Saturday, May 18, 2024

UNC expert: Millennials, Gen Z’s want socially responsible companies

It is more complicated to run a business today than ever before. When I was a financial management major nearly 40 years ago, we were taught that we had one objective: Maximize shareholder value.  Make more money for the owners, whether it was private ownership or the shareholders of a publicly traded firm. 

Today, it isn’t that simple. Companies are being pulled in many different directions, both internally and externally.  They are expected to be socially responsible. They are expected to weigh in on issues like race, climate change, gender roles and privacy. The company can’t just keep its head down and make widgets, because even silence is a statement.

I talked to Dr. Steve May, of UNC Chapel Hill, about how companies can navigate this complicated political and social context.  May is an associate professor in UNC’s Department of Communications whose research includes organizational ethics and corporate social responsibility.

How companies deal — or often don’t deal with — the major social, ethical and environmental issues of our time can affect their ability to recruit and retain talent and can impact their relationships with an array of other stakeholders.

[media-credit name=”Steve May” align=”right” width=”300″][/media-credit]

The rising generations

Millennials (now 25 to 40) and Gen Z’s, the oldest of whom are approaching their mid-20s, are more inclined than previous generations to make purchasing decisions “based upon the perceived integrity or responsibility of companies,” says May. 

They also want to work for companies that they perceive to be ethical and responsible, he says.  “So now you start to see employees who are rising up against Facebook or others, and saying ‘Hey, we don’t want to be employed by you unless you address some of these activities that you’re engaged in.” And they want their companies to stand up for racial justice, gender equality and have a climate change strategy, he says. 

“Every company is going to have to have some initiative around climate change, just to be in the standard set of operating procedures in the future, I think.”

May teaches executive MBA ethics classes at UNC, including a class period on corporate social responsibility. “One of the first questions I ask in that class session is what is the responsibility of a business. And 10 years ago, more so 15 years ago even, I could not get anyone who would say anything other than profitability.”

“But I just had a session a couple of weeks ago. And the answers are so much more diverse,” he says. “And people are much more willing to assert different kinds of responses than in the past.”

And yet, there is occasionally a lack of alignment between what companies are saying publicly, and what happens internally.

May asked his executive MBA students to discuss their employers’ CSR reports — the corporate social responsibility, or sustainability, reports that many companies publish annually. Some 90% of companies in the S&P 500 produced them in 2019, up from 20% a decade ago.

“Many of them had never seen them before, which is kind of interesting in its own right,” says May. “But one of the criticisms that they have of them is that they’ll be grandiose stories and photos and so on, but not much explicit accounting of impact. So even on the more constructive side, ‘We’re volunteering in these communities and making a difference,’ there’s no kind of robust accounting mechanism in the same way that we have in finance, to really understand what the positive impact of companies might be.”  

The politics of location

A complication facing companies is how to deal with state political issues. National and global companies look at North Carolina and Texas, with their top research universities, and want to come to the Research Triangle and to Austin.  

But Texas passed the nation’s most restrictive abortion law, and that put some companies on the spot. It also passed a voting law that critics said was aimed at depressing the Democratic vote. (Republicans said it was to protect ballot integrity.) Texas Gov. Greg Abbott, pushing back on the notion that the new abortion law would discourage businesses from moving to his state, said that Tesla CEO Elon Musk approved of the state’s social policies. Musk, who has a massive Tesla factory near Austin and SpaceX facilities in South Texas, responded that “government should rarely impose its will upon the people and when doing so, should aspire to maximize their cumulative happiness.” He also said he preferred to “stay out of politics.”

North Carolina got pushback from some companies five years ago when the legislature passed HB2, the so-called bathroom bill that was viewed as targeting transgender individuals.

May believes that companies will be having to deal with more political and social issues in the future, not less, and they need to be prepared for it. But companies are often siloed, and not ready to anticipate the kinds of questions employees, customers and shareholders might ask.

“I think this economic focus is shifting to an economic, a social, political, and, importantly, an environmental set of issues,” says May. “When it comes to the question of what is the role of the corporation, what’s its responsibility, a lot of those questions, historically, have been housed in the office of legal counsel. Or maybe at most, HR or the personnel department.

“We’re beginning to see some units of corporate social responsibility, and similar ilk, arising in companies, but they’re still fairly few and far between. So a lot of companies are not well-positioned to think about these broad ethical issues that go beyond compliance . . . Increasingly, they’re being asked, if not required, by different stakeholders to take a range of different stances on political issues.”

The bottom line

As a Baby Boomer who grew up in the shareholder value culture, I can sense that some of my contemporaries are thinking this: “CEOs who miss earnings estimates for a couple of quarters will be gone. It doesn’t matter how woke they are.” That may be true. But I can make a case that because Facebook didn’t listen to internal employee concerns, a whistleblower went public after helping the Wall Street Journal produce a major investigation in September. Facebook shares declined nearly 20% in September and October (they have rebounded about halfway back). Some of that was probably due to Apple’s new privacy rules making life difficult for Facebook. But the reputational hit was significant.  

Sacrificing some margin to do the right thing is a long-run winning strategy, considering the risks of doing the wrong thing. And it might play into emerging investing strategies.

I raised some questions in my discussion with May about the significance of socially responsible investing, as opposed to the more common examples in which high-profile investors take 5% positions and then beat on companies to boost earnings. 

“This comes from my executive MBA group, people who are in the investment and finance world. You’re right in terms of current investors. They’re less inclined to think about pulling out of whatever investment because of a social issue, maybe it’s a gun company or whatever. But what they are seeing is the money moving in a different direction now. New investors are increasingly interested in asking about and contributing to those more so-called responsible funds.

“They perceive that there’s a movement. I don’t know how significant that movement is. But it would be a natural progression for Millennials and Gen Z, if they want their companies to be more responsible, I think their investing will be more responsible.”

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