by Bob Needham – The Ross School of Business recognized the winners of the school’s inaugural DEI Research and Teaching Awards at a special ceremony.
The new awards celebrate and honor research related to diversity, equity, and inclusion conducted at Michigan Ross, at every stage of the academic journey — from undergraduate to faculty. “A major goal in the Ross DEI strategic plan is to promote excellence in DEI scholarship and education,” Michigan Ross Associate Dean for DEI Carolyn Yoon said. “In line with that goal, the research awards provide an incentive for faculty and students to invest in research that advances knowledge about diversity, equity, and inclusion. They also serve to communicate to the broader community that the research is highly valued.”
The faculty DEI Committee chose the winners, and each recipient spoke briefly about their research as part of the awards ceremony.
THE CONVERSATION – September 8, 2016 by Eric Schwartz and Jacob Abernethy
The water crisis in Flint, Michigan highlights a number of serious problems: a public health outbreak, inadequate urban infrastructure, environmental injustice and political failures. But when it comes to recovery, the central challenge, and one that has received relatively little attention, is our lack of useful information and understanding.
A big data analysis indicates the focus on service line replacement may only go so far at fixing Flint’s water issues. George Thomas/flickr
Who is most at risk? Where are the harmful sources of lead? Where should resources be allocated? Using modern big-data tools, we can answer these questions and help inform the response to this crisis.
With the support of our student team at the University of Michigan, we have aggregated a trove of available data around Flint’s water issues, including water test results, records of the service lines that deliver water to homes, information on parcels of land and water usage. Leveraging new algorithmic and statistical tools, we are able to produce a significantly more complete picture of the risks and challenges in Flint.
These methods strongly resemble those used by Facebook, Amazon and other large tech companies who collect vast amounts of data from users. But whereas Facbeook’s algorithms crunch through uploaded photographs to detect faces and Amazon’s models predict which products you’ll like, we are using these analytics tools to detect homes with high risk of lead contamination and to predict the locations of lead pipes buried underground or hidden in the homes of residents.
What have we learned? Here are a few takeaways from our research.
Lead contamination varies widely across homes and is highly scattered around Flint, but it is surprisingly predictable
The headlines on Flint could easily lead one to believe all homes in the city have dangerously high levels of lead. But in fact, using data from the state’s sentinel program, we found during a period in February only between 8 and 15 percent of homes had lead above the federal action level of 15 parts per billion (ppb).
Indeed, things have been improving from January through August 2016, according to the test data from the sentinel program. Based on about 750 homes monitored repeatedly, fewer homes have tested above the action level over time. Almost half of all samples have virtually no detectable level (below 1 parts per billion).
These low numbers provide little comfort when we don’t know which homes are at risk. Only around 30 percent of homes in Flint have had their water tested, according to government data, and these water tests do not guarantee safety; they only identify danger. Also, it is clear from the data that homes that are slower to sample their water tend to be those at much greater risk.
So can we find these homes? The answer is yes, to a modest degree of accuracy. We have built statistical models that profile a home based on several attributes (year of construction, location, value, size, etc.), and provide an estimate of the risk level.
The quality of these models is driven by the huge swaths of data from water samples submitted by residents and tested by government officials in response to the crisis. This provides us with a database of measurements that includes over 20,000 water samples covering roughly 10,000 homes in Flint since November 2015 to present. We have made our risk assessments available to government officials, and are being incorporated into an mobile application, funded by Google and built by students at UM Flint, that allows Flint residents to learn of their home’s risk level.
These statistical models not only provide predictions; they also give a better understanding of the problems. This has much broader implications, as these factors predicting lead may generalize beyond Flint.
The data suggest that lead contamination is associated with a number of factors; older homes tend to be at greater risk, for instance, as are those of lower home value. Lower-value homes also tend to be those with the lowest rates of water sampling. Additionally, while the highest readings are geographically scattered, the homes predicted to be at high risk tend to cluster in specific neighborhoods.
Flint’s lead pipe records are spotty and noisy, but statistical methods can significantly fill the gap
Media reports and political efforts have continued to focus on the so-called “water service lines” that connect each house to the distribution system in the street. The assumption is that homes with lead service lines are most at risk for lead exposure and poisoning. As a result, much of the attention has been on locating and replacing these lines.
The problem, however, is not only with lines made out of lead material: Lead particulate can accumulate on the walls of corroded galvanized steel pipes. Pipes made of copper or plastic, on the other hand, are generally considered to be safe.
But there are immediate challenges with the line replacement program. And the most obvious is: Where are these dangerous pipes?
The city, unfortunately, did not maintain consistent records on service line installations and materials. But city officials eventually found, after some searching, a set of maps with handwritten annotations (last updated in 1984), and these records were digitized by a UM Flint research team lead by Professor Marty Kaufman. These appeared to identify the material of the service lines for most home parcels in Flint.
How complete and accurate are these records? Unfortunately, not very. For over 30 percent of homes, either there are missing labels or the records disagree with a home inspection of a portion of the service line.
We can again fill in gaps with the help of algorithms and data. Looking for patterns in the existing records, statistical tools can provide a reasonable “educated guess” as to the type of material in a home’s service line. We have been working directly with Gen. Michael McDaniel’s line replacement team, providing statistical estimates of where lead pipes are most likely to be found, and this has guided their targeting of replacement resources.
Our recommendations are adapting to incoming data, using techniques applied in online advertising experiments or clinical trials, to identify the risky homes quickly and efficiently.
Our machine learning techniques, which utilize all of the available city data, parcel records and a database of over 3,000 inspection reports, are able to estimate line materials with better than 80 percent accuracy. We find, for instance, that houses built in the 1920s to 1940s are many times more likely than those built after 1960 to have lead in their service line. Our guesses aren’t perfect by any means, but estimates of this level can save millions of dollars on recovery efforts.
