James Westphal - The Systemic Symbolic Management of Corporate Purpose and Social Responsibility
From Nicole Proano Lasso
views
comments
Related Media
James Westphal
The Systemic Symbolic Management of Corporate Purpose and Social Responsibility
Welcome to this brief overview of my paper, The Systemic Symbolic Management Of Corporate Purpose. So in recent years large groups of corporate leaders have publicly embraced a broader conception of corporate purpose that emphasizes corporate social responsibility and the attendance stakeholder model of corporate governance. One take on this phenomenon is that it represents the natural extension of an apparent trend over the past decade to incorporate CSR, into systems of corporate control. Emerging Themes in this still growing literature on corporate governance and CSR are that first, the strength of internal and external corporate control mechanisms including executive incentives, board control and the appraisals of security analysts, strongly determine Corporate Social Performance or CSP. And secondly that, CSR is becoming a key performance criterion in these control mechanisms. The conception of corporate control in this literature is rooted fundamentally in the agency model of governance, which views the corporation as, a hierarchy of control mechanisms that promote organizational efficiency and effectiveness, with incentive alignment and board control over management at its core. In this article, I take issue with this relatively optimistic view on the relationship between corporate governance and CSR. I argue that symbolic decoupling or a separation between external appearances natural practices in organizations, is pervasive in the governance system and is present in the very control mechanisms that many researchers have argued or assumed can enhance CSP. The organizational literature on CSR has long recognized potential for impression management and CSR initiatives. But I argue that even this literature has significantly underestimated the extent of symbolic management in several respects. First, research on symbolic decoupling and CSR has neglected the potential for token change in part by assuming that the mere presence of CSR related criteria and performance appraisals indicates the absence of decoupling. And second, scholars have conceptualized impression management and decoupling as mainly firm level phenomenon, and that fails to recognize the multi-level and systemic nature of decoupling and symbolic management. When the full scope and depth of symbolic management is recognized, it becomes clear that, rather than trending toward a more substantive integration of CSR into corporate governance practices, as many scholars and observers have assumed, the decoupling of CSR has become more firmly entrenched, pervasive and even institutionalized in corporate governance. I argue that the recent tendency for whole groups of leaders to embrace a broader conception of corporate purpose, one that emphasizes the importance of CSR, reflects this broadening and institutionalization of symbolic management more than it does a sort of qualitative shift in corporate objectives. The systemic nature of decoupling explains the emergence and efficacy of corporate purpose as a form of symbolic action. In the remainder of this brief presentation I outlined the core arguments in my paper. In the first part of the paper, I described the symbolic decoupling of two control mechanisms that are believed or assumed by many governance scholars to play a central role in boosting the average CSR of corporations. And that is Executive Incentives And Independent Board Control. I show that the apparent trend towards CSR contingent pay, which makes executive pay contingent on CSP a trend that is highlighted in the Davos Manifesto and increasingly referenced by executives to affirm their alignment with ESG related criteria, is typically more symbolic than substantive at least in American companies. It turns out that except in rare cases, CSP has only a token presence in executive incentive plans. And while a growing number of boards have a sustainability committee, another trend that's celebrated as an indicator of CSR and governance by various stakeholder groups, our surveys and interviews indicate that directors don't normally expect matters addressed by the committee to be considered in strategic decision making by the full board. If social or environmental implications of a strategic decision are discussed by other directors, it tends to be after the decision is made, in preparation for external communication. And yet managers reference these committees to support their claims of commitment to CSR and public disclosures and verbal communications with intermediaries. In the second section, I describe historical precedence for the symbolic decoupling of CSR and corporate purpose. The argument here is that scholars may have underestimated the potential for decoupling in part because behavior research on governance and CSR hasn't always looked to the larger literature on symbolic management and institutional processes. That literature reveals a long history of decoupling and governance that directly anticipates the decoupling of corporate control over CSR. The symbolic decoupling of CSR contingent pay and independent board control over CSR, directly extends earlier forms of decoupling of governance policies such as long term incentive plans, repurchase plans and independent board structures. In a recent paper, we examined the diffusion of decoupling that involves a change in the sequence of actions and strategic decision making. Leaders appeared to engage in a participative process that used crowdsourcing technology to seek input on strategy from below the executive suite, but they often decided on a strategic option before seeking input. Executives then highlighted the participative process in communicating with analysts to legitimize their leadership and strategy. This form of decoupling anticipates the role of sustainability committees and CSR, because the social and