New Research Explains What Triggers Corporate Action on Social Issues

WLast week, we focused on the role of employees in some US companies’ exit from Russia and the internal backlash at Disney over CEO Bob Chapek’s initial reluctance to take a stand on LGBTQ+ rights in Florida.

Both are examples – which ones Some observers have called it “unprecedented.”” – of US doing business on moral grounds. Resign, what are the situations that can trigger this? And what is the most effective way to pressure companies to speak out on societal issues?

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We spoke to you for answers Stephanie Creary, Assistant Professor of Management at Wharton. Her research suggests that a key ingredient in entrepreneurship is what she calls “social authorization,” something she has studied in the context of corporate responses to the murder of George Floyd. Here are excerpts from a recent conversation, edited for space and clarity, where she explained this and its implications:

What is social authorization and why is it important?

Social authorization is the idea that corporations and related entities, such as boards, feel empowered by other groups, collectives, or other individuals in society to engage in socially sound work. That is everything related to taking a stand on social issues or responding to societal concerns. The point of the social approval process is that corporations and boards now feel they have a right to do this work that many of them weren’t deeply immersed in before.

What are examples of social authorization?

To understand social authorization, it is first important to understand who might be doing the authorization to give organizations authority they might not have had before. This can be any number of entities. We can start with legislation and policy makers. One of the examples that I think of often because it’s onboard my research on diversity is how California passed legislation around 2019 that required companies headquartered in the state to have at least one woman on their board of directors. The fact that boards then took responsibility for enacting this law and citing the law as a reason for increasing board diversity is an example of how they now feel authorized to do this work, including recruiting more women and underrepresented minorities on the board.

Another example is the Black Lives Matter movement following the assassination of George Floyd. What I found in my research is that boards now feel empowered to not only recruit directors to the board – which the California legislature did. What happened after the killing of George Floyd is that Black’s board members and their boards now felt empowered to address diversity issues more fully and become more involved in the company’s DEI work as board responsibilities.

What else is on the list of social authorization mechanisms?

Aside from legislation and the Black Lives Matter movement, we have peer authorization, which is social authorization that comes from peer groups. There are a variety of collaborations for business leaders, such as the Business Roundtable, Chambers of Commerce, the Silicon Valley Leadership Group, and the Executive Leadership Council. There are now so many groups of business leaders finding ways to create an agenda that can span across companies. Developing this collective voice allows each individual company to feel empowered to engage in diversity work.

What are the insights from your research on how we can point all organizations in the right direction when it comes to societal issues?

What those of us who care about social issues need to understand is that there is a lot of fear in the corporate population. If we want anxiety to reach manageable levels so we can start addressing these social issues, what needs to be done? Companies with the highest levels of anxiety would likely feel more confident about being authorized by one of these collectives to engage with social issues. For business leaders, business leader collaborations are probably one of the most effective forms of social authorization because they are peers.

Certainly an effective form of social authorization comes from the people – from workers and from social movements. But they’re a bit far from the day-to-day decisions companies have to make. It is really important for managers to be able to discuss this with their colleagues. Peer group social authorization is something we should encourage more.

The second thing is related to the role of the employee, employee activism. For some time I’ve noticed that companies try to ignore the fact that they have a lot of employees who are really committed to these issues.

Just recently I had a call with an undisclosed company that was discussing hiring a community service director. I found that really interesting, and it’s equivalent to companies hiring directors for ESGs or directors for diversity, equity and inclusion. What would it be like to have a director and a social activism department — and treat that as a critical business issue, just like marketing, communications, and finance — and back that department up so they could help the company address these issues effectively to react?

What does the social authorization framework tell us about corporate responses to Russia’s attack on Ukraine?

Regarding government bans as social approval, I think it’s important to note that President Biden’s move to ban US imports of Russian oil, natural gas and coal has taken place after Many US companies had already begun to shut down their Russian operations. Shell seems to be a great example of a company that needed this kind of social authorization to address this social issue in a meaningful way. Before the ban, they actively bought Russian crude oil. They admitted that only after “continuous discussions with governments about the need to decouple society from Russian energy flows” did they fully understand the consequences of their actions and their future actions.

In the sense of the ESG movement as a social authorization, some suggest that these corporate responses are somehow linked to the ESG commitments of those companies. If this is the case, it would certainly point to a case of social authorization; That is, the ESG movement grants companies the right to suspend operations and services in Russia. An alternative point to consider is that companies that may have felt socially empowered by the ESG movement to respond to some social issues in the past (e.g. climate change, racial justice, etc.) are turning their backs on themselves could feel increasingly empowered to do so authorize themselves to respond to Russia’s attack on Ukraine. So it could be that societal authorization of some social issues leads to companies authorizing themselves to address other social issues – suggesting a kind of spillover effect.

In your opinion, are these reactions from companies unprecedented or noteworthy?

I think these corporate responses are notable because they don’t all seem to stem from active threats against companies – such as boycotts or protests. That’s not to say these companies don’t see risks in not shutting down operations in Russia. In fact, it’s likely they do. What is particularly interesting about these corporate reactions to Russia’s attack on Ukraine, however, is that the issue is deeply entrenched in politics – and historically, companies seem to have been reluctant to comment on such issues.

Read a full transcript of our conversationincluding a discussion of the role of employees, how organizations can decide which social issues to take a stand on, and what makes the difference between companies taking action rather than just engaging in public relations.

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