• Nov 14 2022

Unpacking Socially Responsible Decisions

Leaders today are encountering challenges at seemingly every turn.

Balancing decision-making so that organizations do what’s best for society and what’s best for shareholders has become more daunting – and more urgent. Often, there are complex ethical issues at stake, along with many hurdles to overcome in enacting change.

We asked Neil Malhotra and Ken Shotts, Stanford Graduate School of Business professors and the experts leading ExecOnline’s new learning experience on Making Socially Responsible Decisions, to share their thoughts on these challenges and what it takes to lead with values and practice moral and strategic corporate social responsibility. 

Here are their insights.

There are many tradeoffs and competing priorities involved in socially responsible decision-making at organizations. What are a few of the challenges that are most relevant right now?

When we talk to C-suite executives, the issues they mention the most are climate change, racial justice, and wealth inequality. But new issues are constantly arising.

There is a lot of talk these days about shifting from shareholder capitalism to stakeholder capitalism. These ideas are reflected in documents such as the BlackRock memo written by Larry Fink, as well as the statement by the Business Roundtable on corporate social responsibility. However, what these documents do not discuss is how to manage tradeoffs and disagreements among stakeholders. For example, what if a corporate action helps the environment but results in laying off employees? What if an action improves working conditions but raises costs for customers? If the long-term share price is not the single goal, corporate leaders will need to think hard about how to manage tradeoffs among stakeholders.

What do you believe are the most daunting challenges facing leaders within organizations right now? 

It’s not enough to say “we’re going to do the right thing,” because on many societal issues, people have profound, and legitimate, disagreements about what the right thing to do is.  This is true for people in society as a whole, but also for employees within any large company.

Stakeholders have more power than ever due to social media. They no longer need to go through traditional media channels to exert power. They can lead boycotts and viral campaigns against companies with the click of a mouse. Managing corporate reputation in this new environment is challenging.

What do you think is the most critical element in addressing these challenges?

Leaders need to be clear about the goals of their social responsibility initiatives. Are the goals purely instrumental, or do they stem from moral motivations? If the latter, then they need to be clear about what their priorities are.

What seems to be the most common struggle for leaders trying to steer their organizations toward social or environmental responsibility? 

In recent decades, companies have been set up to deliver on one primary goal: increasing shareholder value. And to achieve this they have defined many intermediate goals, like developing new products or increasing market share. For leaders who want to steer their companies toward social or environmental responsibility, it is crucial to define specific goals, measure their progress towards those goals, and design organizational incentives to promote those goals.

What are the human factors that need to be overcome in order to enact change? 

People take their values very seriously. They often see them not as subjective preferences, but as objective realities about the world. Consequently, when people believe a corporation is doing something that goes against their values, they take it personally. Being able to frame policy decisions in terms of other people’s values—not just your own–is a key part of strategic leadership and communication. 

What tips do you have for leaders wanting to address social responsibility issues within their organizations? How should they begin?

As with any goal, if a leader wants to incorporate social responsibility into their company in a meaningful way, they need to design their organization accordingly. They need to systematically address what we call the 5 P’s: Priorities, Performance Metrics, Pay, Promotions, and Power. 

As you co-developed the Making Socially Responsible Decisions learning experience, what insights did you gain? 

It’s really easy for companies to talk about how they’re being socially responsible.  But it’s much harder to do it in practice, because that requires thinking carefully about objectives and strategy.

Is there anything else you would like to share on this topic?

Disagreements about values are core to the challenges of stakeholder capitalism. Effective leaders need to be able to communicate their own values clearly, as well as understand and respect the values of stakeholders. There are some moments when you need to strategically persuade, and others where you need to strategically mediate and listen.

About Neil Malhotra and Ken Shotts:

Neil Malhotra is the Edith M. Cornell Professor of Political Economy at Stanford Graduate School of Business, and the Director of the Center for Social Innovation. His scholarship has earned awards from the American Political Science Association and the Midwest Political Science Association.

Ken Shotts is the David S. and Ann M. Barlow Professor of Political Economy at Stanford Graduate School of Business. He teaches classes on Strategy Beyond Markets and Business Ethics. In his research, he uses game theory to analyze how elections and political institutions influence policy choices made by government officials.

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