environmental implications of strategic initiatives are often assessed after decisions are made, in preparation for external communications about them. Collective expressions of corporate purpose such as the Davos Manifesto and the business round table statement, also extend previous forms of cooperative symbolic management by corporate leaders, such as symbolic management support, in which leaders make positive statements about the leadership and governance of other firms, when they communicate with security analysts and journalists. In a recent book, Sun Park and I described a historical progression of symbolic action, from decoupled policies like incentive plans, to decoupled structures like board reforms, to decoupled processes like participative decision making. Each new arena of symbolic action is more fundamental than the last, symbolic structures affect the legitimacy of multiple policies, and symbolic processes affect the legitimacy of multiple policies and structures. Statements of corporate purpose extend this progression to an even more fundamental arena of symbolic action corporate values. The symbolic management of values can color stakeholder reactions to the full array of corporate actions, from policies to structures to processes. The claim here is that symbolic management has evolved over time to become more fundamental, and we think more potent. In the next section, I describe The Systemic Nature Of Symbolic Management. Corporate governance appears to be an interlocking system of horizontal and vertical checks and balances. Higher levels appear to exert independent control over lower levels, and intermediaries appear to facilitate control by providing expert independent assessments of corporate policy, that mitigate information asymmetry in the system. But from the symbolic management perspective, each of these relationships and evaluations is less independent and more cooperative or collusive than it appears to be on the surface. Corporate governance is a mutually reinforcing system of mostly ceremonial roles and relationships that support the legitimacy of the larger system. I describe the ceremonial validation of CSR and corporate purpose provided by various intermediaries and stakeholders in the system, including sustainability rating agencies, institutional investors, corporate governance, consultants and academic researchers themselves. As an example, consulting firms play a multifaceted supporting role in the symbolic management system. Their promotional materials pair well and reinforce the communications of institutional investors. Willis Towers, Watson, or WTW, which is my old employer before I was an academic, warns that companies must resist the tendency toward an action, as climate is widely considered the single most significant risk to the planet. And that quote, "Investors expect companies to demonstrate the appropriateness and extent of climate metrics. They are cautious not to applaud companies just because they have included a climate metric." That these communications validate both the policies of their clients and the independence of institutional investors. But when it comes to specific recommendations to clients, the language gets curiously tempered in much the same way as Larry Fink's annual letter to CEOs, which I also analyze in the paper. For example, WTW's executive compensation guidebook says quote, "The board may want to consider including climate related targets and indicators in their executive incentive schemes, where appropriate." quote unquote. And the recommended targets are less than ambitious. And surprisingly many of the firms that signed the business round table pledge and adopted merely token CSR contingent pay plans, our clients of WTW are one of its competitors. So while governance consultants have actively totted their role in connecting environmental performance to executive pay, they've really facilitated the diffusion of symbolic corporate control over CSR. Governance consultants also play a key role in advising executives on their symbolic communications. The marketing strategies of these firms have long emphasized cross selling between their communication and executive pay practices. That's been the case back since the eighties, when I worked there. WTW promises to help clients quote, "Tell the story of how executive compensation drives climate transition." Unquote. And the frameworks developed by major consulting firms directly or indirectly promote decoupling between corporate strategy and CSR. For example, the so-called funnel approach to effective climate governance, which is developed and sold by WTW, is a multi-stage process that begins with identifying, which climate topics are most important to the board, not necessarily to society, then determining the narrower subset of climate matters the company discloses to investors in the public, and from that deriving the subset of metrics to be included in compensation plans. So in this approach, executive incentives are not a driver of the firm's climate policy as advertised, but an outcome of the policy. And this approach to incentive plan design, is another case of decoupling that involves a disparity between the normatively legitimate sequence of actions that would benefit stakeholders, and the actual sequence of actions that suits executives and directors. And naturally the last stage of this process involves quote, "Telling the story." Unquote. So in the next section, I describe key Dyadic and Group-Level Social and Psychological Processes that contribute to symbolic management or support it. These include, verbal impression management and communication between leaders and intermediaries, social network ties between leaders of different firms, interpersonal influence processes, social control including social distancing, or the marginalization of independent actors in the system and group level biases like pluralistic ignorance. I argue that while these processes are mostly inconspicuous to stakeholders and below the radar screen, they play a major role in