Why Principles Are Becoming Essential to Profit
Nowadays, biting into a Chick-fil-A juicy chicken sandwich or purchasing a pair of Nike’s True to 7 sneakers could easily be interpreted as a political act, not a personal choice. That’s because companies are increasingly taking a stance on highly divisive issues, from same-sex marriage and gun violence to immigration policy and minority rights.
Chick-fil-A came under fire for donating to charities that oppose LGBTQ+ rights. Nike featured controversial athlete and social activist, Colin Kaepernick, in an ad campaign. Dick’s Sporting Goods has restricted – or outright banned – the sale of firearms in response to tragic mass shootings across the United States, while Delta Airlines cut ties with the National Rifle Association after school shootings in Florida. And inspired by the success of corporate activism in North America, shareholder activism in Europe is booming.
As popular attention to social, as well as environmental, issues mounts, it is becoming mainstream for businesses, from restaurants to sporting goods retailers, to seek to align their corporate values publicly with those of their customers, employees, communities, and other stakeholders. And for good reason: a brand’s position on an issue can significantly strengthen customer loyalty, improve employee morale, boost brand reputation, and even drive profitability.
Case in point: over a five-year period, those listed on Ethisphere’s 2019 World’s Most Ethical Companies outperformed the large-cap sector (companies with market capitalization of more than US$10 billion) by 14.4% – proof that financial performance and doing what’s right can go hand in hand. And research by Joshua Beck, an assistant professor of marketing at Lundquist College, found that if activism is aligned with the political values of a company’s customer base, quarterly sales can increase by as much as 8%. Conversely, deviating from these values can limit sales growth by as much as 4%. SAP’s own research found that the up-and-coming Generation Z cares more than any other generation about companies’ positive values.
But weaving values into the fabric of how a company operates isn’t always easy. Tone deafness, poor leadership, and uncompromising corporate cultures are all factors that can cause values-driven business initiatives to backfire, alienating consumers, angering employees, and tarnishing a company’s reputation.
The key is for organizations to not only embody values that resonate with their stakeholders, but to make the necessary changes in their corporate culture, employee engagement, and leadership for a lasting and meaningful impact.
Why values matter now
Consumers and employees have long chimed in on where corporations should stand on the issues that are important to them. But the Internet and social media channels have upped the ante, opening the floodgates on public opinion and forcing transparent dialogue between brands and buyers on a wide range of hot-button issues. These issues, and where companies side on them, speak to their core values – the principles that guide and shape a company’s behavior, culture, and business strategy in the same way personal values influence an individual’s life decisions and actions.
“Information and communication technology, particularly the smartphone and the Web, have made the values corporations act on much more transparent to the world now,” says Jerry Davis, a professor of business administration at the Ross School of Business and professor of sociology at the University of Michigan.
That includes the behavior and beliefs of corporate leaders. Less than two weeks after Brendan Eich was appointed CEO of software maker Mozilla in 2014, he resigned amid controversy stemming from a donation he made to California Proposition 8, which called for the banning of same-sex marriage in the state. The donation, revealed through public documents and shared widely online, prompted widespread backlash from the Mozilla community.
Another factor is intensifying focus on corporate values: they can now be measured. No longer a vague notion, the principles companies uphold and the impact they have on stakeholders, including employees, can now be assessed using a wide variety of indicators, including “turnover, customer behavior, social media activities, brand engagement, sales, net promoter scores, even stock price,” according to Caterina Bulgarella, co-founder of Be Thread, which provides digital tools, frameworks, and expert advice to facilitate organization culture change. Armed with these figures, leaders can make a strong business case to shareholders and other governing bodies for standing behind social causes.
Greater demand for integrity from a variety of stakeholders is also piquing interest in corporate activism. For example, nearly three-quarters (74%) of Millennials say brands should take public stands on important social values, according to a 2019 RetailMeNot survey. And in an SAP study of nearly 10,000 Canadians and Americans conducted in January 2020, 70% of Millennials cited the ethical behavior of business leaders as an important factor in shaping their buying decisions.