Home service lines may not be the largest contributor of lead
Despite the huge media attention focused on the service lines, one of the major takeaways from our analyses is that these service lines may not be the major driver of the lead in Flint’s drinking water. Yes, it is the case that those homes with copper service lines have lower lead levels, on average, than those with lead in their service line. But when you look closely at the water testing data, the differences are much smaller than you might think.
While it is difficult to determine with certainty due to the spotty records, what we have found is that large spikes of lead occur in homes with and without lead service lines. This suggests a large fraction of the dangerously high lead readings are probably not being driven by the service line material but instead by other factors. Environmental engineers who study these problems report that lead can leach from several sources, including the home’s interior plumbing, faucet fixtures and aging pipe solder.
What we can conclude is that citizens as well as policymakers may need to widen their focus beyond the service line materials and consider alternative efforts to address other sources of lead. Service line replacement is certainly a necessary part of the solution, but it will not be sufficient.
Toward solving the broader problem, data and statistical tools can help greatly reduce risks at much lower cost, and a data-oriented understanding of the problems in Flint can guide efforts to address lead concerns in other regions as well.
Didi, the Chinese ride-sharing service, did more than run the American ride service, Uber, out of China. In my view, it destroyed the China El Dorado myth.
The El Dorado (“the golden one”) myth referred to a supposed city of gold somewhere in Latin America. Spanish explorers went looking for wealth for Spain and rewards for themselves.
Similarly, the China myth attracted Western CEOs to the country, looking for something as valuable to them as gold: corporate growth and job security.
The Spanish explorers returned home disappointed. So have the CEOs.
Over a long career as a researcher on entrepreneurship, startup investor and corporate advisor, I have encountered myths like this one many times. Such myths often guide – and mislead – CEOs and their boards.
And like most myths, it’s based not only on facts but also hope.
Many large Western companies have little hope of growing much in their established markets. Population growth in the U.S. and Europe will trail China’s growth for the next two decades. Easy money and low or even negative interest rates haven’t spurred growth. Slow growth is a problem because when a company’s growth rate drops, its stock price falls. When its stock price falls, its CEO gets fired.
That’s what makes the China El Dorado myth important. The myth has rescued imperiled and even incompetent CEOs, if not their companies. General Motors CEO Rick Wagoner, for example, pinned the company’s hopes on expanding in China. In 2003, he said: “We are going to scheme every way we can to do this the most quickly.” Five years later the company went into bankruptcy.
If a CEO sold shareholders the idea that the company would eventually enjoy huge growth in China, the stock price stayed up and the CEO kept his or her job.
Even though history made the China myth a hard sell, it was worth trying because the myth had helpful features. China required patience – maybe decades of patience.
China is different. To do business in China, you have to spend years learning the Chinese ways. You have to spend years building relationships. You have to expect to lose a lot of money for a long time.
Could there be a more convenient myth for CEOs? You get to lose money for years. You can’t be expected to show results for a long time.
That’s a hard lesson learned for Yahoo CEO Marissa Mayer, who didn’t invoke the China myth. During her four years at the helm, she was unable to produce much growth. She was hoping for three more to keep trying. She didn’t get them and was forced to put the company up for sale (Verizon just announced plans to buy it). If she had sold her investors on the China myth, she might have gotten an extra decade.
Uber did everything right
Unfortunately for CEOs, Uber just destroyed the China myth. It destroyed it by doing nearly everything right.
It lost a reported US$2 billion, not stupidly, but as an investment – subsidizing driver incomes and passenger fares to build its business. It didn’t act like an arrogant Western multinational that stuck to its “superior” Western way of doing business. It was a case study of how to adapt to the Chinese market and culture.
If anyone could and should have succeeded in China, it was Uber. But it failed. It finally cut its losses by selling its China operation to Didi for a stake in the Chinese company that might end up being Uber’s most valuable asset, the way the stake in Alibaba became Yahoo’s most valuable asset.
Doing everything right didn’t matter. What mattered is that Uber is not Chinese.
A pharmaceutical company can do business in China if it opens research laboratories there that train Chinese scientists to build a Chinese pharmaceutical champion. An aircraft company can do business in China if it opens plants there so Chinese engineers learn how to manufacture aircraft and build a Chinese champion.
Uber is the company that destroyed the myth that you can grow huge in China without being Chinese. Google and Facebook didn’t destroy the myth because their exits from China were framed as being the result of clashes between Western and Chinese versions of free speech. Other exitswere framed as being the result of Western failures to adapt to Chinese ways.
The Uber story can’t be framed either of those ways. Uber handled itself well – it acted better in China than it often acts in the U.S. In the U.S., Uber went to war with regulators and had often rocky relationships with its drivers. Its problem was that the Chinese government wanted a Chinese champion in the ride-sharing industry.
Western companies can hold their own against Chinese competitors, but not against Chinese competitors if the government wants a Chinese champion.
As such, Uber’s experience offers a few lessons. Uber in China taught us that most Western companies, even if they do things right, cannot count on China for growth. It taught us that shareholders should be skeptical of CEOs who tout their company’s growth prospects in China. More surprisingly, it taught us that Uber can be diplomatic when it wants to be.
Centuries ago, Spanish explorers crossed an ocean in search of a city of gold. Most of them found little gold and gave up on finding a city that was just a myth.
CEOs crossed an ocean in search of growth. Most of them found little of it. It is time to ask whether China as the growth engine for Western companies is just another myth.
Others come from nature, like mountains, lakes and rivers, which also depend on a reliable government and meaningful regulations to preserve and protect them.
While the collective value of these “public goods” is probably incalculable, the economic impact of schools, clean air and vast highways has been significant. In fact, I would argue that public goods are what have made America great.
Unfortunately, our stock of public goods has been declining for half a century, particularly those that require the government’s purse strings. President Trump’s proposed budget would make things even worse by cutting, among many other things, funding for national parks, the cleanup of the Great Lakes and efforts to minimize climate change.
So if Trump is serious about making America as great as it can be, investing in our public goods – as well as those equally vital ones we share with other nations – would be a good place to start.