amplifying the reputational benefits of symbolic management, and they deepen and perpetuate the various forms of decoupling. And then in the final section of the paper, I focus on the Symbolic Management And Decoupling of Diversity, Equity and Inclusion In Corporate Leadership. I review evidence that apparent increases in demographic diversity disguise the marginalization of minorities from a variety of decision making and support processes. And I show that while low firm performance or threats to firm reputation trigger rhetoric about the commitments that firms had to diversity, and minority managers and directors are often expected to make disproportionate contributions to symbolic management. They're especially likely to be marginalized from these various support networks, and especially vulnerable to reputational harm under these very same conditions. On one level, the discrimination underlies this pattern of decoupling can be attributed to inter-group biases, which are exacerbated by poor performance and threats to reputation. But the combination of symbolic management and decoupling of DEI that's revealed in our research, suggests a lack of commitment to basic tenants of the stakeholder model among many corporate leaders, that goes well beyond subconscious biases. To conclude, the symbolic management perspective cast out on the potential for socially responsible investing or shareholder activism to achieve needed improvements in CSP. Change will have to come from outside the governance system, and whether it takes the form of government regulation or new forms of social activism, it will depend on better information about organizational behavior. Some strides have been made in the measurement of environmental performance, but the measurement of social and governance performance has lagged, in part because the symbolic management system has supported superficial measures, that really disguise decoupling and create the illusion of progress. Academic researchers can play a key role in developing better measures of CSP that disclose and deter decoupling, and that support efforts of policy makers and activists to create real social change. There are benefits in raising awareness about various forms of decoupling, but researchers can go further. One promising approach is to use AI to model the linguistic features of communications at firms that engage in decoupling, to predict the likelihood of future decoupling. The publication promotion and ongoing revision of such models could trigger a virtuous cycle of disclosure and reform, as firms are incentivized to disclose more specific and reliable information to earn higher scores from the next generation of models. Information intermediaries that operate within the governance system have generally failed to facilitate needed social and environmental reforms, and in some ways have impeded change. Academic researchers are now in a position to play among the most important and neglected roles in corporate governance. That of an independent information intermediary between corporations and their stakeholders. Thank you for listening.
The Systemic Symbolic Management of Corporate Purpose and Social Responsibility
Welcome to this brief overview of my paper, The Systemic Symbolic Management Of Corporate Purpose. So in recent years large groups of corporate leaders have publicly embraced a broader conception of corporate purpose that emphasizes corporate social responsibility and the attendance stakeholder model of corporate governance. One take on this phenomenon is that it represents the natural extension of an apparent trend over the past decade to incorporate CSR, into systems of corporate control. Emerging Themes in this still growing literature on corporate governance and CSR are that first, the strength of internal and external corporate control mechanisms including executive incentives, board control and the appraisals of security analysts, strongly determine Corporate Social Performance or CSP. And secondly that, CSR is becoming a key performance criterion in these control mechanisms. The conception of corporate control in this literature is rooted fundamentally in the agency model of governance, which views the corporation as, a hierarchy of control mechanisms that promote organizational efficiency and effectiveness, with incentive alignment and board control over management at its core. In this article, I take issue with this relatively optimistic view on the relationship between corporate governance and CSR. I argue that symbolic decoupling or a separation between external appearances natural practices in organizations, is pervasive in the governance system and is present in the very control mechanisms that many researchers have argued or assumed can enhance CSP. The organizational literature on CSR has long recognized potential for impression management and CSR initiatives. But I argue that even this literature has significantly underestimated the extent of symbolic management in several respects. First, research on symbolic decoupling and CSR has neglected the potential for token change in part by assuming that the mere presence of CSR related criteria and performance appraisals indicates the absence of decoupling. And second, scholars have conceptualized impression management and decoupling as mainly firm level phenomenon, and that fails to recognize the multi-level and systemic nature of decoupling and symbolic management. When the full scope and depth of symbolic management is recognized, it becomes clear that, rather than trending toward a more substantive integration of CSR into corporate governance practices, as many scholars and observers have assumed, the decoupling of CSR has become more firmly entrenched, pervasive and even institutionalized in corporate governance. I argue that the recent tendency for whole groups of leaders to embrace a broader conception of corporate purpose, one that emphasizes the importance of CSR, reflects this broadening and institutionalization of symbolic management more than it does a sort of qualitative