Business Thought

The Power of Apology

The following is an excerpt from Professor Eva Whitesman’s notes on creating the virtuous organization.

Using power virtuously

In the article, “Power, Approach, and Inhibition,” power is defined as an individual’s capacity to affect the lives of others by providing or withholding resources or administering punishments. The amount of power an organization possesses depends on the value of the resources and the impact of the punishments in the lives of others that organization can inflict on others. The authors explain “resources and punishments can be material (food, money, economic opportunity, physical harm, or job termination) and social (knowledge, affection, friendship, decision-making opportunities, verbal abuse, or ostracism).” The value of resources or punishments reflects people’s dependence on those resources and/or fear of those punishments.

As an organization, you have greater access to resources which your stakeholders need and want. You also have the ability to inflict various levels of punishment toward certain stakeholders. Because of this, you have power over your stakeholders (in varying degrees depending on the stakeholder group). As such, we claim that virtuous organizations are those who recognize their power over, and thus their responsibility to, certain stakeholders, because, “With great power comes great responsibility.”

Although this theory has been difficult to test empirically, it “has been widely accepted and enormously influential in managerial practice,” and despite the lack of empirical evidence, “the ideas carry a powerful message” that tend to resonate with the general population.

Facebook and the power of apology

INNOVATION, AMBITION, DEDICATION—stuff that builds the world’s most successful businesses and organizations, often rising out of garages, basements, and bare-boned apartments. Not long ago, Mark Zuckerberg sat in his college apartment at Harvard University with his roommate, Eduardo Saverin. From humble, perhaps playful beginnings (which almost got Mark expelled), Facebook has risen to become the top social media platform world-wide.

Facebook’s management, however, has not been without flaws, and in 2018 had a massive data breach that caused thousands to delete their Facebook accounts. Facebook stock dropped by $43 billion ($15 per share), which represented a drop of 24%.[1] While the skill and talent of its creator drove it to the top, a lack of virtue shook the organization and caused society to demand answers.

Why should you be concerned if your organization is virtuous? And, what possible difference would it make if you aren’t the one making the shots? Isn’t it true that only those in a position of power can make the necessary changes? By the way, Mark Zuckerberg faced congress, apologized for the data breach and promised to take steps to ensure user privacy; his combined actions, a signal to investors he was taking responsibility for his company’s mistake (these actions passed the hypocrisy sniff test: Stock increased by 32%).

To extend this metaphor in the words of business analytics, we should be considering multiattribute utility functions and instead we’ve been doing addition and subtraction.

Leadership structures and point accountability for CR are also key in designing successful, high-impact initiatives and cultures. While the “social impact career” trajectory is still emerging as the roles of public, private, and government organizations blur across sectors, organizations large and small who are invested in doing good well are conscious about their leadership. Many organizations migrate established business leaders into social impact roles once their CR portfolios have matured; this can be successful, but runs the risk of leaving responsibility for CR with a leader who does not know the communities being served or the cutting-edge methodologies of good CR. Other organizations seek to embed socially responsible operations into the roles of all business leaders. The tension between having a leader who is explicitly trained in social impact and diffusing responsibility for the success of CR across core roles in the organizations is key for firms to consider. 

As a part of leadership and impact, firms should also be strategic in selecting partners. Partnerships allow organizations to share their competitive advantages relevant to a social good initiative and leverage the strengths of other organizations for the same purpose, thus allowing them to achieve more. Partnerships also help keep organizations accountable to a learning mindset around social good and to exert greater influence on other entities to create a more virtuous system and network. Most importantly, effective strategic partnerships can help purpose-driven organizations deliver on their missions by multiplying their efforts, deftly crafting a strategic agenda for their social good work, and impacting a social problem at scale along with other educated, innovative partners. Partnerships can help organizations move towards a greater reliance on systems-level strategy and thinking when it comes to social good. Organizations that desire to truly achieve their purpose, for any social cause they care about, will do well to use partnerships to understand their impact and create opportunities that allow for community- or systems-level change.

“Many citizens, environmental organizations and leadership companies define corporate environmental responsibility as the duty to cover the environmental implications of the company’s operations, products and facilities… In the emerging global economy, where the Internet, the news media and the information revolution shine light on business practices around the world, companies are more and more frequently judged on the basis of their environmental stewardship. Partners in business and consumers want to know what is inside a company. They want to do business with companies in which they can trust and believe. This transparency of business practices means that for many companies, corporate social responsibility, CSR, is no longer a luxury but a requirement. However, the challenge is to create a commonly respected CSR framework, that would allow on detailed assessment of business practices.” Piotr Mazurkiewicz, World Bank  

It occurs to me that a central and really accessible principle related to these is the principle of permanence. I would submit that we want *less* permanent impacts on the world. 

