Aligning company values with social action

By Alistair Jones

SMU Office of Research – Should corporations speak out on social causes? And if so, when, how and why? These are questions at the heart of recent research co-authored by Samuel Tan, an assistant professor of accounting at Singapore Management University (SMU).

"The overall aim of the research is to examine whether companies' values align with what they say about social issues. In other words: whether companies are sincere when they express support for social issues," Professor Tan says. 

 "We examine this in the context of the Black Lives Matter movement following George Floyd’s death [on May 25, 2020], when some companies chose to express support for BLM and Black Americans quickly, while others did not."

The researchers find that about 29 percent of S&P 1500 firms spoke out in support of BLM via Twitter (now X) or on their webpages within 30 days after the death of Floyd. The researchers term these companies quick-disclosing firms. 

About 24 percent of firms reacted less promptly, choosing to speak out via subsequent conference calls during 2020, or in their annual reports for 2020 and 2021 (slow-disclosing firms). The remaining firms chose to stay silent, despite a Pew Research Centre poll conducted in early June 2020 which found that two-thirds of adult Americans supported BLM. 

Floyd’s death triggered one of the largest social movements in US history. 

Company purpose

"This research goes to the heart of what the purpose of a company is, which has been a contentious issue for decades," Professor Tan says. 

"Some economists, politicians and other leaders believe that the most important and even single goal of a corporation is to maximise shareholder value, while many others believe that corporations can make a contribution by speaking out about societal issues even if doing so does not maximise shareholder value. 

 "Under the former perspective, a company should express support for social issues only to maximise shareholder value, regardless whether their past practices align with the social issue they are supporting, a phenomenon sometimes known as 'woke-washing'. 

"Under the latter view, a company would support social issues if doing so aligns with their values, even if doing so has no direct effect on shareholder value."

So, what are some of the characteristics of quick-disclosing firms?

"We find that such firms prioritised diversity and inclusion more. For example, they have greater employee and board diversity, emphasise diversity and inclusivity more when discussing executive compensation and are more highly rated by employees on their culture and values," Professor Tan says.

 "We also find that they are more embedded in networks that are supportive of social equality. For example, they are more likely to share board members or product markets with other firms that also supported BLM, and to be headquartered in Democrat-leaning cities, or cities with more BLM protests."

And how do we know that quick-disclosing firms are sincere and not presenting “cheap talk”?

"In short, because their actions to prioritise diversity and inclusion did not come cheaply. For example, it takes investment and planning to increase employee and board diversity, and to inculcate a culture that is valued by employees," Professor Tan says.

Louder voices

Does corporation support for social justice issues actually make a difference? 

"While this is not the main focus of the paper, we do find some evidence that it makes a difference," Professor Tan says. 

"Specifically, firms that spoke out quickly in support of the BLM movement are more likely to increase their hiring of Black employees relative to firms that stayed silent.

 "But in general, I personally believe that corporations' support for social issues makes a significant difference. Corporations, especially the largest ones, have much louder voices than the vast majority of individuals and can highlight important societal issues that need change, which can result in effort, thinking and resources being channelled to such issues."

And what of the majority of corporations that did not voice support for BLM?

"If the management of a corporation believes that the corporation’s purpose is only to maximise shareholder value, it would choose not to support the BLM movement if it believes that doing so could harm its shareholder value – for example, if it believes that its customers do not support the movement and would punish the company for doing so," Professor Tan says.

 "However, if corporations are generally sincere in their support for social issues, a perspective for which we find support, a company may not see the need to support the BLM movement if its values had never been aligned with the movement in the first place. For example, a firm that has never prioritised its own employee diversity is less likely to prioritise supporting a movement about diversity."

Weighing inclusivity

Frameworks for diversity, equity and inclusion (DEI) are under attack in the US. President Donald Trump has signed executive orders aimed at removing DEI programs in the military, with more targets predicted. But even before this, prominent corporations including Meta and Walmart had been abandoning their DEI initiatives.

"It's hard to pinpoint the causes of this trend [of corporations abandoning their DEI initiatives], given the many potential factors involved," Professor Tan says. 

"On the one hand, these companies could be criticised as not being sincere about their diversity initiatives in the first place; but on the other hand, the cost of diversity initiatives may have risen significantly due to the Supreme Court decision, Students for Fair Admissions v. Harvard, which law firms say will require companies to evaluate the litigation risk of DEI initiatives.

 "It's a very unfortunate situation that companies may need to weigh inclusivity against the risk of being sued, but this reflects the complex world in which corporations are embedded, and the importance of doing research that illuminates and clarifies the many issues involved."

The researchers have created an inclusivity index.

"Our inclusivity index is a composite score for the likelihood that a company supported the BLM movement, based on metrics for the extent to which they have invested in diversity and inclusion. It is therefore a potential measure of the sincerity of a firm's support for social causes," Professor Tan says.

"It will actually be quite interesting to see how the recent changes in firm behaviour interact with our index, but I think that is something that we can tackle in follow-up studies. In general, my team and I are interested in the alignment between corporations' values and disclosures, and I hope to continue this line of research."

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