Tuesday, August 4, 2015

Should business leaders speak out more on public issues?

Business leaders are among the most powerful people on the planet. At the helm of huge corporations, with billions of dollars of assets to leverage, their decisions have a profound influence on all of us. At the same time, however, those very same business leaders only very rarely seem to speak out on many of the public issues that actually affect us.

Consider when the former Toronto Mayor Rob Ford was engulfed in a crack-smoking scandal that put the city in the headlines for all the wrong reasons. The response from the city's business elite was a deafening silence. Nonetheless, the scandal must have prompted considerable anxiety among business leaders about its effect on the business and investment climate of Canada's largest city.

Are CEOs right to hold back in such instances or should we expect them to take a more prominent position in public debates? There are no black and white answers to this; it largely depends on context. So here are four things to consider when deciding whether the silence of business leaders in good thing or not. And if you want to dig deeper, check out The Guardian's live chat on "Should business leaders speak out more on public issues such as climate change?" on Wednesday 5 August 2015, 1-2:30pm BST.

1. Some social issues face a leadership vacuum that business leaders can help fill
Earlier this year, a group of 43 CEOs of major multinationals signed a open letter urging governments to strike an ambitious climate deal at COP21 in Paris, Likewise, the CEO of the biggest oil sands producer, Suncor, recently called for more stringent climate regulation, including a high price on carbon.

These announcements, unthinkable even a decade ago, give at least some indication of the kind of muscle that business leaders might be able to flex in filling the great big hole in leadership around climate change. Quite simply, such signalling from the business community helps empower political leaders to do their jobs better.

Of course, if these CEOs had spoken out saying that no action on climate change was needed (despite all the evidence to the contrary), as indeed has happened in the past (most notably from successive Exxon-Mobil leaders), we would be bemoaning the addition of their voices into the debate. So it's a double-edged sword, with substantial risks as well as opportunities.

2. Hypocrisy won't work
There is a tendency to criticize business leaders for making pronouncements like these because their actions do not always match their impressive sounding words. Richard Branson for example, was branded a hypocrite by Naomi Klein for failing to follow through on his promise to divert $3bn of Virgin's revenues to developing biofuels and other clean energy projects.

"Greenwashing", as this is known, can be a major problem when companies and their leaders go public with grandiose plans that they either cannot deliver on, or that they actively undermine behind the scenes with lobbying and back room deals. Business leaders already face a major trust deficit when it comes to their credibility as spokespeople. Survey after survey has confirmed that CEOs and business executives in general are not trusted as a credible source by the public. So any attempt to hoodwink the public is unlikely to work, not least because most of the public don't believe them in the first place.

3. Aspirational talk isn't all bad
For all the problems of greenwashing, business leaders making aspirational statements about social issues shouldn't automatically be criticized. For one thing, in the context of challenging, complex problems, it is often imperative that business leaders do go outside their comfort zones and articulate "stretch" goals that they can not necessarily know if or how they can achieve. Consider Interface Carpet's mission to reduce their waste to zero by 2020. When they started their 'mission zero' journey in 1994, former CEO Ray Anderson did not have a plan for how this would be realized only that he needed to set a vision that was inspiring enough to galvanize the entire company. Since then, Interface has cut waste to landfill by more than 90% and GHG emissions per unit of production are down almost 75%. The company is rightly lauded as a sustainability leader that others should follow. The lesson is that there is scope for business leaders to be aspirational but sooner or later they need to back up their words with sustained action.

4. There is surprisingly little risk attached to CEOs speaking out personally on issues not directly connected to their company. 
Business leaders rarely take the plunge and speak about public issues not directly tied to their business. Despite being smart, influential people used to tackling complex problems, they are usually either too busy or too concerned about prompting a backlash to say publicly what they think about such issues. The silence really is deafening. But according to unpublished research conducted at the Schulich School of Business last year, when CEOs do take the plunge, there is rarely any kind of negative media response. Looking back over a number of years across a range of issues such as Obamacare, same sex marriage, the fiscal cliff, the Rob Ford scandal and the proposed Quebec secular charter, the mainstream press reaction to the rare instances of individual CEOs speaking out has been largely neutral. This suggests that corporate leaders may well be overestimated the risks associated with speaking out on public issues, especially those where their own self-interest is less obvious.

