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Should corporations be activists?

According to top business schools, companies should consider taking a side on social and environmental causes in line with their brand to build corporate authenticity

Should corporations take a side on issues? | A person with short hair and glasses sits a laptop
Illustration by Drew Shannon

What are the risks – and rewards – for companies that choose to take a stand on issues like racial discrimination and gay rights?

The question is of long-running research interest to Olga Hawn, associate professor of strategy and entrepreneurship at the University of North Carolina’s Kenan-Flagler Business School.

“I have always been intrigued by the gap between what companies say and what they actually do,” says Hawn. Her previous research on corporate social responsibility found that investors, though initially skeptical, ultimately saw value in corporate commitments to sustainability.

Currently, she and fellow researchers are examining investor reaction to politically charged debates on racial and gender equality.

After the death of George Floyd in 2020 caused a global reckoning on race, roughly 100 Fortune 500 companies pledged action on diversity. Investors initially reacted negatively (a dip in share prices), fearing a corporate stance on a polarizing issue would be bad for business, according to research by Hawn and fellow Kenan-Flagler professor Stephanie Mahin.

I have always been intrigued by the gap between what companies say and what they actually do.

Olga Hawn, associate professor at the University of North Carolina

But when they analyzed consumers’ sentiments about such pledges on Twitter, the researchers found that companies that demonstrated authenticity about their commitments fared better than those that appeared to make pro forma undertakings. The lesson for companies, says Hawn, is “Take a stand.”

A different pattern emerged in relation to LGBTQ2S+ rights. Hawn and Aharon Mohliver, a strategy and entrepreneurship professor at London Business School, tracked shareholder responses to American company rankings on the annual corporate equality index (a measure of social responsibility) between 2002 and 2018. Companies that clearly picked sides either way on gender equality won backing from like-minded investors, while those that stayed on the sidelines were ignored by investors.

“There is an advantage to [stating] your position either for or against,” says Hawn, which hints (pending further research) at the merits of corporate authenticity.

How do we propel companies beyond “islands of sustainability”?

Professor Christopher Wright recalls what he told his business students in 2006, when the British government released its influential Stern Review on the Economics of Climate Change that called for environmental taxes: “The coal industry now is dead because the world’s economists have woken up, and we will price carbon emissions and it will be the end of fossil fuels.”

Wright’s assumption proved wrong, but it fuelled his interest in the “inherent contradiction” of companies that acknowledge the existential climate threat yet fail to respond.

“We keep doing what we are doing, which is to maximize shareholder value, continue economic growth and use coal, oil and gas to fuel all that,” says Wright, a professor of organizational studies at the University of Sydney Business School in Australia.

In his research, Wright examines a recurring pattern in which companies promise bold climate moves only for efforts to peter out because of bureaucratic inertia, pressure for quick profits and short-tenured leaders.

We keep doing what we are doing, which is to maximize shareholder value, continue economic growth and use coal, oil and gas to fuel all that.

-Christopher Wright, professor at the University of Sydney

Businesses alone cannot respond to climate action, Wright concludes. Despite some examples of what he calls “islands of sustainability” – businesses that pivot to a green focus – he notes “they can’t maintain the longevity because of the nature of the system.”

The co-author of Organising Responses to Climate Change: The Politics of Mitigation, Adaptation and Suffering, to be released this year, offers his admittedly unpopular remedy: global government intervention to price carbon and embrace renewable energy. “The problem is that the dominant political discourse is that government is the problem and let markets rule,” he concedes. “While we are in that fix, I don’t see any change happening.”

Still, he sees “pathways forward” through teaching and research to press for systemic change and equip a new generation of sustainability-conscious managers to reform corporate policies.

Wright, who uses op-eds, blogs, press interviews and social media to publicize his research, says academics in business schools and elsewhere need to “step out of the ivory tower and engage much more [than before] as public intellectuals” on the climate crisis. “It is bigger than a business case.”

A version of this story appeared in the spring issue of Corporate Knights magazine.

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