Social Concern: A wake-up call for ethical business leaders

Recently, PayPal killed the accounts of anyone pushing racist views. 

“You have to have the courage to make those decisions”
PayPal CEO Dan Schulman.”

The action shows how ethical leaders can take relevant actions to promote social responsibility by their companies and key stakeholders.

Echoing these concerns about social responsibility, Larry Fink CEO of the world’s biggest fund manager Blackrock sent a letter to colleague CEOs of public companies in 2018. It stressed their responsibility to deliver profits and make “a positive contribution to society.” Fink explained: 

“…without a sense of purpose, no company, either public or private,
can achieve its full potential. It will ultimately lose the license to
operate from key stakeholders.”

He reminded colleagues that the “social licence” is real–no mere fiction. What underpins it is a firm’s readiness to show real social concern and care for the local community.

Such an approach shifts the present role of corporate executives.  For instance, a recent Ethical Corporation report found more than half (69%) of its global corporate audience were already working to integrate Social Development Goals (SDG) into their business strategy.

Around the world forward thinking companies build social commitment into the core aims. Multi-national Indian firms such as Tata, Wipro, Mahindra, and Deshi Mahila Bank have pioneered this behaviour.  Chetna Sinha, Founder and President of Mann Deshi Mahila Bank for example, has spent over two decades promoting financial services for women in rural areas of India.

This social concern partly explains why the major Indian firms continue to win a high degree of customer trust around the world.

From American Airlines to Nordstrom to Walmart hundreds of US company bosses have also begun speaking out on social concerns. These include anti-gay discrimination, immigration and race relations.

No Luxury

Showing social concern is therefore no longer a corporate luxury. It has commercial value. Companies showing a genuine social commitment tend to report better financial returns than ones staying silent. 

A 2017 study of 1,000 consumers found nearly half (41%) believed it’s important for brands to take a stand on social or political issues. A further quarter said it is very important for them to do so. By contrast, only a quarter of respondents said that it is not very or not at all important.

“We are seeing a rising tide in this kind of behaviour from brands, which I think is not just in the US… behaviourally we are seeing it happen more and more.”
Andrew Caravels, Vice President of Strategy and Brand Engagement at Sprout Social.

In the UK more than 9 out of 10 people (92%) say businesses should take a stance on social issues, such as immigration, climate change and gender equality. In fact, 72% of the public are prepared to champion companies which stand up for what they believe and challenge politicians.

It’s the companies with a clear purpose, beyond profit, that create the greatest resonance with consumers.

A majority of millennials for instance, expect their CEOs to take a stand on social issues. Those who do, benefit from sales boosts and lower staff churn. Consequently CEOs in search of competitive advantage may have no other choice but to pursue social concerns.

It’s also about a week since the Intergovernmental Panel on Climate Change shook the world with its urgent message on global warming. And now financial regulators expect banks and insurance companies to take action against the threat from rising temperatures.

The Bank of England told institutions they need to have “credible” plans or policies in place to manage exposures to climate change. That is they must make a serious social impact soon.

There was also a direct appeal to boardrooms who were told they will be expected to “understand and assess the financial risks” inherent in climate change.

Risk of speaking up

The fate of Grant Thornton’s CEO highlights the dangers a leader may face through speaking up on social issues. Sacha Romanovitch encouraged the staid UK accountancy firm to make space to focus on social purpose. She spoke out publicly on issues such as mental health and social mobility. One of the firm’s many partners claimed:

“She did some really progressive stuff that people can laugh at or smirk and say it’s socialist—but I thought it was good.”

Sadly Romanovitch was fired in 2018, apparently for failing to bring in sufficient profits. She was also accused anonymously of pursuing “a socialist agenda.”

Socially concerned, Starbucks CEO Howard Schultz launched a Race Together Initiative in 2015, calling it

“An opportunity to begin to re-examine how we can create a more empathetic and inclusive society – one conversation at a time.”

