Leading change across sectors and sects

Who matters most: shareholders or the people? Around the world a revolt seems under way. A growing cohort—perhaps a majority—of citizens want corporations to be cuddlier, invest more at home, pay higher taxes and wages and employ more people, and are voting for politicians who say they will make all that happen. Yet according to law and convention in most rich countries, firms are run in the interest of shareholders, who usually want companies to use every legal means to maximize their profits…executives fear that they cannot reconcile these two impulses. Should they fire staff, trim costs and expand abroad—and face the wrath of Donald Trump’s Twitter feed, the disgust of their children, and the risk that they’ll be the first against the wall when the revolution comes?... Or do they bend to popular opinion and allow profits to fall, inviting the danger that, in the run up to their 2018 annual general meeting, a fund manager…will topple them for underperformance?

Schumpeter, "Six sects of shareholder value," The Economist, January 21, 2017

All corporate citizenship work is about change. Every environmental or social investment made by a company is about using the assets of business to change our operating context for the better. This should be a no-brainer, right? Isn’t any change for the better, well…good? The rhetoric put forth in The Economist’s Schumpeter column earlier this month presents with wry humor a range of six corporate responses to the question it proposes and highlights the conflicts that arise from competing social and economic perspectives. 

As the Schumpeter columnist points out, the answer to this question depends entirely on where you sit. For corporate citizenship leaders one of the first—and most often under-attended—hurdles to overcome in effecting positive change is to sell the benefit of the investment as exceeding the cost. The thing we tend to forget is that how we value the benefits of any given corporate citizenship investment may not be speaking to the values of the person or group we are trying to get on board. Creating a vison of change that paints a picture of value-added for the people we seek to convince is the first task, one that should be revisited and refined often, and that needs to be almost continually repeated in order to be effective.

Schumpeter (the economist for whom The Economist column was named) was a modern advocate of entrepreneurship and of creative destruction as a force in capitalism that keeps its ecosystem alive. Schumpeter’s view was that it is necessary for old technologies and points of view to be replaced with new for capital markets to be revitalized and new market equilibrium to be established. This is our opportunity—to help people reimagine the world. Here are the six sects laid out in the column and our observations about how each might be approached most effectively to garner support for corporate citizenship.

Corporate fundamentalists seek to boost profits and share price—immediately, and can often be focused on this objective to such a degree that they spend multiple consecutive quarters cutting costs and offering buy-backs to improve their financial picture. If you live in one of these companies, you will likely be most successful emphasizing the reputational value that can be created by enhancing your brand and ability to attract employees.[i]

The corporate toilers also emphasize shareholder value, but are more patient. They may be willing to make longer-term investments like alternative energy or leadership development. Keep your pitch focused on the path from right now to the investment time horizon. Do you have a 10-year plan?  Be prepared to talk about how your employee volunteer program keeps employees engaged today and helps the company to develop leaders in your key markets targeted for X years from now.[ii],[iii]

Corporate oracles are those companies that are betting that policy and law will evolve with public opinion and will voluntarily do things today that they may be required to do tomorrow. Many multi-national firms lead in this practice. Are you working in a firm that is willing to look over the horizon a bit? Look to your most progressive markets to help paint the picture of what tomorrow might look like everywhere. There are also plenty of cautionary tales in recent history that can illustrate the value of corporate citizenship investments as good investments in risk management when you don’t.[iv] 

Corporate kings are described as being so successful at creating shareholder value that they have a license to ignore it periodically. In fact, this managerial perspective is at the foundation of capitalism.  Before the evolution of emphasis on shareholder value, executives often saw themselves not only as beholden to shareholders, but as stewards of great institutions that had many ways of creating value for communities, employees, and customers also. Companies often take actions that don’t maximize shareholder value immediately. Employee pay raises, sustainable supply chains, green technologies, or social enterprises all cost in the near term, but can positively differentiate the company as a leader for the long term. If you are in this lucky group, you have some latitude to think creatively not only about where the intersection of corporate citizenship and corporate value-creation might be, but also about new models of business and how you might lead your industry and CSR practice to new and better ways of doing things.

In developing economy boardrooms, corporate socialists—those companies controlled by the state or sometimes by founding families—may balance shareholder value with social objectives such as employment and market participation. In these corporations, profits are set so that outside shareholders get the minimum required to avoid shareholder action. For these, your corporate citizenship focus might be to support the prioritized social mandates and maintain for your firm an appropriate presence among peers on issues that may not be core for your company, but are important to your industry or community. 

The last sect is described as the anti-corporate corporates. These firms often exist as social enterprises and don’t emphasize shareholders at all. State-owned extraction companies that benefit all sovereign citizens or state-owned lending programs may fall into this category. If you work for one of these, you will likely get the most value from engaging with your employees and your policy community on issues that can sustain your performance and service over time.  Start with employee engagement and any sustainability initiative that is relevant to your operating environment. 

The interesting thing about this work is that your company can change sects over time. Or you may leave a company in one sect and move to a company that is aligned with another. You may also encounter groups of people within one company that align their thinking with different sects. Your objective is to be able to speak to the values of any given constituent. The Center is here to help. Whether you need research, strategy and communications support, or program-specific guidance, our goal is to arm you with the materials you need to know more, do more, and—ultimately—achieve more through your corporate citizenship program.

[i] Sirsly, C. A. T., & Lvina, E. (2016). From doing good to looking even better: The dynamics of CSR and reputation. Business & Society

[ii] Turner, A. (2010, March). The buy-in to corporate culture: Creating internal emotional capital through workbased volunteering schemes. In European Conference on Intellectual Capital, Lisbon, Portugal.

[iii] Caligiuri, P., Mencin, A., & Jiang, K. (2013). Win–win–win: The influence of company‐sponsored volunteerism programs on employees, NGOs, and business units. Personnel Psychology, 66(4), 825-860.

[iv] Mishra, S., & Modi, S. B. (2013). Positive and negative corporate social responsibility, financial leverage, and idiosyncratic risk. Journal of Business Ethics117(2), 431-448.