“Millennials will align with companies that support their views and will even cancel,” that is, flood social media with calls to boycott, “those that don’t,” warns Michael Nguyen, an educational psychologist and chief innovation and inclusion officer at Inclusive Insights, a diversity, equity, and inclusion consultancy.
Employees are also raising the stakes for social activism. A Gartner survey reveals that 60% of employees reported improved engagement among their peers when an employer took a public position on societal issues. Corporate advocacy on social issues also ranks high among investors: a study from Alvarez & Marsal shows European companies are under increasing pressure to respond to investor concerns over issues such as climate change.
Together, these demands for greater accountability, transparency, and integrity from organizations are reaching new heights as stakeholders increasingly recognize the link between corporate values and better business outcomes.
Authenticity is mandatory
Despite strong incentives for organizations to lead with values, considerable obstacles can stand in the way of achieving long-lasting results. For one, tone deafness to cultural sensitivities can easily make corporate values seem like a marketing gimmick.
A perfect example is a 2017 Pepsi ad in which reality TV star Kendall Jenner offers a police officer a can of Pepsi during a protest march making its way down the street. The ad was pulled after receiving widespread criticism for trivializing nationwide protests against the killings of Black people by the police.
Beverage behemoth Starbucks also struck a sour note with its Race Together campaign in 2015. By encouraging baristas to engage customers in conversations about race relations, the initiative sparked online outrage and ridicule. “Starbucks miscalculated the extent to which its customers wanted to participate in a discussion about race with someone they’d never met before while buying coffee,” says Jeffery Smith, Seattle University’s Frank Shrontz Chair in Professional Ethics and professor of management in the Albers School of Business and Economics. “It just wasn’t authentic.”
But even carefully crafted efforts can spark a backlash. For example, in early 2016, Target welcomed transgender employees and shoppers to use restrooms that match their gender identities in reaction to a wave of legislation that would restrict individuals to bathrooms that correspond with the sex on their birth certificates. The highly publicized stance prompted boycotts from conservative Christian groups, including the nonprofit American Family Association.
In July 2020, Goya Foods CEO Robert Unanue made headlines when he publicly announced his support for Donald Trump. The third-generation Spanish American’s endorsement angered many liberal Latinos who view the president’s rhetoric and policies as anti-immigrant. The company specializes in Latin American cuisine. Time will tell what impact Unanue’s public stance will have on Goya’s sales.
As Starbucks, Target, and Goya’s CEO have found, weighing in on controversial issues can increase the risk of nationwide boycotts and consumer backlash. But sitting on the fence is no longer an option. Not only have social media platforms made what a company stands for more visible to the public, the public is more polarized. People are primed to express their values.
Like-minded consumers can easily find each other and form digital communities that choose to support or reject companies with their social media posts and their wallets. “There are many issues corporations would prefer not to voice an opinion on,” says Smith. “But when you’re talking about large-scale issues, like the role of science in society, racial injustice, or environmental degradation, the more prominent a company is, the less likely they’ll be able to sit on the sidelines.”
How to do the right thing
Fortunately, companies can capitalize on corporate values in ways that enhance stakeholder experiences, make the world a better place, and deliver better business outcomes.
Set an example. The first step is to ensure business leaders embody a company’s values and ethics, and that they model desired behavior for employees. The good news is a staggering 81% of people say senior leaders set a good example of integrity, according to a Global Business Ethics survey.
Consider, for example, Delta Air Lines CEO Ed Bastian. After 17 students were killed at Marjory Stoneman Douglas High School in Parkland, Florida, Bastian announced Delta would no longer offer flight discounts to NRA members attending the NRA annual conference. “Our decision was not made for economic gain and our values are not for sale,” wrote Bastian in a memo to employees, putting a public face to a highly controversial issue.
Similarly, Starbucks executive chair Howard Schultz defended his decision in early 2018 to close his company’s stores for racial bias training after a Starbucks manager called the police on two Black men for sitting in a Philadelphia store without ordering anything. More than 8,000 stores closed for an afternoon to train 175,000 employees.