Schultz’s good intentions drew a deluge of criticism. The humbled CEO ended the campaign almost as soon as it began.

If you’re going to speak out on social issues it helps to be sure your values align with corporate ones. It can be easy to assume that corporate values and personal actions match. They may not. 

8 out of 10

A more recent study by the Global Strategy Group provocatively called, A Call to Action in the Age of Trump, found about 6 out of 10 supported the firm taking positions on immigration reform and LGBT equality.

Despite the clear benefits of CEO activism on social concerns, there may still be unexpected risks. For example, activism may trigger the need for a company to react publicly during rapidly-evolving situations. 

Apart from making shareholders and stakeholders uncomfortable, adopting certain positions, or activism, can strain supplier and customer relationships. In some cases it nay generate career-derailing scenarios.

For ethical leaders to feel more at home with activism it’s worth becoming an advocate at an earlier stage of one’s career. This allows more room to recover from mistakes, and to perfect one’s communication style and message.

Demonstrating the right behaviour may trigger resistance as this table shows:

what to expect

Failing to speak out on socials issue may also create reputation damage. In 2017 for example, when President Trump’s ad hoc travel ban was causing havoc at airports around the US, cab drivers at New York’s JFK Airport went on an hour-long strike in protest.

Ride-sharing app Uber did not take part. Many saw its reluctance as undermining the strike. The company suffered a swift and strong backlash. A vigorous online campaign persuaded people to delete the app from smart phones and other media devices.

Uber’s main competitor, Lyft, capitalised on its rival’s mistake. It drew a line between the two companies with a $1m (€860,000) donation to the American Civil Liberties Union.

The sheer variety of what counts as social concern creates pressure to adjust the role of ethical business leaders. 

Leaders with social concerns

  • Google: Its workers pushed the company to create new rules for the ethical use of Artificial Intelligence.
  • Patagonia: The outdoor apparel company mounted a strong protest against the president’s decision in 2017 to substantially reduce the size of two national parks.
  • The World Economic Forum: Called social concern the New Age of CEO activism. The Forum stimulates CEOs and their companies to take more interest in addressing social problems around the world.
  • Merck: CEO Ken Frazier resigned from President Trump’s American Manufacturing Council objecting to the president’s response to the violence in Charlottesville. An avalanche of fellow council CEO resignations followed and the council collapsed/.
  • Allianze: One of Germany’s major insurers announced in May 2018 it would stop covering single coal fired power plants and coal mines. Oliver Bates the group’s CEO said the company expected to “cut the biggest climate killer out of the core business over time.”
  • Boeing and IBM were among large employers in South Carolina in 2015 calling for the Confederate Flag to end its reign over the state capital. The state House of Representatives’ subsequently voted to send the flag to a museum.
  • HSBC & Standard Charter and other big-name City chief executives pulled out of a major investment conference in Saudi Arabia in protest at the Kingdom’s alleged involvement in the disappearance of journalist Jamal Khashogg
  • Salesforce: CEO Mark Bentoff endorsed a San Francisco state Proposition C to raise money to tackle the city’s homelessness crisis via a small extra sales tax. “Homelessness is all of our responsibility.” he tweeted.
  • Apple: CEO Tim Cooke backs GDPR, calls for new privacy law and will ban apps from its on line store that don’t have a privacy policy stating how they use the data.

Social Investing

social investingAssets held in ethical funds keep surging ahead. They have more than trebled over the past decade. UK investors keep pouring money into green and socially responsible companies.

Funds held in UK ethical funds rose from £4.5bn in 2008 to £16.7bn today.  This dramatic advance should warn business leaders that future sources of capital may depend in the extent of a company’s social commitment.

A business leader’s role must now include a concern about green and socially responsible practices. A poor record on environmental and social issues is

“Now widely seen as a red flag by investors from a risk perspective, as well as an ethical one”.
Laith Khalaf, senior analyst at Hargreaves,

Going through the motions of expressing a social concern may no longer satisfy more demanding stakeholders and potential investors. Increasingly they expect ethical leaders to turn concerns into observable social action.