shift in corporate objectives. The systemic nature of decoupling explains the emergence and efficacy of corporate purpose as a form of symbolic action. In the remainder of this brief presentation I outlined the core arguments in my paper. In the first part of the paper, I described the symbolic decoupling of two control mechanisms that are believed or assumed by many governance scholars to play a central role in boosting the average CSR of corporations. And that is Executive Incentives And Independent Board Control. I show that the apparent trend towards CSR contingent pay, which makes executive pay contingent on CSP a trend that is highlighted in the Davos Manifesto and increasingly referenced by executives to affirm their alignment with ESG related criteria, is typically more symbolic than substantive at least in American companies. It turns out that except in rare cases, CSP has only a token presence in executive incentive plans. And while a growing number of boards have a sustainability committee, another trend that's celebrated as an indicator of CSR and governance by various stakeholder groups, our surveys and interviews indicate that directors don't normally expect matters addressed by the committee to be considered in strategic decision making by the full board. If social or environmental implications of a strategic decision are discussed by other directors, it tends to be after the decision is made, in preparation for external communication. And yet managers reference these committees to support their claims of commitment to CSR and public disclosures and verbal communications with intermediaries. In the second section, I describe historical precedence for the symbolic decoupling of CSR and corporate purpose. The argument here is that scholars may have underestimated the potential for decoupling in part because behavior research on governance and CSR hasn't always looked to the larger literature on symbolic management and institutional processes. That literature reveals a long history of decoupling and governance that directly anticipates the decoupling of corporate control over CSR. The symbolic decoupling of CSR contingent pay and independent board control over CSR, directly extends earlier forms of decoupling of governance policies such as long term incentive plans, repurchase plans and independent board structures. In a recent paper, we examined the diffusion of decoupling that involves a change in the sequence of actions and strategic decision making. Leaders appeared to engage in a participative process that used crowdsourcing technology to seek input on strategy from below the executive suite, but they often decided on a strategic option before seeking input. Executives then highlighted the participative process in communicating with analysts to legitimize their leadership and strategy. This form of decoupling anticipates the role of sustainability committees and CSR, because the social and environmental implications of strategic initiatives are often assessed after decisions are made, in preparation for external communications about them. Collective expressions of corporate purpose such as the Davos Manifesto and the business round table statement, also extend previous forms of cooperative symbolic management by corporate leaders, such as symbolic management support, in which leaders make positive statements about the leadership and governance of other firms, when they communicate with security analysts and journalists. In a recent book, Sun Park and I described a historical progression of symbolic action, from decoupled policies like incentive plans, to decoupled structures like board reforms, to decoupled processes like participative decision making. Each new arena of symbolic action is more fundamental than the last, symbolic structures affect the legitimacy of multiple policies, and symbolic processes affect the legitimacy of multiple policies and structures. Statements of corporate purpose extend this progression to an even more fundamental arena of symbolic action corporate values. The symbolic management of values can color stakeholder reactions to the full array of corporate actions, from policies to structures to processes. The claim here is that symbolic management has evolved over time to become more fundamental, and we think more potent. In the next section, I describe The Systemic Nature Of Symbolic Management. Corporate governance appears to be an interlocking system of horizontal and vertical checks and balances. Higher levels appear to exert independent control over lower levels, and intermediaries appear to facilitate control by providing expert independent assessments of corporate policy, that mitigate information asymmetry in the system. But from the symbolic management perspective, each of these relationships and evaluations is less independent and more cooperative or collusive than it appears to be on the surface. Corporate governance is a mutually reinforcing system of mostly ceremonial roles and relationships that support the legitimacy of the larger system. I describe the ceremonial validation of CSR and corporate purpose provided by various intermediaries and stakeholders in the system, including sustainability rating agencies, institutional investors, corporate governance, consultants and academic researchers themselves. As an example, consulting firms play a multifaceted supporting role in the symbolic management system. Their promotional materials pair well and reinforce the communications of institutional investors. Willis Towers, Watson, or WTW, which is my old employer before I was an academic, warns that companies must resist the tendency toward an action, as climate is widely considered the single most significant risk to the planet. And that quote, "Investors expect companies to demonstrate the appropriateness and extent of climate metrics. They are cautious not to applaud companies just because they have included a climate metric." That these communications validate both the policies of their clients and the independence of