In fact, an outspoken leader can have a significant impact on a company’s culture and overall regard for corporate values. “The CEO is a thermostat for integrity,” setting a company’s culture and values through his or her “words and actions,” says Robert Chesnut, former chief ethics officer at Airbnb and author of Intentional Integrity: How Smart Companies Can Lead an Ethical Revolution.
Get employees involved. That’s not to suggest, however, that shaping a company’s positions on social mores is solely up to the CEO; increasingly, employees are weighing in. A few years ago, “CEOs started speaking out on issues such as immigration, diversity, and climate change,” recalls Alison Taylor, executive director of Ethical Systems, a consortium of researchers focused on transforming the ethical practice of business in the corporate world. “But what we’ve seen over the past couple of years is a shift to employees increasingly wanting to have a say in shaping a company’s values.”
As a result, says Taylor, C-level executives must engage in meaningful dialogue with workers to ensure “values align with those of employees and a company’s or organizational culture, before making any drastic moves.”
It’s a collaborative approach to corporate value setting long favored by Airbnb. “Employees love the idea of working at a place that not only cares about doing the right thing, but actually having a conversation about it,” says Chesnut.
But talk is cheap if employees then don’t embody the values they have asked the corporation to hold dear. One way of encouraging workers to “walk the talk” is by “rewarding employees for having the right kind of values and calling out heroes who exemplify these values,” says Davis. For instance, at Airbnb, Chesnut says employees who demonstrate integrity in the workplace receive a custom-engraved YETI reusable bottle as recognition of their cultural contributions.
Stay in step with your customers. Corporate values must also resonate with a company’s core audience – their consumers. Davis points to the example of Nike featuring former San Francisco 49ers quarterback Colin Kaepernick as the face of its “Just Do It” 30th anniversary campaign. Kaepernick sparked a furor in 2016 after taking a knee during the national anthem to protest systemic racism and inequality in the United States.
Although the ad prompted some social media users to post videos of themselves burning Nike products, Davis says Nike’s public stance on a controversial issue was most likely a carefully calculated maneuver based on the company’s in-depth understanding of its primarily young and sports-oriented target market. In fact, in the days after the controversial advertisement debuted, Nike’s online sales rose 31%, according to an Edison Trends report.
Consumer and employee sentiment can shift, of course, requiring organizations to regularly revisit their stances on social issues and reconsider their core values. “At Airbnb, we made a point of constantly reevaluating and updating our code of ethics,” says Chesnut.
In some cases, the pendulum can take decades to swing from one stance to another. For instance, Davis points to the example of Henry Ford, founder of the Ford Motor Company and “an infamous anti-Semite who was well-known for having some highly unfortunate values.”
Fast forward to today: Ford Motor Company’s leadership legacy – and corporate values – are being redefined by great-grandson and Ford executive chair William Clay Ford Jr., a lifelong environmentalist who is committed to developing products that both benefit customers and improve society. Under Ford’s leadership, the automobile manufacturer published its first corporate citizenship report detailing the economic, environmental, and social impact of its products worldwide. “[William] Ford really set the company in a pretty different direction,” says Davis.
The mission won’t end
Like it or not, companies can no longer afford to stay neutral on societal issues, no matter how polarizing. Social media, activist-minded Millennials, and other highly vocal stakeholders are all demanding organizations to establish – and adhere to – a clearly defined set of corporate values.
That’s not always easy, especially as organizations grapple with a global pandemic and depressed economy. Many will be tempted to compromise their corporate values in exchange for entry into new markets or lower operating costs.
Yet companies with the courage to take a stand, and stay the course, will continue to reap rewards, as well-aligned activism can strengthen customer relationships, garner employee loyalty, even drive profitability. After all, says Chesnut of Airbnb, “In today’s world, the business itself has to be grounded in integrity. Your business model actually has to be good for the world.”