Nonexcludable and nonrivalrous
The formal definition of a public good is that it’s something that is nonexcludable and nonrivalrous. That’s a fancy way of saying that everyone can take advantage of it and that one person’s use doesn’t reduce its availability to others.
Setting aside for a moment natural public goods, the ones provided by the government have been on the decline. U.S. public capital investment, net of depreciation, fell to just 0.4 percent of GDP in 2014 from 1.7 percent in 2007 and about 3 percent in the 1960s.
A particularly critical subset of this, research and development spending, has been the bedrock of innovation and growth in our economy. It has dropped from a high of 2.1 percent of GDP in 1964 (during the Cold War and space race) to less than 0.8 percent in recent years.
A history of public goods investment
This erosion has persisted through both Republican and Democratic administrations. But it was not always thus, as the bipartisan history of our biggest undertakings attests.
The transcontinental railroads, though privately built in the mid-1800s, were heavily subsidized by generous grants of federal land under several presidents and was vital to 19th-century economic growth. As one illustration, before the railroads, it took almost six months and US$1,000 to travel from New York to California. Afterward, it cost just a week and $150.
Similar gains came after 20th-century presidents invested heavily in public works. Woodrow Wilson, a Democrat, established the National Park Service in 1916, a few years after Republican Theodore Roosevelt greatly expanded their number. U.S. parks are now responsible for more than $200 billion a year in economic activity.
Franklin Delano Roosevelt, the quintessential Democrat, built schools, post offices, libraries and many other public buildings in the 1930s. And Republican Dwight D. Eisenhower created the interstate highway system that bears his name in what was the biggest public works project in history. In 1996, an estimate put its total economic benefit at well over $2 trillion, or about six times the original cost.
Why we stopped investing
But since the 1960s, the bipartisan consensus in support of public goods has broken down, as the right’s pressure to cut taxes and the left’s efforts to expand entitlements squeezed the discretionary part of the budget – from which support for public goods comes.
Both parties have moved further from the center, where bipartisanship resides and makes large public works projects easier to build and fund. Meanwhile, a focus on reducing spending has meant that many once public goods have been fully or partially privatized.
Finally, research has shown that ethnic and racial heterogeneity reduces support for public goods such as trash collection and public education because the dominant groups don’t like the idea of sharing these resources with the newcomers. In other words, racism seems to play a role.
A bright spot for public goods has been those shared across borders, which have proliferated since World War II.
The U.S. took the lead in establishing some of the key international institutions – such as the United Nations and the World Bank – that provide public goods to the world. Healthy oceans, a stable climate and cross-border money transfers require international coordination for their protection.
Perhaps the most critical global public good is peace. While there have been many regional wars, a third world conflict has been avoided, in no small measure because, in the aftermath of World War II, the United States undertook to stabilize key regions of the world through military expenditures, strategic alliances like NATO, and economic assistance. Although increasingly frayed and fragile, these arrangements, dubbed the Pax Americana, have so far held.
The broadest, if not the sturdiest, steward of public goods has been the United Nations and its associated agencies. Freedom of navigation, for example, is protected by the U.N.‘s Law of the Sea. The United States also led in the creation of the World Trade Organization, which sets the rules for international trade and the settlement of disputes.
Turning our backs?
Now, not only does the Trump administration wish to significantly slash spending on already deteriorating U.S. public goods, it wants to cut funding for global institutions such as the U.N. as well. One exception is his plan to invest in infrastructure, but little of the $1 trillion total would actually come from the federal government.
This is a supreme irony given the benefits our country derives from public goods, from the parks and highways to the global institutions that support trade and other international public goods.
Imagine for a second what life would be like if you didn’t have the public park down the street where you can play freely with your children. Or if the rivers and lakes you swim in returned to the more polluted levels common in the past. Or if our public schools were public no longer.
Put simply, investing in public goods has served America well through the years. It would be a huge mistake to turn our backs on it.
A New York Times article proclaimed that this milestone “reflects the rise of powerful megacompanies” that control a large and growing share of all corporate profits. It also warned that this phenomenon might be contributing to stagnant wages, a shrinking middle class and rising income inequality, suggesting regulators may need to rein them in or break them up.
But what exactly defines a “megacompany”? And what would make it so powerful that it needs dismantling, like “Ma Bell” back in the 1980s?
As a scholar of corporations, I believe that if we want to understand – and regulate – big companies, it’s important to be clear on the very different meanings of “big.”
A “major corporation” was one that sold a lot of products. With almost $10 billion in annual sales, thanks to its 54 percent share of the U.S. auto market, General Motors topped Fortune’s list that year.
But GM was also big in most every other way, including its stock market valuation or “market cap” (where it was No. 1), assets (No. 2, after AT&T) and employment (also just behind AT&T at 624,000). Indeed, for much of the post-war era the biggest corporations were big in every way, and market cap was very highly correlated with revenues, employment and assets.
Not anymore. The post-industrial corporation of today is often heavy on market cap but, like Apple, light on employment and hard assets.
So how exactly is Apple “mega”? In the eyes of The New York Times and Wall Street, it seems, primarily because it’s worth a trillion dollars.
Market capitalization is the market value of all of a company’s shares. By this measure of size, Apple is not alone in the stratosphere. On the day Apple passed $1 trillion, Amazon was worth $895 billion, Google owner Alphabet was valued at roughly $853 billion, and Facebook was at $509 billion.
Yet just like Apple, their market caps belie more traditional measures of size.
In 2017, Facebook had 25,000 employees and $41 billion in revenue. Grocery chain Kroger – America’s third-largest employer – had 449,000 employees and $123 billion in revenue. In other words, it would take 18 Facebooks’ worth of employees to make one Kroger, and the revenues of three Facebooks to equal one Kroger. The 135-year-old, (mostly) unionized grocer operated 2,782 supermarkets and hundreds of other stores across the U.S. Facebook’s revenues came almost exclusively from selling advertising.