The bottom line is that business leaders could probably be part of the conversation on a whole swathe of public issues. But if they are to participate, it has to be in the right way, and that means three main things: a) transparency about what their company stands to gain or lose with respect to the issue (i.e. is it a matter of self-interest or not?); b) clarity about what they or their company is doing or planning to do to address the issue (i.e. are they open to a charge of hypocrisy?); and c) a willingness to encourage others, especially those without such power and influence, to also participate - and to engage fairly in the unfolding debate rather than seeking to dominate it. It's a tall order. But if nothing else, it might help earn back a bit of that trust in business leaders that is so sorely lacking .

Photo copyright Onewaystock.com. Reproduced under creative commons licence

Wednesday, June 17, 2015

Why aren't there benefit corporations everywhere?

Today we have a guest post from Hans Rawhouser and Michael Cummings, both from the University of Nevada, Las Vegas. Hans and Michael have been working with Andrew on research about benefit corporation legislation in the US, and their paper has just been published in a special issue of the California Management Review about hybrid organizations. The short video above is from the special issue editors at CMR and provides a good introduction to some of the main issues and debates around hybrid organizations.


Social hybrid organizations mix characteristics of non-profit and for-profit organizations, and are receiving increased attention from management scholars and practitioners.

A hybrid organization can be identified informally, based on an assessment of the organization’s practices, or it can be recognized more formally such as through third-party certification (e.g., B-Corps) or legal incorporation (e.g., Social Purpose Corporations, Benefit Corporations). Both certifications and legal forms are interesting in that they help to delineate a unique space for organizations that exhibit social hybrid characteristics. 

Because corporations in the United States are enabled by state law, the passage of social hybrid legislation provides an interesting multijurisdictional setting in which to study the spread of hybrid legal forms. Our new article [authors’ copy free to download here], coauthored with Andrew Crane, was just published as part of a fascinating special issue at California Management Review focused on Hybrid Organizations. In “Benefit Corporation Legislation and the Emergence of a Social Hybrid Category”, we investigate the drivers of the passage of social hybrid (specifically benefit corporation) legal forms and the process by which these legal forms create space for social hybrid organizations more broadly. As described in the abstract:

Previous research highlights tensions that social hybrids face by spanning categories. This article explores the emergence of legislation to support a new category for social hybrids, focusing on Benefit Corporation legislation in the United States. It presents quantitative analysis of state-level factors that make a state suitable for a social hybrid category (attractiveness for for-profit business and nonprofits, existing social hybrid organizations, legislative intensity, and political leanings) followed by qualitative analysis of the arguments marshaled for the creation of the Benefit Corporation legal form. These findings raise important insights for research on social hybrids and suggest a range of practical implications.

Our regression results show an increased likelihood of state adoption of the hybrid form is associated quite strongly with the degree of Democratic influence in the legislature. Quite simply, blue states are more likely to pass benefit corporation legislation than red ones. But our results also suggested that other factors play a significant role, including the strength of existing hybrid organizations and potential opposition from nonprofit organizations. So, states with more nonprofits are actually less likely to pass benefit corporation legislation (probably because of concerns that they will threaten their resources) while states with a lot of social mission companies already are, as expected, more likely to pass legislation.

We also report from interviews, public documents, and legislative transcripts to analyze the conversation surrounding the adoption of benefit corporation laws and identify the main themes (Legal, Impact, Identity, and Demand) as well as the tensions between opponents and proponents of the new hybrid legal form. These themes and tensions can be helpful in shaping future conversation about hybridity.

The public awareness and utilization of hybrid forms like benefit corporations is increasing, with some publicly-traded companies pursuing “hybrid” missions (e.g. Plum Organics, wholly owned by Campbell’s Soup) and several additional U.S. jurisdictions currently considering hybrid legislation. Our research study helps both to highlight enthusiasm and trepidation; there are some good reasons why some places are reluctant or slower to embrace legislation permitting hybrids and there are several challenges that have not yet been fully resolved. However, many are hopeful about the future of hybrid legal forms, and there is clearly a lot of momentum in the legal sphere. We encourage your comments, questions, and feedback!

