Cheap talk can cost when it comes to social responsibility

An important read for corporate stakeholders before they get involved in a company

If some CEOs engage in cheap talk, the question is how can one confidently call their bluff? Photograph: iStock

If some CEOs engage in cheap talk, the question is how can one confidently call their bluff? Photograph: iStock

 

Shareholders today look towards firms not only to maximise financial returns but to do so while focusing on creating value for other societal stakeholders. While there are some companies doing an outstanding job at living these values, others often employ intelligent self-promotional material with a view to greenwash themselves.

Corporate social responsibility (CSR) and sustainability reporting has become mainstream and a massive machinery of corporate communication and public relations professionals are involved to paint a credible picture of businesses worldwide.

It isn’t surprising that the 2017 Edelman Trust Barometer reports that only 37 per cent of the 33,000 people questioned across 28 counties believed in the credibility of CEOs. Public trust in CEOs is at its lowest point in about two decades.

While there could be many reasons for falling public trust in CEOs, much of the scepticism is about integrity and the need for managers and leaders to walk the walk. If some CEOs engage in cheap talk, the question is how can one confidently call their bluff? How do you differentiate between corporate communications that are genuine from those that represent mere public posturing?

From my research, I observe that firms and their executives have a strong incentive to project an image that conforms to societal values and expectations. Pick up a CEO letter from a large global company and one can find in it a narrative that often goes beyond the bottom line to integrating CSR and sustainability in corporate functioning.

Reputation

Clearly, providing such information adds to the reputation of firms, establishes them as a green player. It gives them a social licence to operate.

Yet, I find that when times are tough and firms face threats to their legitimacy, corporate narratives are likely to change. The emphasis moves to those issues that are critical to survival and independence, leaving out those that were meant only for the purpose of image creation in good times.

Closely tracking inconsistent narratives over good times and bad, such as in case of financial crisis or takeover bids, is telling in revealing cheap talk.

Such behaviour is not surprising. When firms face threats that can endanger their survival, corporate leadership will obviously do all it can to alleviate that threat. Yet firms are likely not to compromise on their core values, be it customer service, sustainability, social mission, or even the maximising of profit for shareholders – irrespective of the ferocity of the threats they face.

Take for example the case of Unilever, the Anglo-Dutch consumer goods conglomerate, and its takeover of Ben and Jerry’s, a gourmet ice-cream company with a strong social mission, in a $326 million (€265 million) deal.

When news of the potential takeover broke out, there were fears that Ben & Jerry’s would become a soulless subsidiary of a large multinational. Weathering the storm, Ben & Jerry’s kept up the pressure to save its underlying social mission and purpose, and intensified its efforts with a view to signalling what mattered most to the business in times of a crisis.

The takeover did happen but, notably, a unique agreement was created between the two companies in which it was agreed that the acquired Ben & Jerry’s would function as an independent entity with an independent board that would focus on the company’s social causes, separate from Unilever’s existing ice-cream business at the time.

Fast forward 17 years, Unilever itself was threatened with a $143 billion (€116 billion) merger approach by Kraft Heinz, a rival US food company. Unilever’s CEO Paul Polman, who joined the company in 2009, made strong statements on the issue of sustainability. He emphasised that Unilever was running not on a quarterly basis and that some of the challenges it faced were more long term in nature.

Polman believed that a merger with Kraft Heinz would result in a massive cost-cutting exercise to make Unilever financially viable for its new investors post-merger.

Benefit

While Polman agreed that Unilever needed a cost-restructuring plan, he was quoted as saying: “I have to find a balance between not giving up on our long-term sustainable compounding model. Seventy per cent of our shareholders have been with us for seven years, and 85 per cent of them say that sustainability is very important. They know that you need to have a responsible contract with society to take costs out of your system, to lower risk, to attract the right people. People understand the benefit.”

Unilever successfully avoided the merger. The underlying logic is that if a company perceives a specific stakeholder or stakeholder concern as critical, their executives will exhibit consistency in their communications towards them and intensify their efforts to find an agreeable solution, particularly in case of crises and threats.

Looking at how a corporate leadership narrative revolves and evolves on stakeholder issues before and during tough times can help in separating the wheat from the chaff or, in this case, identify the genuine from cheap talk embedded in the avalanche of glossy communications that firms often produce. Herein lies an important lesson for corporate stakeholders looking to judge companies before they get involved in them.

DR Tanusree Jain is an assistant professor in ethical business at Trinity College Business School

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