Market cap, however, tells a different story: Facebook’s market cap on Aug. 2 was $509 billion. Kroger’s was a fraction of that, at less than $24 billion. That is, it took more than 20 Krogers to equal the value of one Facebook. This divergence was highlighted the previous week, on July 26, when Facebook’s market cap dropped $119 billion – five Krogers’ worth – in a single day.
So which one is mega, Facebook or Kroger? Is market cap really the measure we should be using to define what makes a company big?
After all, Facebook’s high valuation does not mean it has a half-trillion dollars sitting in an underground vault somewhere in Menlo Park. Its shares are mostly owned by outside investors (although Mark Zuckerberg still controls an absolutely majority of the votes and, therefore, the board of directors). And if we think of businesses as “job creators,” then the tech sector turns out to be a big disappointment.
Facebook is hardly alone in its employee-light approach.
Netflix, the global video-streaming behemoth, has just 5,500 employees, of whom 600 are temps. Its market cap was $345 billion on Aug. 2, or 14 Krogers.
Even Alphabet, the paradigmatic corporation of the 21st century, has only 80,110 employees around the globe. Notably, Bloomberg reports that Google’s “temps, vendors and contractors” actually outnumber its permanent employees.
Does Wall Street hate job creators?
The seeming paradox of corporations being giant in one dimension and tiny in others can be resolved by examining what Wall Street values and what it disdains.
In other words, in the minds of those in business, there may be a built-in negative relation between market cap and employment.
Consider some examples. On Feb. 19, 2015, Walmart – America’s largest employer by far – announced that it would raise the minimum hourly wage paid to its U.S. employees to $9, at an expected cost of $1 billion for the year. By the end of the day its market cap had dropped 3.2 percent, or over $8 billion.
And in April 2017, when American Airlines announced that it had negotiated raises for its pilots and flight attendants, the market punished it with a 5.2 percent share price drop. Analysts explained their displeasure: “This is frustrating. Labor is being paid first again. Shareholders get leftovers.” And: “We are troubled by AAL’s wealth transfer of nearly $1 billion to its labor groups.”
Today’s corporate leaders have received Wall Street’s message and seek to stay as “lean” as possible. Indeed, the median corporation to go public after 2000 had added just 51 jobs globally by 2015, and these often came from acquisitions. When it comes to employment, evidently small is beautiful.
The meaning of ‘big’
How we think about corporate size matters.
Big is sometimes linked to better, particularly in business schools and executive suites. And cities and states pay millions and even billions of dollars to lure “big” companies in hopes that they’ll bring jobs and economic growth – which may not turn out to be true for today’s megacompanies.
On the flip side, there are people like Teddy Roosevelt, who railed against giant, powerful corporations, arguing that they led to greater inequality, a concentration of wealth and the corruption of politics.
Today we face similar problems: growing inequality, concentrated wealth and shadowy corporate money shaping our politics. But if we want to tame the giant corporations – as Roosevelt did – we need to have a clear sense of just what “giant” means. And we need to give up on the idea that corporations that are big in market cap necessarily create jobs.
Target recently staked out a position in the culture wars by announcing that it will build private bathrooms in all its locations, after earlier allowing transgender customers to use whichever room corresponds with their gender identity – both actions sparking anger from many conservatives.
While big business hasn’t always been on the vanguard of social justice, in recent years companies like Target, Apple and even Wal-Mart have increasingly taken positions that put them squarely on the side of socially progressive activists. So how did Che Guevera – the face of the Cuban Revolution – become CEO of corporate America?
When I first began studying the interactions between social movements and corporations 25 years ago, it was rare to see business take a public stand on social issues. Yet today we see organizations ranging from General Electric to the NCAA weighing in on transgender issues, something that would have been hard to imagine even a decade ago.
From custom abiders to bullies
Traditionally, corporations aimed to be scrupulously neutral on social issues. No one doubted that corporations exercised power, but it was over bread-and-butter economic issues like trade and taxes, not social issues. There seemed little to be gained by activism on potentially divisive issues, particularly for consumer brands.
A watershed of the civil rights movement, for example, was the 1960 sit-in protest by students that began at a segregated lunch counter in a Woolworth store in Greensboro, North Carolina, and spread across the South. Woolworth’s corporate policy had been to “abide by local custom” and keep black and white patrons separated. By supporting the status quo, Woolworth and others like it stood in the way of progress.
But negative publicity led to substantial lost business, and Woolworth eventually relented. In July, four months after the protest started – and after the students had gone home for the summer – the manager of the Greensboro store quietly integrated his lunch counter.
In general, companies were more worried about the costs of taking a more liberal stand on such issues, a point basketball legend and Nike pitchman Michael Jordan made succinctly in 1990. Asked to support Democrat Harvey Gantt’s campaign to replace segregationist incumbent Jesse Helms as a North Carolina senator, Jordan declined, reportedly saying “Republicans buy sneakers, too.”
And companies presumed that taking controversial positions would lead to boycotts by those on the other side. That’s what happened to Walt Disney in 1996 as a result of its early support for gay rights, such as “gay day” at its theme parks. Its stand prompted groups including America’s largest Protestant denomination, the Southern Baptists, to launch a boycott, calling Disney’s support for gay rights an “anti-Christian and anti-family direction.” The eight-year boycott, however, was notably ineffective at changing Disney policy. It turns out that too few parents had the heart to deny their children Disney products to make a boycott effective.
Since then, some of the biggest U.S. companies have taken similar stands, in spite of the reaction from conservatives. For example, when the Arkansas legislature passed a bill in March 2015 that would have enabled LGBT discrimination on the grounds of “religious freedom,” the CEO of Wal-Mart urged the governor to veto the bill.