institutional investors. But when it comes to specific recommendations to clients, the language gets curiously tempered in much the same way as Larry Fink's annual letter to CEOs, which I also analyze in the paper. For example, WTW's executive compensation guidebook says quote, "The board may want to consider including climate related targets and indicators in their executive incentive schemes, where appropriate." quote unquote. And the recommended targets are less than ambitious. And surprisingly many of the firms that signed the business round table pledge and adopted merely token CSR contingent pay plans, our clients of WTW are one of its competitors. So while governance consultants have actively totted their role in connecting environmental performance to executive pay, they've really facilitated the diffusion of symbolic corporate control over CSR. Governance consultants also play a key role in advising executives on their symbolic communications. The marketing strategies of these firms have long emphasized cross selling between their communication and executive pay practices. That's been the case back since the eighties, when I worked there. WTW promises to help clients quote, "Tell the story of how executive compensation drives climate transition." Unquote. And the frameworks developed by major consulting firms directly or indirectly promote decoupling between corporate strategy and CSR. For example, the so-called funnel approach to effective climate governance, which is developed and sold by WTW, is a multi-stage process that begins with identifying, which climate topics are most important to the board, not necessarily to society, then determining the narrower subset of climate matters the company discloses to investors in the public, and from that deriving the subset of metrics to be included in compensation plans. So in this approach, executive incentives are not a driver of the firm's climate policy as advertised, but an outcome of the policy. And this approach to incentive plan design, is another case of decoupling that involves a disparity between the normatively legitimate sequence of actions that would benefit stakeholders, and the actual sequence of actions that suits executives and directors. And naturally the last stage of this process involves quote, "Telling the story." Unquote. So in the next section, I describe key Dyadic and Group-Level Social and Psychological Processes that contribute to symbolic management or support it. These include, verbal impression management and communication between leaders and intermediaries, social network ties between leaders of different firms, interpersonal influence processes, social control including social distancing, or the marginalization of independent actors in the system and group level biases like pluralistic ignorance. I argue that while these processes are mostly inconspicuous to stakeholders and below the radar screen, they play a major role in amplifying the reputational benefits of symbolic management, and they deepen and perpetuate the various forms of decoupling. And then in the final section of the paper, I focus on the Symbolic Management And Decoupling of Diversity, Equity and Inclusion In Corporate Leadership. I review evidence that apparent increases in demographic diversity disguise the marginalization of minorities from a variety of decision making and support processes. And I show that while low firm performance or threats to firm reputation trigger rhetoric about the commitments that firms had to diversity, and minority managers and directors are often expected to make disproportionate contributions to symbolic management. They're especially likely to be marginalized from these various support networks, and especially vulnerable to reputational harm under these very same conditions. On one level, the discrimination underlies this pattern of decoupling can be attributed to inter-group biases, which are exacerbated by poor performance and threats to reputation. But the combination of symbolic management and decoupling of DEI that's revealed in our research, suggests a lack of commitment to basic tenants of the stakeholder model among many corporate leaders, that goes well beyond subconscious biases. To conclude, the symbolic management perspective cast out on the potential for socially responsible investing or shareholder activism to achieve needed improvements in CSP. Change will have to come from outside the governance system, and whether it takes the form of government regulation or new forms of social activism, it will depend on better information about organizational behavior. Some strides have been made in the measurement of environmental performance, but the measurement of social and governance performance has lagged, in part because the symbolic management system has supported superficial measures, that really disguise decoupling and create the illusion of progress. Academic researchers can play a key role in developing better measures of CSP that disclose and deter decoupling, and that support efforts of policy makers and activists to create real social change. There are benefits in raising awareness about various forms of decoupling, but researchers can go further. One promising approach is to use AI to model the linguistic features of communications at firms that engage in decoupling, to predict the likelihood of future decoupling. The publication promotion and ongoing revision of such models could trigger a virtuous cycle of disclosure and reform, as firms are incentivized to disclose more specific and reliable information to earn higher scores from the next generation of models. Information intermediaries that operate within the governance system have generally failed to facilitate needed social and environmental reforms, and in some ways have impeded change. Academic researchers are now in a position to play among the most important and neglected roles in corporate governance. That of an independent information intermediary between corporations and their stakeholders. Thank you for listening.
- Tags
-