I think some would view this as nihilistic–trying to minimize the value of humankind and its contributions. I would suggest instead that the rapid expansion of our technology suggests that we just keep getting better and finding new ways of doing things–we want our old stuff to be less permanent so we can make way for progress. We want more resources to be available/renewed/unpolluted so we are unhampered in our progress.

Whenever I think about environmental stuff, I think about bacteria in a petri dish–they die out because of one of two things: Either they consume all of their resources and die for lack of food, or they produce so much waste that they die of too much exposure to their own muck. 

The stream

Aligning the why with the how will be essential to your long-term success as you move towards more environmentally conscious practices. If you know the why and the how it’s important to articulate what goals you hope to achieve. “Companies committed to reducing their environmental impact usually create a set of environmental principles and standards, often including formal goals. At minimum, most such statements express a company’s intentions to respect the environment in the design, production and distribution of its products and services; to commit the company to be in full compliance with all laws and go beyond compliance whenever possible.” Piotr Mazurkiewicz, World Bank

“Before a company attempts to reduce its impact on the environment, it is essential that it first gains a full understanding of it. For most companies, this usually involves some kind of environmental audit. The goal of audits is to understand the type and amount of resources used by a company, product line or facility, and the types of waste and emissions generated. Some companies also try to quantify this data in monetary terms to understand the bottom-line impact. This also helps to set priorities as to how a company can get the greatest return on its efforts.” Piotr Mazurkiewicz, World Bank. Organizations should audit and monitor harm, and then determine the most effective ways to offset or reduce harms. Offsets are used to compensates for unavoidable impacts on significant environmental ecosystems or species on a site, by securing land at another site, and managing that land over a period of time, to replace those significant environmental matters which were lost.

In the United States wetland mitigation and banking is classic example of offsetting. A developer looking to build on delineated wetlands can offset the unavoidable impacts on the ecology and loss of habitat by purchasing or creating wetlands elsewhere, of equal or greater size (sometimes at 2.5 times the area of the impacted site), for long term protection. While this is a regulation created and managed by the federal government, industry leaders could create a comparable program to offset harm in their sector. 

The fashion industry presents us with an example of how harms can be reduced, and not just offset. A 2018 Forbes article explains, “A recent Pulse Of The Fashion Industry report stated that fashion generates 4% of the world’s waste each year, 92 million tons… A lot of that comes from off-cuts from the production process… there is strong pressure on brands and retailers to responsibly reduce fashion waste—not just by recycling and reusing, but also by producing less (and smarter) in the first place.” A fashion retailer should discuss with their manufacturer how to reduce waste in production, which would be mutually beneficial for the companies by reducing costs, in addition to reducing the waste deposited in landfills. 

Reducing harm downstream might mean incentivizing or helping customers change behaviors to use your product in a more sustainable way. Providing adequate training on products, offering reusable containers, and creating rebates for recycling are tools that companies, of various sizes, can incorporate.

Integrative solutions can lead to improvements that are sustained long-term, whereas distributive solutions may not endure.

 In contrast, Gravity Payments made the news for increasing their minimum wage to $70,000 annually. The video of the announcement received more than 50 million views and has naturally brought in hordes of job applicants. Gravity payments reported 3 years later that they had 80% more clients than they did at the time of the announcement. Clearly it was not just job candidates that came their way.

Period. Regardless of whether the media ever notices the ways you have worked to improve the integrity and congruence of your organization. Regardless of whether your stock prices skyrocket, or your organization grows. We do believe that these are often consequences of virtuous practice, but we would endorse organizational virtue even if this were not the case. 

We have concluded that a few exceptionally virtuous practices or a net positive record does not designate an organization as “virtuous.”  

We all know the corporate giants in the world and have likely heard the reports about the good they’re doing around the world: Google is the largest corporate renewable energy purchaser on the planet.  Ben & Jerry’s promotes socially responsible ingredients and business practices. Warby Parker gives glasses to people in need. TOMS donates shoes and money. The list goes on. But does doing good necessarily mean a company is good? What if they are harming the world or society in some way? Is it enough for a company to donate money to a good cause and call it good? Is a “net zero” effect good enough?

 The simple answer is no.

 Being a virtuous company encompasses everything you do from branding to supply chain to your treatment of people and beyond. It’s about more than accepting the default results of the day-to-day; doing good takes intentionality, strategy, and planning. It takes work, and it doesn’t just happen on its own.

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