Not surprisingly, given Wal-Mart’s status in the state and the corporate backlash that accompanied a similar law in Indiana, the governor obliged and eventually signed a modified bill. That din’t sit well with Louisiana Governor Bobby Jindal, however, who argued in The New York Times that companies in those states were joining “left-wing activists to bully elected officials into backing away from strong protections for religious liberty.” He warned companies against “bullying” Louisiana.
Why have corporations shifted from “abiding local custom” around segregation and other divisive social issues to “bullying elected officials” to support LGBT rights?
In my view, there are two broad changes responsible for this increased corporate social activism.
The rapid spread of the Occupy movement in the fall of 2011, from Zuccotti Park in New York to encampments across the country, illustrates how social media can enable groups with a compelling message to scale up quickly. Sometimes even online-only movements can be highly effective.
When the Susan G. Komen Foundation cut off funds to Planned Parenthood that were aimed at supporting breast cancer screenings for low-income women, a pop-up social movement arose: Facebook and Twitter exploded with millions of posts and tweets voicing opposition. Within days the policy was walked back.
Mozilla’s appointment of a new CEO who had supported a California ballot proposal banning same-sex marriage also generated outrage online, both inside and outside the organization. He was gone within two weeks.
More recently, Mylan’s exorbitant price hikes on its EpiPen took place over several years, but an online petition fueled by social media this summer turned it into a scandal and a talking point for presidential candidates.
In each case, social media allowed like-minded “clicktivists” to draw attention to an issue and demonstrate their support for change, quickly and at very little cost. It’s never been cheaper to assemble a virtual protest group, and sometimes (as in the Arab Spring) online tools enable real-world protest. As such, activism is likely to be a constant for corporations in the future.
Companies targeting the sensibilities of the young often tout their social missions. Tom’s Shoes and Warby Parker both have “buy a pair, give a pair” programs. Chipotle highlights its sustainability efforts. And Starbucks has promoted fair trade coffee, marriage equality and racial justice more or less successfully. In each case, transparency about corporate practices serves as a check on puffery.
Social mission is even more important when it comes to recruiting. At business school recruiting events, it is almost obligatory that companies describe their LEED-certified workplaces, LGBT-friendly human resource practices and community outreach efforts.
Moreover, our employer signals something about our identity. Value alignment is part of why people stay at their job, and among many millennials, socially progressive values – particularly around LGBT issues – are almost a given.
In this situation, corporate activism may be the sensible course of action, at least when it comes to LGBT issues. According to the Pew Research Center, for example, support for same-sex marriage has increased from 31 percent in 2004 to 55 percent today, and there is little reason to expect a reversal.
Even as trends lead to more corporate activism, the reaction hasn’t always been as the businesses expected. Businesses on the vanguard of social issues themselves can become targets if and when they slip up.
When Starbucks attempted to promote a dialogue about race after the killings of Michael Brown and Eric Garner by police in 2014, its method – asking baristas to write “race together” on cups to encourage conversations – was widely ridiculed. Some even regarded the effort as a misguided marketing ploy rather than a sincere effort to promote understanding.
In 1998, William Clay Ford Jr. became chairman of Ford Motor and aimed to turn the company green by improving fuel economy and “greening” its production processes. The company even put an energy-efficient “living” roof on a truck assembly plant. Its continued reliance on its profitable line of gas-guzzling SUVs, however, prompted some to accuse Ford of hypocrisy.
Red and blue companies?
While prominent companies like Starbucks and Target have taken stances associated with liberal causes, some businesses have gone the other direction.
Hobby Lobby famously sought to abstain from providing funding for birth control for employees on religious grounds. Koch Industries, overseen by the famous Koch Brothers, has long been a lightning rod for boycotts due to the right-wing proclivities of its dominant owners. And small businesses across the country are not always shy in advertising their conservative political orientations.
As states have seemingly divided into red (for conservative) and blue (for liberal), might we expect the same thing from corporations, as consumers and employees drift toward the brands that best represent their views – red companies and blue companies?
It is already easy to look up political contributions by companies and their employees. For example, Bloomberg, Alphabet and the Pritzker Group lean Democratic; Oracle, Chevron and AT&T tend Republican.
In the current electoral climate, it is not hard to imagine this continuing.
Today most large companies like Exxon Mobil, Ford and GM issue slick reports extolling their efforts to conserve resources, use renewable energy or fund clean water supplies in developing countries. This emphasis on efforts to curb environmental harm while benefiting society is called corporate sustainability.
Once uncommon but now mainstream, this show of support for a greener and kinder business model might seem like a clear step forward. But many of these same companies are quietly using their political clout, often through industry trade associations, to block or reverse policies that would make the economy more sustainable. And because public policy raises the bar for entire industries, requiring that all businesses meet minimum standards, lobbying to block sound public policies can outweigh the positive impact from internal company initiatives.
We and our colleagues in the alliance have documented many business initiatives that fall short of the impact they claim. One of the best known was the chemical industry’s Responsible Care program, created after an explosion at Union Carbide’s plant in Bhopal, India, killed thousands of people in 1984. Strategy professors Andy King and Mike Lenoxshowed that participants actually made less progress in reducing their emissions of toxic chemicals than did nonparticipants. That prompted the industry to overhaul the program.
Or consider the Climate Challenge program. The Energy Department created this now-defunct partnership between business and government to encourage electric utilities to voluntarily reduce their greenhouse gas emissions. When one of us teamed up with Management Professor Maria Montes-Sancho to evaluate its track record, we found that there was no difference overall between participants and non-participants in their emissions reductions.
Both of these voluntary initiatives failed to solve environmental problems, so why were they created?
In the case of Responsible Care, chemical industry documents show that one of the program’s main goals was preempting tighter regulations. Likewise, public statements the electric utility industry and the Energy Department made indicate that they formed Climate Challenge to stave off new regulations.
Even though these and other voluntary initiatives accomplish little of substance, they help call attention to the good steps industries appear to be taking instead of the environmental damage they are causing – which is exactly how greenwashing works.
