How Can Companies Balance Profits With Social Responsibility?

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Sometimes, the headline says it all. In 1970, economist Milton Friedman published an essay in the New York Times titled, “A Friedman doctrine—The Social Responsibility of Business Is to Increase Its Profits.” Few pieces of such brevity have been as influential. Until very recently, the Friedman Doctrine held almost uncontested sway among the leaders of large, publicly traded U.S. companies. For adherents to the doctrine, delivering shareholder returns was the paramount consideration; all other consequences of business activity were secondary.

But now, the Friedman Doctrine is facing its most serious challenge yet as modern corporations are finding increased demands from the public for accountability and performance beyond financial returns. Although the demand for corporate social responsibility has increased steadily over the past decade, this past year—amid a pandemic, economic instability, and social unrest—saw increasing instances of shareholders seeming to reject the doctrine designed to privilege their interests above all others. Proposals calling for action on climate change, sustainability, health, and human rights issues were some of the most common forms of stakeholder pushback. In fact, proposals for corporate diversity disclosure have doubled since last year. Big Oil companies are changing course on carbon emissions due to investor opposition.

Toyah Miller, professor of strategy and entrepreneurship at Mason
Toyah Miller

It’s an exciting but also potentially confusing time for leaders, says Toyah Miller, professor of strategy and entrepreneurship at Mason. The call to prioritize social responsibility alongside profits can often create “an institutional contradiction” with “increased potential for conflict.” Bridging the areas of management, innovation and entrepreneurship, Miller’s research illuminates the issues that will determine whether companies succeed or fail in their newly broadened mission.

This is well-trodden territory for Miller. She began her career as an Ernst & Young consultant who loved talking strategy with top leaders of organizations such as Time Warner and Bell South. At the same time, she sought opportunities to make a difference in the wider world, not just for companies. Growing up, she saw her mother organize outreach programs to help the elderly and other vulnerable groups, driven by “a strong sense of values, connection to her community and the idea that she had a role to play even if no one assigned her that role.”

Her career crossroads came after developing educational programs for a children’s home and thinking “Could I turn this into a venture?” From there, she became fascinated by the often-overlooked questions and problems of making social entrepreneurship work. Unpacking these dilemmas would require fusing her social mission with knowledge gained from her past experience as a strategy consultant. As she terms it, “I got the PhD bug,” pursuing a doctorate at Mays Business School at Texas A&M University, and later joining the faculty of University of Oklahoma, Indiana University—Kelley School of Business, and University of Texas at Dallas before coming to Mason this year.

Miller’s research on social entrepreneurs shows how identity and cognition help shape their entrepreneurial strategy. “A lot of the way [social entrepreneurs] behave or react to challenges is influenced by their own background,” she says. Values, education, and work experience play a role in influencing cognitive styles and biases used to evaluate entrepreneurial opportunities. For example, an Academy of Management Review paper Miller co-authored in 2012 posited compassion as a driving force for venture creation in social entrepreneurs that encourages integrative thinking and personal commitment to a cause that even overrides traditional cost-benefit analysis. But she has also found that the emotional investment of social entrepreneurs can make them highly resistant to inevitable trade-offs between societal mission and business needs.

Now that a counterweight to the Friedman Doctrine is gathering strength, corporate managers of all stripes are encountering these trade-offs—as social entrepreneurs always have. In fact, she is exploring the newly emerging phenomena of activist CEOs that embrace the role of societal leaders, advancing social change inside and outside their organizations. CEOs of companies like Delta Airlines and others are becoming more comfortable in the social space. The good news is that social and financial objectives do not necessarily clash; in fact, they can be highly compatible. A diverse leadership team, for instance, may devise better strategies than a more homogeneous one, because “having different people with different experiences in life and different points of view...could help the firm have access to needed information to navigate change,” Miller says.

Organizational reality, though, is often more complicated than that. In a 2013 paper in Organization Science, Miller and her co-authors found that gender-diverse boards improved the ability of the firm to enact strategic change under certain conditions and not others. When the board is not experiencing a threat due to low firm performance and women directors have greater power, the relationship between board gender diversity and strategic change is the most positive. Conversely, when the board is threatened by low firm performance and women directors have greater power, the relationship between board gender diversity and strategic change is the most negative.

The study yielded two meaningful takeaways, Miller says. First, diverse perspectives can be beneficial when there is enough time to hear everyone out and integrate their contributions. In times of low performance, the needs are more pressing and time is short. The cognitive conflict induced from diversity during times of stress can immobilize board decision-making rather than aid it. Second, having women on the board made no difference one way or the other when they were not empowered.

Diversity and inclusion, then, could have good or bad effects, or no effect, depending on how it’s done. Miller recommends that leaders ask themselves, “‘How am I taking on this idea of being inclusive?’ It may need to look differently when you’re bringing people into the fold.” Miller will continue to delve into these issues as they overlap with her interests in entrepreneurship. Her ongoing research looks at entrepreneurial mentoring in accelerators by examining gender differences on feedback framing and their impact on ventures.

In her role as director of research of the Business for a Better World Center at Mason’s School of Business, she hopes to promote more research at the intersection of business in society. Citing the impressive achievements of the center in its short life so far, Miller hopes to add to that track record. “My contribution is developing avenues for researchers to identify social problems or investigate how business can be used to address social problems or play a greater leadership role in society,” she says.