NEU­TRAL COM­PA­NIES

Finweek English Edition - - ON THE MONEY - Ed­i­to­rial@fin­week.co.za

Peo­ple gath­ered at John F. Kennedy In­ter­na­tional Air­port in Queens, New York in Jan­uary to protest against Pres­i­dent Don­ald Trump’s at­tempts at plac­ing an im­mi­gra­tion ban on in­di­vid­u­als from Iraq, Syria, Iran, Su­dan, Libya, So­ma­lia and Ye­men, all pre­dom­i­nantly Mus­lim coun­tries. while oth­ers read that it tries to adapt to what­ever mar­ket con­di­tions war­rant (a “re­sults ori­en­ta­tion”).

These state­ments es­tab­lished par­tic­i­pants’ po­lit­i­cal ex­pec­ta­tions of the com­pany. We pre­dicted that for a val­ues-ori­en­tated com­pany, tak­ing a stand would align with ex­pec­ta­tions but that ab­stain­ing would vi­o­late ex­pec­ta­tions.

Par­tic­i­pants then read a short ar­ti­cle re­port­ing that the com­pany had ei­ther just taken a stand on pro­posed gun con­trol leg­is­la­tion (we ran­domised what side of the is­sue the com­pany took) or had ab­stained from mak­ing a com­ment. Af­ter shop­ping, par­tic­i­pants re­ported their in-store ex­pe­ri­ence and whether or not they had bought any­thing that they hadn’t planned to pur­chase be­fore en­ter­ing the store. We used the un­planned pur­chase to in­di­cate the im­pact of the po­lit­i­cal stand on the cus­tomer-com­pany re­la­tion­ship.

In gen­eral, un­planned pur­chases re­mained con­sis­tent no mat­ter how the com­pany re­acted to the po­lit­i­cal is­sue. That is, about 18% of par­tic­i­pants made an un­planned pur­chase whether they read that the com­pany had taken a po­si­tion or not.

But when we ac­counted for ex­pec­ta­tions set by the com­pany, the ef­fects were stun­ning. For a val­ue­sori­en­tated com­pany, 24% of par­tic­i­pants made an un­planned pur­chase when it took a stand, but that dropped to just 9% when it ab­stained – vi­o­lat­ing ex­pec­ta­tions. For a re­sults-ori­en­tated com­pany, the ef­fect was re­versed: Un­planned pur­chas­ing was 26% when it ab­stained and dropped to 13% when it took a stand (again, vi­o­lat­ing ex­pec­ta­tions).

Even af­ter ac­count­ing for the per­sonal view of the par­tic­i­pant and whether his or her state voted Repub­li­can or Demo­cratic in the 2016 elec­tion, pur­chas­ing be­hav­iour was sig­nif­i­cantly af­fected if the com­pany went against prior ex­pec­ta­tions.

Costs of stay­ing silent

A woman holds a sign at an an­tiTrump protest in San Diego. Ad­di­tional ex­per­i­ments re­veal that con­sumers be­have this way be­cause they find it hyp­o­crit­i­cal for a com­pany that claims to be “guided by core val­ues” to then with­hold its po­si­tion on a po­lit­i­cal is­sue. The im­pli­ca­tion ap­pears to be that the com­pany is hid­ing some­thing and there­fore try­ing to de­ceive its cus­tomer base. Con­versely, re­in­forc­ing ex­pec­ta­tions may forge trust and en­hance re­la­tion­ships with cus­tomers.

For a real-world quasi-ex­per­i­ment on the po­ten­tial costs of stay­ing silent, we need look no fur­ther than Lyft’s and Uber’s re­spec­tive re­sponses to Trump’s ex­ec­u­tive or­der. Lyft re­acted by pub­licly op­pos­ing the or­der and pledg­ing $1m to the Amer­i­can Civil Lib­er­ties Union. Uber was more equiv­o­cal. In a Face­book post, CEO Travis Kalan­ick ac­knowl­edged con­cerns and said he would raise the is­sue “this com­ing Fri­day when I go to Wash­ing­ton for Pres­i­dent Trump’s first busi­ness ad­vi­sory group meet­ing”. As part of a poll I ad­min­is­ter pe­ri­od­i­cally to gauge re­ac­tions to com­pa­nies that take po­lit­i­cal stands, a group of lead­ing schol­ars were asked to grade Lyft and Uber on their re­spec­tive ap­proaches. The panel was gen­er­ally favourable to­ward Lyft, al­though con­ser­va­tive pan­el­lists ques­tioned whether its ac­tions would have a last­ing im­pact on the po­lit­i­cal is­sue at hand. How­ever, Uber was crit­i­cised by schol­ars of all po­lit­i­cal per­sua­sions for not con­fronting the is­sue. Pan­el­lists thought Uber was tak­ing some lead­er­ship by re­act­ing quickly, but its lack­lus­tre re­sponse was not con­sis­tent with its pur­ported be­liefs as a bold game-changer. It is lit­tle sur­pris­ing, then, that the move mo­ti­vated many cus­tomers to unin­stall the Uber app from their phones. Uber re­ceived so many re­quests, in fact, that it had to im­ple­ment a new au­to­mated process to han­dle all the dele­tions. The com­pany later an­nounced in an email to de­fect­ing cus­tomers that the ex­ec­u­tive or­der was “wrong” and “un­just”. Kalan­ick also re­signed from Trump’s busi­ness ad­vi­sory coun­cil.

Feet to the fire

The dan­ger of in­ac­tion – as Uber’s ex­pe­ri­ence shows – is real. In re­main­ing silent on im­por­tant so­ci­etal is­sues, ex­ec­u­tives may be harm­ing per­for­mance more than they think.

It is no longer enough to en­gage gov­ern­ment solely through pri­vate chan­nels, al­though that will cer­tainly be nec­es­sary as well. Con­sumers are will­ing to hold ex­ec­u­tives’ feet to the fire if they be­lieve the ex­ec­u­tives are be­tray­ing cor­po­rate val­ues.

This may be es­pe­cially true for com­pa­nies that force­fully ad­vo­cated for free trade, ac­cess to a global tal­ent pool, ac­tion on cli­mate change and in­clu­siv­ity for all ori­en­ta­tions and re­li­gious back­grounds dur­ing Barack Obama’s ten­ure. My re­search sug­gests that both lib­er­als and con­ser­va­tives could view it as a breach of trust to aban­don those be­liefs by ac­qui­esc­ing to a swing of the po­lit­i­cal pen­du­lum.

Though our cur­rent po­lit­i­cal en­vi­ron­ment in the US is po­larised and con­tentious, most peo­ple still find fail­ures of sin­cer­ity more trou­bling than dif­fer­ences of opin­ion. As long as a com­pany is not be­ing de­cep­tive by ob­fus­cat­ing its be­liefs, con­sumers can be sur­pris­ingly tol­er­ant of a com­pany that holds an op­pos­ing view.

So to cor­po­rate ex­ec­u­tives: Your con­stituents are watch­ing. They ac­knowl­edge that your com­pany has a dis­tinct set of val­ues. They are ask­ing for you to be forth­right. And they want to know that you have the gump­tion to stand up for your stated val­ues.

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