus, instead of co-opting the skate subculture, Nike collaborated with it. The results? Nike SB is now viewed as a top brand in the skateboarding community, and it is one of the fastest growing revenue categories at Nike.
Embrace ‘costly signaling’. Aligning with an authentic purpose will, at times, require tough choices and sacrifice. It’s helpful to think through this problem through what’s known as ‘costly signaling’ in the social sciences: Costly signals are honest signals about a company’s purpose and identity that require resources and would be difficult to fake. Put simply, the ‘cost’ of the signal is a reliable way of confirming the honesty of that signal to audiences. Also read: Sustainable growth and customer engagement in a circular economy
Take, for example, Patagonia, whose stated purpose is “to save our home planet.” Rather than selling replacement products, the company engages in costly product repair, sacrificing sales for the sake of sustainability. In return, it has a top corporate reputation. Similarly, returning to the case of Nike SB, Nike actively sponsored tournaments and community events, and began spending money to produce skate videos that would yield little to no return on those investments.
As indicated, a key emerging theme of poorly-received issue stances involves the perception that the stance is at odds with the internal workings of a company. Unfortunately, it is incredibly difficult to ensure that stated values are embodied in an organization’s actions and practices. One important part of maintaining values involves the employees you hire. Deeply embed your values and purpose in the recruitment process: list them in recruitment materials, ask questions directly about them in interviews and look for behavioural evidence that candidates embody these values in their own lives. Careful values-based employee selection was on display when Nike elected to hire high-profile skateboarders into leadership positions at Nike SB.
Be careful to define fit concretely and in terms of the specific values as opposed to some amorphous sense of ‘fit,’ which has been linked to discriminatory hiring practices based on racial, gender or social class-based homophily.
Values are communicated to employees through leader behaviour, reward and incentive systems, and also in the ways in which we communicate about culture — the stories shared within an organization. In a now classic example, leaders at Nordstrom, an organization deeply oriented around customer service, routinely share a story out of Anchorage, Alaska, about a customer who went to return a set of tires. Nordstrom, of course, doesn’t sell tires. The customer had purchased the tires at the store that formerly occupied the space Nordstrom was now in. Despite this, the store manager elected to allow the customer to return the tires. Such stories communicate what is truly valued by an organization.
Negative reactions to issue stances and value statements are partially driven by their vagueness. Too many read like polite, ‘woke-washed’ language that has been through several legal and PR filters, with the resulting product sounding like every other corporate statement about the issue. This drives audience cynicism and criticism.
In our research examining responses to aspirational values statements, we later conducted an intervention study in which we examined potential conditions under which organizations may be freed to state their values-based aspirations without penalty. We found that the level of abstraction of language matters. Any communication can be stated abstractly (e.g., ‘we value consumer satisfaction)’ or concretely (e.g., ‘we hire interpersonally skilled employees’). While most organizations offer politely stated abstractions in their communications, we found that values stated more concretely instilled less distrust because they offered a clearer pathway for how values might become embodied by the organizations.
Given the rising demands for companies to take a stance on socio-political issues, along with the documented risks of doing so, leaders are right to think carefully and deliberately about how to engage. As a first step, I recommend processing these decisions through the lens of your organization’s purpose. Given ‘who you are,’ what stance makes the most sense for you? And is this stance consistent with your lived values?
Next, ruthlessly critique the authenticity of how your stance is communicated, reflecting on whether you’ve obtained perspectives versus assumed them, involved those closest to the issue, and are willing to put resources towards the issue. Rest assured: If you aren’t tough on yourselves, the public will be.Rachel Ruttan is an Assistant Professor of Organizational Behaviour at the Rotman School of Management. This article has been adapted from her report, “Taking a Stand on Social Issues: Why? When? How?”, published by the Canadian Centre for the Purpose of the Corporation. The complete report is available online.
[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]