Talking green while lobbying brown
As we and our colleagues explained in an 2018 article in the business journal California Management Review, it is easy to get away with greenwashing in part because it’s hard to detect what companies lobby for in the U.S., as there is no requirement to disclose the positions they espouse.
“Despite the statements emitted from oil companies’ executive suites about taking climate change seriously and supporting a price on carbon, their lobbying presence in Congress is 100 percent opposed to any action,” Sen. Sheldon Whitehouse, a Rhode Island Democrat, lamented in Harvard Business Review.
Exxon Mobil has clearly engaged in this doubletalk. The corporation declared in its 2016 Corporate Citizenship Report that “climate change risks warrant action by businesses, governments and consumers, and we support the Paris Agreement as an effective framework for addressing this global challenge.” Yet the nonprofit group InfluenceMap recently found that Exxon was one of the top three global corporations in lobbying against effective climate policy.
Exxon Mobil’s hypocrisy may not be surprising given the company’s long history of funding climate deniers. However, it is far from alone in talking green while lobbying brown. Indeed, even companies with much stronger records on sustainability than Exxon do this, often through industry trade groups.
For example, Ford said in its 2017 sustainability report that “we know climate change is real, and we remain committed to doing our part to address it by delivering on CO2 reductions consistent with the Paris Climate Accord.” GM’s sustainability report stated that “General Motors is the only automaker on the 2017 Dow Jones Sustainability Index for North America, and is also on the World Index.”
When companies hide their political opposition to sustainability policies, it deprives investors of the right to know how their funds are being used. This obfuscation also denies consumers the right to vote with their wallets for greener products.
We believe the best way to expose this duplicity is by requiring corporations to disclose more details about their political actions. For instance, new laws might demand that companies, both individually and as part of industry associations, make their lobbying stances public, and reveal which politicians they have called on to take a given position.
And companies could be forced to reveal what they spend on so-called “independent” political advertisements, also known as issue ads.
In the U.S., one good option would be to update the Lobbying Disclosure Act to require more detailed reporting, including spending on astroturf lobbying, the practice of using fake grass-roots groups to influence public opinion.
The private sector can take action too. In Europe, the Vigeo Eiris rating agency has begun to assess corporate political transparency. Such evaluations would become much more powerful if required by leading investment managers. That is why we see the 2018 call by BlackRock, the world’s largest asset manager, for companies to “benefit all their stakeholders” as a step in the right direction.
On April 22, as protesters swelled Earth Day rallies in U.S. cities and around the world, President Trump tweeted that he was “committed to keeping our air and water clean but always remember that economic growth enhances environmental protection. Jobs matter!” His message was eerily similar to assertions by governments in developing countries that environmental standards are less important than attracting jobs.
Indeed, over the last few decades many developing countries have adopted loose environmental standards to lure foreign firms to move production there. However, an emerging body of research shows that policies like this also bring heavy pollution to the host countries.
In a recent study, my co-author Xiaoyang Li and I found that a significant number of U.S. firms reduce their pollution at home by offshoring production to poor and less regulated countries. The greening of U.S. manufacturing over the past several decades may be partially caused by a growing flow of “brown” imports from poor countries.
Cleaner at home, dirty abroad
A “jobs-first” policy can add to serious environmental challenges in the host country. For example, one recent study calculates that 17 to 36 percent of four major air pollutants emitted in China come from production for export. Among these export-related emissions, about 21 percent come from the production of goods for the United States.
Studies like this suggest that trade can potentially redistribute environmental footprints. This can happen via two pathways. One is for “dirty” firms in rich countries to stay out of the entire value chain that contains the polluting activities. In this case, some rich country customers will stop consuming the “dirty” products, which is good for the global environment. Others will keep consuming “dirty” products imported from poor and less regulated countries.
Another way is for firms in rich countries to keep selling the “dirty” products but redesign their production networks. They will offshore production (and jobs) in the “dirty” segment of the value chain to poor countries. They will then import the “dirty” unfinished products from poor countries for further domestic processing in the clean segment of the value chain.
Unfortunately, existing studies have not been able to tease apart these two pathways. To find out if some U.S. companies were taking the second route, we obtained data from the U.S. Census Bureau and the Environmental Protection Agency about trade, production and pollution for more than 8,000 U.S. firms with 18,000 U.S. plants.
We first found that of all goods imported by U.S. manufacturing firms (not wholesaler or retailers), the share produced in low-wage countries rose from 7 percent in 1992 to 23 percent in 2009. At the same time, toxic air emissions from manufacturing industries in the United States fell by more than half. Industries that experienced the greatest increase in imports from low-wage countries include printing, apparel and textile, furniture, and rubber and plastics. These industries also experienced some of the largest drops in air pollution in the United States.
Second, using this unprecedentedly detailed data, we obtained some interesting findings at the firm and plant level. We found that as U.S. firms imported more goods from low-wage countries, their plants released fewer toxic emissions on American soil. In addition, their U.S. plants shifted production to less-polluting industries, produced less waste, and spent less on pollution abatement. In sum, these firms were improving their own environmental performance by shifting to less-polluting segment of the value chain domestically and moving more-polluting activities overseas.
To our relief, we found that not all U.S. firms chose to offshore their pollution. In particular, firms that are more productive and invest more in R&D and brand equity offshore less pollution. These firms may find it less costly to renovate production technology domestically to comply with stringent environmental standards. They may also find it more rewarding to do so because consumers become more loyal to their brand for their socially responsible behavior at home.
Changing firms’ incentives
U.S. companies that offshore pollution are not violating environmental laws either at home or in their host countries. Indeed, rebalancing their global production is a logical response to higher environmental compliance costs in the United States.
However, to the extent that U.S. firms can choose either to purchase cheap and “dirty-to-make” goods from low-wage countries or to produce them under stringent environmental standards at home, they are making a strategic decision about the private costs of production compared to the public (and international) costs of pollution. Companies that offshore pollution to less-regulated countries are taking advantage of those nations’ lower environmental and labor standards and letting the host countries bear the associated social costs.