Wednesday, April 22, 2015

Why diversity quotas in the boardroom may be a good idea

Today we feature a guest post from our colleague over in the law school, Aaron A. Dhir, who is an Associate Professor at Osgoode Hall Law School and a Senior Research Scholar at Yale Law School. Aaron's book on boardroom diversity is out next month and it is causing quite a stir. So we asked him to tell us a little about the issue of diversity quotas on boards and why, despite the controversy, his research suggests that it might be a good idea. 

The lack of diversity in the governance of business corporations is quickly becoming one of the most discussed topics in corporate governance.  It has ignited a heated global debate, leading policymakers to wrestle with difficult questions that lie at the intersection of market activity and social identity politics.

My new book, Challenging Boardroom Homogeneity, will be published next month by Cambridge University Press.  In it, I draw on semi-structured interviews with corporate board directors in Norway and documentary content analysis of corporate securities filings in the United States to empirically investigate the two main regulatory models designed to address diversity in the boardroom — quotas and disclosure.

In this post, I focus on quotas.  While quotas are anathema in the United States, their presence in Europe is striking.  In their most potent form, quotas mandate particular levels of gender balance in the boardroom.  Countries such as Norway, France, Italy, Iceland, Belgium, and (just last month) Germany have all taken this path.  In Germany, both genders must constitute at least 30 percent of the supervisory boards of specified German companies beginning in 2016.  In Norway, non-compliant firms run the risk of court-ordered dissolution.

Little is known about the day-to-day operation of corporate quotas around the world.  To fill this void in our knowledge, I interviewed Norwegian corporate directors about their experiences under Norway’s controversial law – the very first quota on the books.  The participants in my study included men and women, as well as directors appointed before and after the law came into effect.

A strong majority of the directors I interviewed supported the law.  The dominant narrative my interviewees conveyed was that quota-induced gender diversity has positively affected boardroom work and firm governance.  Generally, respondents emphasized the range of perspectives and experiences that women bring to the board, as well as the value of women’s independence and outsider status.  They also stressed women’s greater propensity to engage in more rigorous deliberations, risk assessment, and monitoring.

But even if diversification has positive effects on company governance, the question remains:  Why are quotas an appropriate mechanism by which to achieve those benefits? 

Some commentators impugn the wisdom of quotas, charging that they stigmatize and marginalize their beneficiaries.  As one critic wrote in The New York Times:  “women admitted to boards in order to fulfill a quota are unlikely to be seen as equals whose presence at the table is merited.”  These critiques must be taken seriously.  If the recipients of affirmative action feel isolated, or that they are perceived as mere tokens, how can such measures possibly be justified?

Without question, quotas are an imperfect means of diversifying corporate boardrooms and in the book I explore the limitations of the quota model.  That said, critics sometimes paint an incomplete picture and seldom ground their arguments in the voices of those who presumably matter the most — those who actually live under quota regimes.  What do they themselves say about quotas’ possibly pernicious effects? 

My research asks exactly that question.  Only a small minority of board members I interviewed felt that female directors were stigmatized or isolated.  My female interviewees explained this in different ways.  Some highlighted the importance of the substantial number of women required by the law.  By mandating gender balance, the law made marginalization difficult, if not impossible.  As one female director told me:  “you can’t stigmatize 40 percent of the board. . . . [Y]ou could have stigmatized one person, or 15 percent. . . . But you can’t stigmatize 40 percent.”

The majority of female participants reported that they felt comfortable on the boards on which they sat, discussed their contributions to these boards, and confirmed the feeling that their boards recognized or appreciated these contributions.  Though their stories are complex, most characterized the quota as a positive vehicle that had democratized access to the upper echelons of the corporation — a space previously closed to them.  This suggests that the benefits of the quota law have outweighed any stigmatizing costs, to the extent that these costs have materialized. 

Some critics may suggest that these results are self-evident – of course the beneficiaries of quotas will support the measures that opened up the otherwise closed doors of the boardroom.  The reality, however, is far more complex.  Most directors, including women, were initially opposed, hesitant, or agnostic about quotas.  It was only after seeing the law in action and directly experiencing its effects that they eventually came to endorse it.  A significant degree of the support ultimately stemmed from the view that the law was necessary to diversify boards in a meaningful way.  For some directors, this acceptance of quotas caused them to question their own deeply held beliefs in free market principles.

