Decision-making model guides creation of ‘just’ corporations

Being a “just” corporation means doing what’s morally right and fair for all stakeholders: employees, the community, customers, shareholders and the environment. But doing what’s “right” is rarely straightforward in our rapidly changing social environment.  

Today’s corporations face intense pressure to implement socio-economic practices, fueled by an increase in social activism and the ease of promoting causes through the internet and social media. Yet, all too often, executives find themselves in a “damned if you do and damned if you don’t” situation when their response backfires. 

Jackson Nickerson
Jackson Nickerson

In the paper “The Just Corporation,” Jackson Nickerson, Frahm Family Professor of Organization and Strategy at Olin, and co-author Sergio Lazzarini, an Olin graduate and the Chafi Haddad Professor of Management at Insper in Sao Paulo Brazil, argue that many corporations miss the mark because they fall into decision traps that lead them to misread the problems and stakeholder demands. The paper was originally published in Harvard Business Review Brasil in Portuguese. The decision traps include the following:

  • Blind spot traps arise when executives fail to see the big picture and anticipate how current just corporate demands will evolve.
  • Moral licensing traps occur when corporations attempt to paper over unjust actions in one domain by making socially welcome investments in another.
  • SCN traps (pronounced “sin”) occur when corporations have an “overly simplistic theory of change for what is in actuality a complex situation, a lack of competence for comprehensively assessing as well as delivering just outcomes and naivete in their thinking of how to help vulnerable stakeholders.” The result can be social welfare policies that fail to achieve the desired impact or, worse, produce negative ramifications, often for the most vulnerable.

The ‘Corporate Ladder of Justice’

Lazzarini and Nickerson a developed a decision-making model, which they call the “Corporate Ladder of Justice,” to guide just corporate strategies, while avoiding the common pitfalls other corporations face. The steps include:

Rung 1: Identify existing and emerging stakeholder demands. The world is continuously changing in myriad ways and so too are the demands of society.  While these demands have always been in flux, they seem to be changing and multiplying at a quickening pace, which magnifies the potential number and kind of blind spot traps. To overcome the potential for blind spot traps, Lazzarini and Nickerson recommend that executives start by stepping into the shoes of each stakeholder to fully understand their needs and demands.

Next, executives should shift thinking from specific and narrow categories demanded by stakeholders to a higher and more abstract meta-category.  Then, from this meta-category, reverse the process to identify all subcategories into which firm activities fall.

Finally, corporations should make corporate or industry association investments to measure both changing demands and desired outcomes. 

“Overcoming the blind spot trap through activities that generate evenhandedness, overcome blind spots and focus attention through measurement of changing demand and desired outcomes can help executives climb the first rung of corporate justice,” they write.

Rung 2: Compete fairly. Even when strategic manipulations intended to limit competition are not illegal, they can be viewed as unjust when they undermine equal access to market opportunities.

“Corporations that engage in manipulative actions to soften competition, restrict entry, limit substitutes, and use investments in socio-environmental projects as a moral license to gain bargaining power create unfair and unjust competition,” they write in their paper.

“In contrast, those corporations that gain competitive advantage and profitability by developing difficult to imitate superior innovations and capabilities for delivering unique products and services are competing on merit, which mitigate moral licensing concerns that support unfair competition.” 

Rung 3: Care for vulnerable stakeholders. To avoid the SCN trap, Lazzarini and Nickerson recommend that executives use two criteria to prioritize and respond to stakeholder demands.

“First, focus on stakeholders who are no more than one or two degrees of separation from the actions of the corporation, unless the supply chain keeps the most vulnerable ones (e.g., child and slave labor) distant from the corporation,” they write. Addressing peripheral demands and their causes limits deep understanding and can lead to moral licensing and SCN traps.

Second, follow an evidence-basedapproach to corporate socio-environmental projects.  Start with a well-crafted and vetted theory of change to clearly indicate how corporate interventions can improve the lives of vulnerable stakeholders and achieve expected outcomes. Employing scientific research techniques and partnering with academic research centers that are well versed in designing these kinds of studies can help corporations assess and adjust its theory of and investments for change.” 

Rung 4. Do or give efficiently. Should the corporation rely on or build its capabilities and competencies to take the action or should it provide resources to others to take just actions? It depends.

“The fourth rung recommends that executives make efficient organizational choices to care for vulnerable stakeholders. If sustainable actions are consistent with the corporation’s business strategy—as validated by its shareholders, especially when financial tradeoffs are involved—and require unique capabilities that other organizations do not already possess, then vertical integration typically is an efficient execution strategy,” Lazzarini and Nickerson write. 

“Alternatively, if others, like NGOs and public sector agencies, already have made these unique investments or they can aggregate substantial economies of scale and scope beyond what the corporation can provide, then outsourcing is a superior way to support vulnerable stakeholders.”

Why climb the ladder?

By shifting the corporate mindset away from “socio-environmental projects as a way to mitigate risk or increase profits” and committing to the principles of action outlined in the Corporate Ladder of Justice, Lazzarini and Nickerson said corporations will be better equipped to cope with escalating uncertainty in their socio-environmental demands. 

“The rapidly changing environment that is stimulating the call for just corporations also is creating conditions to destabilize business models that fail to adopt these standards, in ways that cannot be fully anticipated,” Lazzarini and Nickerson write. “In other words, corporations today face escalating pressures and adverse reactions from stakeholders that can’t be known beforehand.

“Failure to cope with these complex demands fuels public distrust in corporations, leading to escalating social media activism and exacerbated political and regulatory responses, all of which impose additional costs on corporations and society.  By voluntarily committing to climb the corporate ladder of justice, companies demonstrate their willingness to contribute to the social contract and attenuate extreme responses to the inequalities that inescapably emerge when they grow and expand their corporate activities.” 

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