US companies got the message.
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March 21, 2022 7:05 AM EDT

We focused last week on employees’ roles in some US companies’ exits from Russia, and noted the internal backlash at Disney over CEO Bob Chapek’s initial unwillingness to take a stand on LGBTQ+ rights in Florida.

Both are examples—which some observers have called “unprecedented”—of US business action on moral grounds. Stepping back, what are the situations that can trigger this? And what are the most effective ways to apply pressure to businesses to speak out on societal issues?

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For answers, we spoke with Stephanie Creary, an assistant professor of management at Wharton. Her research suggests that a key ingredient for corporate action is what she calls “social authorization,” something she’s studied in the context of companies’ responses to George Floyd’s murder. Here are excerpts from a recent conversation, edited for space and clarity, where she explained that and its implications:

 

What is social authorization, and why is it important?

Social authorization is the idea that firms and related entities, like boards, are feeling that they are being granted the power from other groups, collectives, or other people in society to engage in societally based work. That’s anything related to taking a stance on social issues or responding to social causes. The social authorization process is about corporations and boards now feeling as if they have the right to do this work that many of them previously were not so deeply immersed in.

 

What are examples of social authorization?

To understand social authorization, it’s first important to understand who might be doing the authorization, giving firms the authority that they might not have felt that they had previously. This can be any number of entities. We can start with legislation and policymakers. One of the examples that I often think about, because it’s in my research on board diversity, is how in California around 2019 legislation was passed to require that firms headquartered in the state have at least one woman on their board. The fact that boards then took up the responsibility of enacting this law and speaking to the law as their reason for increasing diversity on the board is an example of them now feeling authorized to do this work, including recruiting more women and underrepresented minorities to the board.

Another example is the Black Lives Matter movement following the murder of George Floyd. What I find in my research is that boards now feel licensed to not just recruit directors to the board—which is what the California legislation did. What happened following the murder of George Floyd is that Black board directors and their boards now felt authorized to take on diversity issues broadly and to engage more deeply in the company’s DEI work as responsibilities of the board.

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What else is on the list of mechanisms of social authorization?

Aside from legislation and the Black Lives Matter movement, we have peer authorization, which is social authorization coming from peer groups. There are any number of business leader collaboratives out there, like the Business Roundtable, chambers of commerce, and the Silicon Valley Leadership Group, and the Executive Leadership Council. There are now so many groups formed of business leaders who are finding ways to create an agenda that can span across firms. Developing this collective voice enables any single firm to feel authorized to engage in diversity work.

 

What are the takeaways from your research in terms of how we all can point organizations in the right direction around societal issues?

What those of us who care about social issues need to understand is there’s a lot of anxiety among the corporate population. If we want anxiety to get to manageable levels so we can begin addressing these social issues, what needs to be done? Firms with the highest level of anxiety would probably feel more confident engaging in social issues if they are authorized to do so by any of these collectives. For corporate leaders, the business leader collaboratives are probably some of the more effective forms of social authorization because they’re peers.

Certainly, an effective form of social authorization does come from the people—from employees and from social movements. But they’re a little far away from the day-to-day decisions that firms have to make. For leaders, to be able to discuss it among their peers is really important. Peer group social authorization is something that we should encourage more of.

The second thing is related to the role of the employee, employee activism. For some time, what I’ve observed is corporations trying to ignore the fact that they have a lot of employees who are really passionate about these issues.

Just the other day, I was on a call with an unnamed company who talked about hiring a director of social activism. I thought that that was really interesting, and it’s equated to companies hiring directors of ESGs or directors of diversity, equity, and inclusion. What would it look like to have a director and department of social activism—and treat this as a critical business issue just like marketing, communications, and finances—and shore up that department so they could help the firm respond effectively to these issues?

 

What does the social authorization framework tell us about the corporate responses to Russia’s attack on Ukraine?

In terms of government bans as social authorization, I think it’s important to note that President Biden’s move to ban US imports of Russian oil, natural gas, and coal occurred after many US companies had already started ceasing their Russian operations. Shell seems to be a great example of a company that needed this type of social authorization in order to address this social issue in a meaningful way. Prior to the ban, they were actively purchasing Russian crude oil. They admitted that it wasn’t until they had engaged in ‘continuous discussions with governments about the need to disentangle society from Russian energy flows’ that they fully understood the consequences of their actions and what they needed to do going forward.

In terms of the ESG movement as social authorization, some suggest that these corporate responses are somehow tied to these companies’ ESG commitments. If this is the case, then this certainly would suggest a case of social authorization; that is, the ESG movement is granting companies the rights to suspend operations and services in Russia. An alternative point to consider is that companies that may have felt socially authorized by the ESG movement to respond to some social issues in the past (eg climate change, racial justices, etc.) might feel increasingly empowered to authorize themselves to respond to Russia’s attack on Ukraine. Thus, it could be the case that social authorization of some social issues might lead to companies to authorize themselves to engage with other social issues—suggesting a spillover effect of sorts.

 

Are these corporate responses unprecedented or notable from your perspective?

I think these corporate responses are notable because they don’t all seem to be stemming from active threats to corporations—such as boycotts or protests. That doesn’t mean that these companies don’t perceive risks if they don’t suspend operations in Russia. Rather, it is probable that they do. Yet, what is especially interesting about these corporate responses in relation to Russia’s attack on Ukraine is that the issue is deeply rooted in the political realm—and, historically, corporations have appeared more reluctant to take a stance on those types of issues.

Read a full transcript of our conversation, including discussion of the roles of employees, how organizations can choose which social issues they take stands on, and what makes the difference between whether businesses take action rather than just engaging in a PR exercise.

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