Unfortunately, it is not always easy to induce companies to adopt higher standards for their operations in developing countries. After Nike was first reported to have unsafe and abusive working conditions at its foreign plants, it took the company almost a decade to announce that it would raise wages, increase monitoring and adopt more stringent air quality standards in its factories overseas.
Similarly, Foxconn – a key supplier to Apple – has incurred heavy criticism over its labor practices in China. The company reportedly has improved its working conditions there, but it has also diversified into other low-wage nations where regulations are more lax, including Malaysia, Mexico, Brazil, Vietnam and Indonesia.
Reward social responsibility
In a global market where companies compete fiercely across national boundaries, governments should coordinate closely to maintain a regulatory framework that incentivizes firms to undertake more socially responsible actions. Participating in trade agreements with strong environmental requirements, and in global coalitions such as those proposed at the United Nations Climate Change Conferences, is one way to coordinate. Unfortunately, some of the world’s largest economies seem to be stepping in the opposite direction.
Jobs are important for both developed and developing countries. In the face of globalization, however, national leaders should focus more on jobs that are sustainable and do not come at the expense of the environment.
The best-known examples include the U.K.’s Behavioural Insights Team, created in 2010, and the White House-based Social and Behavioral Sciences Team, introduced by the Obama administration in 2014. Their mission is to leverage findings from behavioral science so that people’s decisions can be nudged in the direction of their best intentions without curtailing their ability to make choices that don’t align with their priorities.
Overall, these – and other – governments have made important strides when it comes to using behavioral science to nudge their constituents into better choices.
Yet, the same governments have done little to improve their own decision-making processes. Consider big missteps like the Flint water crisis. How could officials in Michigan decide to place an essential service – safe water – and almost 100,000 people at risk in order to save US$100 per day for three months? No defensible decision-making process should have allowed this call to be made.
When it comes to many of the big decisions faced by governments – and the private sector – behavioral science has more to offer than simple nudges.
Behavioral scientists who study decision-making processes could also help policy-makers understand why things went wrong in Flint, and how to get their arms around a wide array of society’s biggest problems – from energy transitions to how to best approach the refugee crisis in Syria.
When nudges are enough
The idea of nudging people in the direction of decisions that are in their own best interest has been around for a while. But it was popularized in 2008 with the publication of the bestseller “Nudge” by Richard Thaler of the University of Chicago and Cass Sunstein of Harvard.
A common nudge goes something like this: if we want to eat better but are having a hard time doing it, choice architects can reengineer the environment in which we make our food choices so that healthier options are intuitively easier to select, without making it unrealistically difficult to eat junk food if that’s what we’d rather do. So, for example, we can shelve healthy foods at eye level in supermarkets, with less-healthy options relegated to the shelves nearer to the floor.
Likewise, if we want to encourage more people to be organ donors, choice architects can design the form we fill out at the DMV so that the choice we make without thinking is the one that may allow us to save someone’s life in the future.
In my own research group, we lump these kinds of interventions under the umbrella of passive decision support because they don’t require a lot of effort on the part of a decision-maker. Indeed, these approaches are about exploiting – not correcting – the judgmental biases that people bring with them to all manner of decisions, large and small.
Since the publication of “Nudge,” there has been a proliferation of interest in bringing choice architecture into the policy mainstream. Even institutions like the World Bank and the Organization of Economic Cooperation and Development are rolling out their own nudge units. And, you shouldn’t be surprised to learn that the private sector has jumped on the increasingly crowded bandwagon of for-profit nudging.
Nudges work for a wide array of choices, from ones we face every day to those that we face infrequently. Likewise, nudges are particularly well-suited to decisions that are complex with lots of different alternatives to choose from. And, they are advocated in situations where the outcomes of our decisions are delayed far enough into the future that they feel uncertain or abstract. This describes many of the big decisions policy-makers face, so it makes sense to think the solution must be more nudge units.
But herein lies the rub. For every context where a nudge seems like a realistic option, there’s at least another context where the application of passive decision support would be either be impossible – or, worse, a mistake.
Take, for example, the question of energy transitions. These transitions are often characterized by the move from infrastructure based on fossil fuels to renewables to address all manner of risks, including those from climate change. These are decisions that society makes infrequently. They are complex. And, the outcomes – which are based on our ability to meet conflicting economic, social and environmental objectives – will be delayed.
But, absent regulation that would place severe restrictions on the kinds of options we could choose from – and which, incidentally, would violate the freedom-of-choice tenet of choice architecture – there’s no way to put renewable infrastructure options at proverbial eye level for state or federal decision-makers, or their stakeholders.
Simply put, a nudge for a decision like this would be impossible. In these cases, decisions have to be made the old-fashioned way: with a heavy lift instead of a nudge.
In these cases, specialists trained in the science of decision-making must work with people both to help them to overcome predictable biases and to approach decisions in a way that is different from how they might otherwise make them instinctively. To inform and structure these kinds of decisions, we – like choice architects – also look to insights from the behavioral sciences.
For example, we have a rich understanding of the decision-making shortcuts that people apply, as well as of the predictable biases that accompany them. So, we know what to be on the lookout for when we help individuals and groups make better decisions.
When evaluating problems that unfold over long periods of time, we know that people tend not to look at cumulative effects, or consider how choices made today may restrict the choices that can be made in the future.
Likewise, we see that decision-makers struggle with questions about how to put boundaries around the problem before them. For example, who really counts as a legitimate stakeholder, and who doesn’t? Likewise, are there hard deadlines or financial ceilings that must be obeyed? Or are these really soft constraints that can be challenged if the right option can be identified?
We’ve also learned that decision-makers often fail to adequately account for the broad range of objectives that ought to guide their decisions, as well as the performance measures that let them know if they’ve achieved them. And, we know that the manner in which people search for alternatives is often incremental at best. People look to obvious and easy-to-find options, the tendency that nudges exploit, at the expense of the creativity that’s required to address the really complex challenges.
