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Wharton: Why More Companies Are Standing Up on Social Issues

From the war in Ukraine to anti-LGBTQ+ legislation in Florida, companies are increasingly speaking out on social issues. Silence is no longer golden for firms.

Published with permission from Knowledge@Wharton, Wharton's online business journal.

Peer pressure is hard to resist, even for big corporations.

Disney CEO Bob Chapek spoke out against Florida’s anti-LGBTQ+ legislation after criticism of his silence began trending on social media. Microsoft stopped sales and service in Russia after releasing a sharply worded statement condemning Vladimir Putin’s “unjustified, unprovoked, and unlawful” invasion of Ukraine. And Goldman Sachs pledged $10 million to address racial and social injustice after the 2020 police killing of George Floyd.

“What we’re seeing right now in many companies is a really strong response to external advice, recommendations, pressure to engage more intently around social issues,” said Wharton management professor Stephanie Creary.

Creary, who studies organizational behavior, identifies this response as “social authorization” or a kind of permission granted by external groups for business leaders to take internal action. Executives are growing more aware of the close connections among societal issues, the company’s responsibility on those issues, and their bottom line, which makes them more likely to engage. External pressure isn’t the only mechanism that elicits a response from the C-suite, she said, but it is an effective one these days.

Historically, most companies kept their eyes on business objectives and their noses out of the political or social fray. But that’s changed in the last 15 years — and especially in the last two years since Floyd’s death — with investors and consumers demanding greater transparency and authenticity. They want to know where companies stand and what they are doing on a broad range of big-picture issues, from reducing carbon emissions to closing the wealth gap. It’s one reason why ESG — environmental, social, and corporate governance — is at the top of many corporate agendas.

“What I’m finding in my research is that companies are starting to see the linkages between their activities and what happens socially — that these are not separate entities,” Creary said. “These are things that are new and emerging but certainly promising.”

“I think the Disney [episode] is the perfect example of the tension that still exists between business and policy.” — Stephanie Creary

The case of Disney exemplifies the shift. When Chapek raised objections to the education legislation, which has been dubbed by critics as the “Don’t Say Gay” bill, the governor and lawmakers responded swiftly by stripping Disney of a special tax designation that it had maintained since 1967.

The bitter battle between Gov. Ron DeSantis and the state’s largest private employer has made global headlines and spawned a lawsuit by taxpayers against the state, claiming they will have to pay more than $1 billion in bond debt for the company.

“I think the Disney [episode] is the perfect example of the tension that still exists between business and policy,” Creary said. “The old way of doing things would be what many politicians would suggest — that business stays out of anything that has legal implications. But what we know is business can’t stay out of anything that has legal implications because, by their very nature, they are beholden to all the laws that everyone else is beholden to.”

The George Floyd Effect

The sequential police murders in 2020 of Breonna Taylor, a Black medical worker who was shot to death during a botched raid on her apartment, and George Floyd, an unarmed Black man killed on the street as bystanders watched, prompted thousands of companies to take a hard look at their own contributions to systemic racism. Many responded by pledging money to Black Lives Matter and community causes, increasing racial bias training, establishing cross-cultural peer groups, and hiring chief diversity officers. According to LinkedIn data, diversity roles rose 71% between 2015 and 2020.

Creary also noted an expansion of hires with the unusual title of director of employee activism, which she found “absolutely fascinating.”

“When you think about the history of business and the history of separating business from societal issues, the fact that companies are starting to hire someone called a director of employee activism helps us to understand that this is a tide that is turning,” the professor said.

Whether it results in lip service or lasting change is still a question, she added. It’s easy for companies to lose sight of diversity and inclusion when so many other urgent problems are on deck.

“Their job is to keep talking about it,” Creary said of chief diversity officers and others in similar roles. “When something else happens in the company and people get distracted, or when the business cycle turns and we’re focused on helping the bottom line to be increased, these directors of hybrid functions are there to make sure the company doesn’t take its eye off the issues.”