Why aren’t company owners and managers minding their own business?

July 27, 2020

College of Business faculty Mike VanHemert talks about how social changes and company practices are increasingly interacting — and what that means for the future of business.

Graphic representing Corporate Social Responsibility
Graphic representing Corporate Social Responsibility
Graphic by Violet Dashi

An NFL team recently retired its name after pressure from corporate sponsors. In the wake of #BlackLivesMatter, major advertisers are boycotting Facebook over its policy on hate speech and related social issues. And earlier this year, a majority of Chevron shareholders voted for the energy giant to align its lobbying activities with the goals of the Paris Agreement, a global campaign to strengthen society’s response to climate change.

Looking at these examples through a corporate governance lens, some might question these actions and ask: Why aren’t the companies’ owners and managers minding their own business?

College of Business faculty Mike VanHemert
College of Business faculty Mike VanHemert
College of Business faculty Mike VanHemert

College of Business faculty member Mike VanHemert has an answer: “I believe they are. Sustainable business success requires managing the significant social changes that increasingly impact companies’ financial performance.”

There’s even a term for this growing business practice — corporate social responsibility (CSR).

“Businesses are recognizing that they can do better financially by fulfilling their social responsibilities,” said VanHemert, a retired corporate lawyer / manager who has professional and academic experience looking at the environmental, social and governance (ESG) factors that can impact companies’ performance. “And current and potential owners increasingly view ESG performance in deciding where to invest their funds.”

A 2017 CSR study found that more than 60% of Americans hope businesses will drive social and environmental change in the absence of government regulation. Nearly 90% surveyed said they would purchase a product because a company supported an issue they care about. And nearly 75% said they would refuse to buy from a company if they learned the company supported an issue contrary to their own beliefs.

So we caught up with VanHemert, who teaches UM-Dearborn’s CSR courses, to learn more about why businesses are getting involved with social issues and how that involvement is shaping the business world.

Is Corporate Social Responsibility a new idea that companies are using to gain good PR?

Mike VanHemert: Of course businesses want to “look good” to the public, but CSR goes much deeper than that. This idea that businesses should contribute more to society than just their goods / services and jobs has been growing generically for at least a half century, but with a noticeable pivot to more explicitly acknowledged CSR behaviors in the past two decades.

The current trend of businesses facing ever broader societal expectations leads to CSR’s increasing prominence in the 21st Century. A significant reason for these heightened social demands on business is the growing inability of governments (at all levels) to fulfil their historical roles to “protect the health, safety and welfare of citizens” (a high school civics concept I “re-teach” CSR students).  A very recent example of this “role switch” is the movement by many national “box store” retailers to require customers and employees to wear face masks, given the inconsistency of government actions to protect the health of those key business stakeholder groups.

"Doing good” sometimes requires an initial investment, which may be expensive. Are fiscally conservative owners on board with this too?

MVH: There are many business people who do sincerely want to “do good,” but CSR is not something managers do without recognition of its costs. Management cannot forget that their business won’t survive if it doesn’t provide an investment return for its owners. CSR serves that underlying business imperative because it allows businesses “to do well [financially] by doing good [socially]” — that’s my course’s tagline. Instead of focusing on short-term profit, businesses are looking at longer-term owner wealth by building brand recognition and the companies’ reputation (both intangible but valuable business assets), customer loyalty (leading to profitable repeat business), and attracting and retaining talented, engaged employees. And socially responsible businesses are more likely to avoid the government imposing regulations that can be costly and time-consuming to satisfy.

There’s also something else at play. The best business owners and managers are flexible and intuitive leaders; they realize they need their businesses to adapt to the times or be left behind in a highly competitive global marketplace.

So are you saying CSR is motivated by money?

MVH: CSR is about having a business be accountable to its stakeholders while still enhancing its owners’ long-term wealth. Given my 30-plus year career in corporate America, I’m both a capitalist and a pragmatist. I’d be disingenuous if I said money isn’t most businesses’ primary motivator. But if a business doesn’t successfully manage its many stakeholders’ wants and needs, it is unlikely to survive in these increasingly challenging social and economic times. 