Perhaps worst of all, we observe that people avoid the necessary trade-offs when a choice can’t simultaneously achieve all of the objectives that they deem to be important. It’s often the case that the objectives that push emotional hot buttons, like fear, are the ones we pay the most attention to when trade-offs are difficult or uncomfortable, even if these objectives play a relatively small role in terms of advancing our overall well-being.
Active decision support helps decision-makers to overcome all of these obstacles, as well as others.
Unlike nudging, the intent of active decision support isn’t to direct people toward a specific course of action. It is to structure the decision-making process so that resulting choices are defensible – in other words, in line with our prioritized objectives. For big policies, this includes the deliberate balancing act between social, economic and environmental well-being.
The good news for policy-makers is that a wide range of tools and approaches are available which may help them make more defensible decisions.
Active decision support approaches work by breaking complex decisions into more cognitively manageable parts. And they are desperately needed. The wicked problems faced by society can’t be nudged away. Emergencies like the humanitarian crisis in Syria and the slow violence of climate change cry out for active decision support.
Yet, as governments amass nudge units, and as the private sector adopts a behavioral mindset in their marketing and public relations offices, the need for behavioral insights that support complex decisions goes unmet. Why? Perhaps because active decision support is often seen as something smart, educated people in the public and private sectors should be able to do intuitively, on their own. But, the simple truth is, they can’t. And, without investing in building the internal capacity for active decision support, they won’t.
THE CONVERSATION – September 29, 2016 by Aradhna Krishna and Tatiana Sokolova
How do voters select a candidate when no one they like is on the ballot?
Behavioral scientists have studied decision-making – including voting – for decades. However, researchers usually give respondents at least one appealing option to choose from.
This led us to wonder: What do voters do when they consider all of the options bad? Do they fall back on party affiliation, or simply toss a coin? This question is especially appropriate in the current presidential election because the two front runners have the lowest favorability ratings ever.
When we did research to answer this question, we learned that in situations where all of the choices are bad, people tend to vote by rejecting the choices they didn’t like, rather than by affirmatively choosing the one they disliked least.
Imagine there are two undesirable candidates named Tilly and Ron. Given this “two bad choices” option, voters will be more likely to select Tilly because they reject Ron, rather than select Tilly proactively.
While the end result may be the same, the thought process that leads to this decision is quite different.
As behavioral scientists who study how people make decisions, we think this distinction could affect the upcoming presidential election. If people select between Clinton and Trump by using rejection rather than choice, then the information they use to make their decisions will be different.
In some ways, it may be better. Voters using rejection are more deliberate. They are less likely to be swayed by unimportant information about a candidate that they read or hear on radio, television or Facebook. They may pay less attention to rumors. In fact, conscientious voters may be well served to actively adopt a rejection strategy for their vote in order to make a choice more deliberately.
Choosing to reject
In a study we ran online in April, we showed people only Hillary Clinton and Donald Trump as the two candidates for president. Those who found at least one of them attractive were more likely to select by choice, while those who disliked both were more likely to select by rejection.
Having determined that people use rejection strategies to make their voting decisions in bad-option situations, we next wanted to test how rejection strategies would change the information people focus on.
In nine separate studies we conducted, some of which will be published in an upcoming Journal of Consumer Research, we found that when people use rejection strategies, they also become more deliberate in their decision-making. In other words, they pay more attention to all information they have – both good and bad – and don’t get swayed as much by one piece of information that sticks out.
In our research, we saw more deliberation in rejection decisions and less of a tendency to be swayed by emotional, in-your-face information.
For example, one of these studies determined that people were less likely to vote based on party affiliation if they voted by rejection, rather than by choice. Respondents also took less time to make their decision in the choice condition versus the rejection condition.
Revisiting an old favorite
We reached these results by revisiting a classic study known as the “Asian disease problem.”
The Asian disease problem was first proposed by the behavioral economists Daniel Kahneman and Amos Tversky in 1981. It is well-studied because of the contradictory choices people make, and is one of the many conundrums that Kahneman proposed which later won him the Nobel Prize.
In the standard formulation of the Asian disease problem, people choose between two programs to combat an unusual Asian disease: program A, which offers certainty; and program B, which involves a risk.
The original research showed that people change their preferences between the two programs depending on how the options are described.
People tend to select the more certain program A if it is framed as a gain. Specifically, 72 percent of respondents preferred (A) “200 people are saved out of 600” while 28 percent picked the riskier (B) “1/3 probability that 600 people are saved and 2/3 probability that no one is saved.”
That may seem rational. However, change the wording and the results also change – even though the theoretical loss of life remains the same.
Program A was preferred by only 22 percent of the recipients when researchers framed the choice like this: (A) “400 people will die out of 600” versus (B) “2/3 probability that 600 people will die and a 1/3 probability that no one will die.” With this wording, 78 percent choose the riskier option. This is because people tend to focus on emotionally salient information like “save” and “die.”
Emotional appeals less powerful
Our new research revisits this classic problem to study what would happen if the respondents were choosing which program to reject instead of which one to choose. Would people be swayed less by the attention-grabbing words like “save” and “die”?
When we asked respondents which program would you reject, respondents’ selections were affected less by the use of the emotional words. Program A was selected by 48 percent in the first pair and 43 percent selected it in the second. In other words, the decision between program A and program B was similar, whether “save” or “die” was used to describe the programs.
The study results indicate that wild in-your-face claims made by candidates will get less weight if people use rejection strategies to vote.
Princeton psychology scholar Eldar Shafir has also found that rejection makes people focus on negative attributes. Perhaps the candidates’ campaign managers know this already and that is why the negativity in this election has been so high. But, the point to remember is that this cannot be a shallow negative attribute like sounding bossy or having a spray-tanning habit. People voting by rejection will be more deliberate – and will look carefully at what makes a candidate bad. Emotional claims will not work. Voters will think carefully about why they want to reject one of the candidates.