There are many difficult and unresolved questions about the value and effects of quota laws.  Whether a quota is appropriate for a given country will depend on that country’s socio-political context, its corporate governance culture, and characteristics particular to firms and industries.  As policymakers around the world wrestle with these issues, however, it will be important to draw from the experiences of those who have lived under quota regimes.  These narratives give us reason to believe that quotas are worthy of careful public policy consideration.

This post first appeared (in modified form) on The Faculty Lounge. My sincere thanks to Andy and Dirk for inviting me to contribute this guest post to the Crane and Matten blog. 

Aaron A. Dhir, Associate Professor, Osgoode Hall Law School & Senior Research Scholar, Yale Law School. 

Friday, April 10, 2015

Has Tim Hortons given up on sustainability?

"Making a True Difference" has been Tim Hortons' slogan animating its social responsibility and sustainability initiatives over the past few years. But since they were acquired late last year by Brazilian private equity outfit 3G Capital, the owners of the fast food chain Burger King, the true difference seems to be that sustainability is suddenly in rapid decline at the iconic Canadian coffee chain. The new owners, promising to cut costs and improve performance, have effectively closed down the company's sustainability department.

The change has been pretty dramatic. Just last year, the then CEO of the company was saying that their "overall vision for sustainability is to be a leader in the North American quick service restaurant sector and across all sectors in Canada". Already well-known for their community initiatives, the company  had upped its game over recent years in a number of key areas including sustainable sourcing, recycling, energy and water efficiency, animal welfare, nutrition, and disclosure and reporting. As a result it had made it into the Dow Jones Sustainability Index, Corporate Knights magazine's Global 100, the Carbon Disclosure Project's Leadership Index and various other best-of sustainability lists and rankings. The company was far from perfect, but it was clearly making progress.

Since the turn of the year, however, a lot has changed. The new owners have instituted swingeing cuts in personnel in order to institute "efficiencies", just as they did at Burger King a few years ago. As is so often the case, sustainability and responsibility has been one of the first areas to feel the heat. In addition to jettisoning the dedicated sustainability team, the company appears to have also cut the budget for various corporate responsibility initiatives. There's not much sign of a company aiming to be a sustainability leader any longer. Not unless you think Burger King is a leader that is.

So what to make of the changes? The are at least two things worth noting.

First, it seems like the new owners are convinced a lot of Tim Horton's sustainability initiatives were simply not adding value to the company - or at least not to the share price. This is always a major issue for sustainability champions to address, but is typically tricky to prove either way. Still, the swift move to cut the whole department hardly suggests a careful financial evaluation from the new owners either. 3G Capital seem to be operating on gut instinct (or maybe just ideology) much more than evidence when it comes to the financial value of sustainability.

Second, the quick serve market is increasingly being bifurcated into higher end 'gourmet' brands like Chipotle or Starbucks that see sustainability as part of their superior quality proposition to customers and lower end brands like Burger King or KFC that focus more on price and so seek to minimize the costs of sustainability. The new owners probably saw Tim Hortons as somewhat stuck in the middle (much like McDonald's have become), and have elected to head down the low-end route in order to maintain their strategic focus. This certainly makes some sense from the perspective of competitive strategy, and could see the company pulling back from a lot more than just sustainability as it reins in its costs across its operations. If so, we can expect to see simpler menus and a back to basics approach after a recent period of experimentation with higher end fare. However, if this is the way they want to go, you would expect to see more, not less, attention to the costs savings that sustainability initiatives can bring through more efficient resource utilization. As Wal-Mart has shown, sustainability can also very much be part of a low cost strategy.

All told, things don't look for good for sustainability at Tim Hortons. Although some firms can manage sustainability well with just one or two core staff by integrating responsibilities within other parts of the business, Tim Hortons seems to be more intent on stripping it down as far as possible as part of a broader strategic reorientation.  However, there is at least a slither of good news for sustainability enthusiasts in all this. As part of the cutbacks, the new owners have also put the company's private jet up for sale.

