At Harbert: Research
Miles Zachary Associate Professor Department of Management and Entrepreneurship
Ethical Stances Tested By Real-Life Concerns C ompanies often tout their virtues but sometimes fail to follow them.
“Investors really have to test their mettle,” Zachary said. “Are you really going to get rid of stock that you think might increase five or tenfold in the next five to seven years just because their CEO did something wrong or their board did something unethical?” However, the situation is becoming tougher for companies once considered immune to social speculation. They’re increasingly being held accountable through social media, often by stakeholders — who aren’t always shareholders. “A lot of people in our field are merging stakeholder theory with social movements and activism, so there’s definitely more research directed at questions like, ‘How do these other stakeholders compete for attention, given that they’re small and usually fairly diffuse?’” Zachary said. “They lack the traditional power that investors have, but they’re powerful because they can organize and their collective voices matter. “You see #metoo and Black Lives Matter, where it starts small but then gets really big. The next thing you know, those things actually make
the needle move for executives who might otherwise not really care about that. That’s not to say they don’t value what’s being said, but they’re making company-level decisions and they’re trying to do it in the best interest of the shareholder. They’re truly between a rock and a hard place there.” But stakeholders must reconcile their own competing interests, too. Ethical stances are often tested when more utilitarian concerns such as changes in real income, inflation and unemployment are at play. This makes it more difficult for investors and other stakeholders like customers and employees to reconcile ethical concerns. And it’s not getting any easier. “A stakeholder may care about what companies do and don’t do, but (for shareholders) families still need to be fed, money still needs to be saved and other life needs met,” Zachary said. He suggests one primary takeaway from his research: Practice what you preach. “No one likes a hypocrite,” he said, “and this includes any company stakeholder.”
Miles Zachary , associate professor in the Department of Management and Entrepreneurship, explores the psychological and societal aspects of how organizations “walk the talk” in their public stances on ethical issues, primarily those involving environmental, social and governance issues, or ESG. A paper Zachary recently published in the Journal of Management with Harbert colleague Brian Connelly researches the impact of companies following through on what they say. Their recent paper shows that the more companies talk about ethics before a violation, the more shareholders hold the company accountable. They argue this is because virtuous rhetoric creates expectations that, when violated, anger investors. Still, that’s not true for all companies. For a small subset of them, investors may discount or even ignore an ethics violation. What set these companies apart was their high expected future value — companies such as Tesla, or the Facebook of the early 2010s.
10 Harbert Business, Fall 2022
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