This may include disposing of assets that fail to align with rising stakeholder expectations. At one university endowment fund for example, senior investment officers recently stepped down from their roles. Stakeholder awareness forced the university to dump its investments in fossil fuels.

There is no longer an obvious trade-off between seeking good company financial returns and pursuing strongly held principles. For example ethical investing often protects investors from damaging price falls. The growth of ethical investing that tracks normal indices is another sure sign of current relevance.

For years, socially blind investment managers ignored or even denigrated ethical investing. Consequently CEOs felt reluctant to embrace this form of action. They accepted the superficial argument that it made little financial sense.

It’s a new world now. Popular movements, beliefs, and social media impact have measurable impacts on financial outcomes.  As a result companies are adjusting to new criteria of what it means to be ethical. Their activism will often convert into strategic implications: 

For example Nestlé is investing billions of R&D dollars to invent a new industry that straddles food and pharmaceuticals. Novartis is expanding access to medicine by introducing equitable pricing in low- and lower-middle-income countries at a price of $1 per treatment per month. And Enel, an Italian utility giant, is shaping the future of energy through advanced technologies that expand the market for renewable energy.

Obligation versus profits

Can ethical leaders make a difference through expressing social concerns? Occasionally turning them into some form of action on the ground. Should they even do so?

The legacy of Milton Friedman the late US economist, turned profits into the only acceptable criteria for judging companies and their leaders. Yet even he backtracked as the sheer scale of damage caused by a “profits only” measure of business performance came into sharper focus. 

So big questions keep re-surfacing about what contribution business can or should play in their local communities. 

Within the UK and US many people have been “left-behind”. The causes are diverse and include globalism–the gift that keeps giving.  The “greed is good philosophy” still drives much of business.

In the UK, the dreadful failings of Universal Benefits, an unequal regional distribution of the nation’s wealth, and the disproportionate support for bankers and others of excessive wealth still blight society.

Peter CollierSome like Paul Collier, Oxford Professor of Economics urge new policies for the “left-behind”:

“What happened to the fine tradition of industrialists who recognised their obligation to their local communities?

What indeed? Now we have the manifest failings of once respected professions with a previously strong ethical component. These include  banking, auditors and the City with dishonesty baked into their culture. Capitalism need to rediscover what Collier calls reciprocal ethics:

“The ethical firm retains loyal customers and workers, but recognises its obligations to them, not because it may turn out to be good for business but because it is at the core of their purpose.”

Taking a stand is now a principled position and a sound business choice. 

10 questions

Sources

  • Insurers act to mitigate risk exposure, FT 9th October 2018
  • Mihelič, Ethical Leadership, International Journal of Management & Information Systems; 2010 Volume 14, Number 5
  • Grant Thornton Lead to be probed, FT 17th October 2018
  • Ziv, Starbucks ends phase one of race together initiative Newsweek 3/23/15
  • Gogo, The new age of CEO activism, World Economic Forum Jan 2018
  • O’Brien, A Force for Change? CEOs Speak Out on Social Issues, Business Ethics, Sep 21, 2017
  • O’Brian Why more companies are-speaking out on social issues, Business Ethics, July 2015
  • Taylor, If Humility Is So Important, Why Are Leaders So Arrogant? HBR Oct 2018
  • Williams, UK ethical fund assets surge to £16bn, FT 29th Sept 2018
  • Waters, San Francisco tech giants clash over levy to fight homelessness , FT 2018
  • Schulman, Taking on critics and dissenters, FT 10th September 2018
  • Championing Change in the Age of Social Media, Sprout Social, conducted in 2017, published 2018
  • E. Kossek, Work and Life Integration: Organizational, Cultural, and Individual Perspectives, Laurence Erlbaum Associates 2008
  • K.Reed, Why marrying societal impact with financial strategy takes time, Board Agenda, October 22 2018

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