Photo by Jeff M For Short. Reproduced under Creative Commons Licence

Saturday, March 28, 2015

Germanwings 4U9525: The art of asking the right questions

The crash of the Germanwings flight earlier this week is still dominating much of the (Western) news media. It is not just the fact that it happened with a well known Airline with a good safety record (Germanwings is a part of Lufthansa) right in the middle of Europe – in fact one of us sat on a Lufthansa A320 just a day before the crash. But it is also the absence of any good explanation as to the cause of the crash.

Now that story has evolved over the last hours. First, we learned from the voice recorder of the black box that the co-pilot was alone in the cockpit and did not open the door for the pilot to come back after his toilet break. It was interesting to see how Lufthansa, the prosecutors and most media then jumped to the conclusion that the co-pilot deliberately crashed the plane.

While that is indeed one option, only few reports raised the question why the flight data recorder – the other black box – could not be found. Or why when it was found the hard disk with the data was missing. Because only those data would clearly document which actions the co-pilot actually took while alone in the cockpit. It is still conceivable, that we saw a repeat of an incident on a Lufthansa A321 just five months ago when iced sensors sent the plane on route from Bilbao to Munich on a similar descent and could only be saved by the pilot switching off the autopilot.

And maybe it was not suicidal intent but other forms of incapacitation that made the co-pilot behave that way. After all, as we finally learned today, he had a history of psychological problems and should in fact have been on sick leave rather than flying.

Nearly unanimously, most commentators jumped to the conclusion that his medical condition just proves that the plane was brought down intentionally by a mentally sick individual. And in particular Lufthansa appeared to be relieved to identify a rare singular individual case as the reason for the accident – rather than technical or other reasons which might have put the company in a much trickier position.

Or does it? After all, air crashes have a long history as case material and illustrative incidents in the business ethics debate. Even if we assume that an individual is to blame - more often than not such behavior occurs in a specific organizational context which normally leads to this behavior. One of the most recent examples is certainly the 2009 Crash of the Colgan Air  commuter plane in Buffalo (similar to this week’s case, a supplier of Continental Airways), which initially all looked like pilot error. However, as a brilliant PBS documentary illustrates, this incident revealed a host of unethical practices and infractions not just with the airline but in fact with the wider industry.

So, this is the time to ask the right questions. The first of which would be to get some more insight as to why the co-pilot did conceal his mental illness from his employer. Does Germanwings have a procedure for this? Do they just fire people like him, when such condition is revealed? Do they care?

A next question would be how on earth his depression could have gone unnoticed by his colleagues? After all, pilots spend a lot of time together and observe each other from up-close. How could it be that the pilot was totally comfortable to leave this co-pilot in charge for a couple of minutes? What does this say about the culture at Germanwings? Does anybody care about how his colleagues are doing?

The more important questions would look at the wider context of work in the airline. Germanwings recently had strikes as Lufthansa tries to impose a low wage no frills-system of wages and working conditions on their low cost branch, which competes with the likes of Easyjet or Ryanair. This is an object of fierce dispute and Lufthansa itself is in a middle of a merciless battle with their pilots. Just last week, thousands of flights on Lufthansa were cancelled due to a strike. This climate does not exactly encourage a young aspiring pilot – on the way to live his childhood dream – to expect an empathetic reception when broaching his personal issues.

The problematic working conditions at other low cost carriers are by now common currency. So the question we have to ask is in how far Lufthansa has made its subsidiary Germanwings in nothing but a clone of Ryanair and the others. This raises the question if we are actually talking about an environment where someone with mental health issues would think the last thing to disclose to his employer and to hope for empathy would be his personal troubles and problems?

Overall then, there are a lot of questions to ask to Lufthansa, the investigating bodies, and in fact the media. But there are also larger questions unanswered. European pilots associations now openly challenge why so many facts of an ongoing investigation are leaked to the press. Or why certain questions, most notably about the flight data recorder have not been addressed. One cannot help but having some uncomfortable reminiscences with the disappearance of MH370 in South East Asia about a year ago. As even the CEO of Emirates, Sir Tim Clark (far from being one of the inevitable conspiracy theorists in these incidents), has very vocally set out, the way the public gets (mis-)informed about those disasters raises serious questions. Questions, to which we ultimately need an answer.

Image copyright Plane13.com, Reproduced under Creative Commons Licence