People want to associate with companies that share their personal beliefs. Let’s use environmental issues as an example of this since sustainable business practices and products increasingly are priorities for both companies and their stakeholders. Employees increasingly want to work for — and, as reflected in the above-linked 2017 CSR study, consumers want to buy from — companies that reflect their personal beliefs in meeting environmental and other social responsibilities. As a result, environmental sustainability is important in CSR; in business we often discuss it in the context of the three P’s (people, planet and profit) to a company’s performance. 

Management of the planet is increasingly interrelated with managing people and therefore profit. This interrelationship is in part why business support remains high for the Paris Climate Change Agreement despite the recent U.S. government move to withdraw from that international agreement.

So money is a motivator, but it can lead to a societal outcome that  stakeholders want. The consumer’s rationale — for example, if they buy from a business that has green practices because they care about the environment — is arguably more altruistic than the business’s strategy, but both are taking action and being socially responsible.

 

It sounds like following CSR often yields positive results. If a business hasn’t taken a stand on a socially important issue, should it?

MVH: That can be a complicated management decision that involves careful consideration — they need to weigh many different stakeholder expectations to decide on a path that best aligns with the company’s culture, mission, products or services, and strategies. As reflected in the U.S. population’s current deep divisions on many political and social issues, it’s likely that taking a public stance on social issues will not be well received by all of a business’s stakeholders, especially given the influence of social media in magnifying controversial voices. However, businesses also don’t want to end up being on the wrong side of history.

I’ll give a recent example of why it’s not always wise for business to jump into social issues too quickly. The successful country band Lady Antebellum recently changed its name to Lady A. No one demanded the change, but the band was concerned about antebellum being associated with the pre-Civil War South’s slavery-based economy. The band believed they were being culturally sensitive in the context of the #BlackLivesMatter movement.

Unfortunately, the band didn’t do a full investigation before announcing the name change — it quickly heard from a black female singer already performing under the name Lady A in the Pacific Northwest. After some initial attempts at co-existing, the band has now filed a lawsuit against the woman over use of “Lady A.”  Although litigation will settle who first trademarked the name, that really doesn’t matter from the public’s perspective; the band’s subsequent actions did not align with the “woke” brand they were trying to build. Their name change’s anticipated goodwill is lost and the band’s reputation has been damaged. 

If your business wants to show support for a socially important issue, managers should do their homework and consider all potential stakeholders before making decisions on behalf of the business.

What business changes are you seeing? And are they good things?

MVH: Most people have a variety of views that change — along with their expectations — over time. This often creates new challenges and requires real-time changes for businesses.

One CSR concept is the importance of businesses seeking diversity and enhancing inclusivity at all levels of their employee and managerial ranks. Good business managers make better decisions when they have a diversity of perspectives in their organizations from which they can receive meaningful input. Millennials and Z’s realize this and don’t want just a bunch of older white guys sitting around the boardroom table making decisions without the benefit of that diversity /inclusivity — full disclosure: I’m a boomer and I was one of those white guys in boardrooms during my corporate days. With the benefit of hindsight, I strongly believe that a more diverse, inclusive workforce could have improved some of the senior-level decision making at those companies.  

Looking forward, I think it will be important to monitor particularly the larger corporations that have announced support for #BlackLivesMatter and other socially progressive initiatives to see if their current statements translate into future concrete changes in broader business practices.

Younger stakeholders also are more comfortable with constant change because they grew up with it and know that’s a part of progress. I have the benefit of reflection from a half-century’s involvement with many types of business — before my corporate and legal work, I worked at my dad’s small-town family business — and I’m excited to see businesses increasingly led by younger people striving to make socially responsible decisions. Over time this enhanced CSR fulfillment is going to change the world for the benefit of people, planet and profit.

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