Ideologies Can Affect Corporate Sustainability Strategies and Results

18 Nov 2021

Fabrizio Ferraro, Professor and Head of IESE Business School’s Strategic Management Department, elaborates in this interview with STI on a research project currently under his leadership.  The three-part study, “Organizational Culture and Political Ideology in the Sustainability Transition,” has received grant support from the Social Trends Institute.

STI Experts

STI: Your project is about political ideology and political polarization, and their consequences for business. Why is this such an important topic today?

FF: The sustainability transition will lead corporations to increasingly tackle complex, ambiguous issues such as globalization, climate change, and inequality. As these grand challenges are eminently political, stakeholders and the broader public might hold divergent if not polarized views on them. Indeed, even on climate change and inequality, two core social issues that are increasingly central to the debate on the public role of corporations, the general public and corporate employees hold divergent views. For example, a recent poll published by the Pew Research Center shows that Americans are deeply divided politically over the degree to which human activity contributes to climate change. Some 70% Democrats believe that human activity contributes a great deal to climate change, whereas only around 20% of Republicans do. Beliefs about the causes of climate change are important, insofar as they directly relate to beliefs about the urgency of this issue, its solutions, and the role that government and business should play in tackling it. Therefore, continuing with this example, we might expect that whether the primary corporate decision-makers are predominantly liberal or conservative might significantly influence their firm’s environmental performance. One of the papers in this project addresses this question as to whether the political ideology of CEOs affects their firms’ environmental impact – in terms of carbon emissions.

Another reason why the consequences of political ideology for business is such an important topic today is that corporate leaders are increasingly taking public stances and acting on these hot button issues  - especially in the United States, despite the significant political divide among the general public about them. One recent example is that of the public stances of CEOs (e.g., Delta Airlines and Coca-Cola) regarding the voting registration bill for the state of Georgia. The polarized nature of these topics means that this form of activism can trigger polarized responses by the public – investors, consumers, employees. We believe that this phenomenon in a context of polarization raises important, and so far, relatively neglected, questions on the effects of political ideologies on corporate behavior.

STI: In your project, you focus not only on CEOs’ and top managers’ political ideologies, but also on those of a key group of stakeholders: employees. Why do you think their political beliefs matter in understanding corporate behaviors and outcomes?

FF: Not only CEOs and corporate elites have ideological leanings that enter into decision making. Studies in political psychology show that people unconsciously filter information from their environment through their ideologies. Thus, they imbue their values into their decisions across contexts, even when such decisions are not related to polarized issues. The ideological division between liberal- and conservative-leaning individuals can thus shape action in traditionally non-political domains. Some studies show, for instance, that people who hold opposing ideologies systematically differ in their personal home-mortgage leverage decisions, in the organization of their physical office spaces, and in their consumption behaviours, to name a few. This is important, given that these systematic differences may also shape decisions made at work. These decisions may in turn affect corporate behaviours, as important corporate outcomes depend on processes involving employees at various organizational levels – not just from the upper echelon. Recent studies in Organizational Theory indeed show that the prevailing political leaning of a firm’s workforce, when this exists, predicts important corporate outcomes. Therefore, employees’ ideologies do matter for business.

STI: Yet, not all firms have homogenous workforces in terms of political leaning, do they? Is this why one of the papers in this project focuses on political diversity?

FF: That’s right. The workplace may involve greater exposure to people with different political perspectives, unlike contexts such as the family, the neighbourhood, or voluntary associations. In a society where we increasingly interact within echo chambers, among groups of politically like-minded individuals, it is pivotal to investigate those spaces where people experience exposure to dissimilar political beliefs. Moreover, since grand challenges require bringing stakeholders together over time and dealing with complex and ambiguous issues, we believe that it is key to understand how this ideological diversity shapes organizational behavior, starting with the political diversity experienced by members of organizations.

Therefore, in one of the project’s papers, led by my PhD student Ludovica Castiglia, we introduce the concept of organizational political diversity, which refers to the presence in an organization of members holding different political ideologies, and we show that the majority of American publicly traded firms do not have workforces with a dominant political leaning. In the paper, we start to investigate how the presence of polarized views within the organization affects its strategic decisions and outcomes. As corporations navigate complex issues an increasingly polarized landscape, it is important to understand how corporations composed by divided workforces face these challenges. Is political diversity a source of improved social performance as are other forms of diversity (e.g., gender, ethnic)? Does political diversity hamper a corporate sustainability transition, or does it improve it by putting the organization in a better position to respond to societal expectations on social and environmental issues?

STI: Your project also studies organizational culture. How is this related to political ideology?

FF: The two concepts, organizational culture and political ideology, are distinct. The former refers to the shared values and norms within an organization. These define what appropriate attitudes and behaviors are for an organization’s members. For example, an organization may be customer-oriented, like Amazon, which defines this value as “customer obsession,” fostering a culture in which employees are expected to put the customer at the center of every decision. Ideology, on the other hand, refers to the beliefs and perspectives held by individuals – employees in the context of an organization - about society at large. For example, individuals may hold beliefs about whether inequality at the societal level – e.g., in income - is the result of individual responsibility or of structural causes. Thus, the beliefs of organizational members refer to two different entities in the two cases: organization and society respectively.

However, employees’ political ideologies can affect organizational culture. Indeed, individuals with different political leanings might associate different role expectations with their firms. For example, those who are more liberal might expect their organization to take more responsibility on social issues than would those who are more conservative. Thus, political ideology – defined as the set beliefs about the proper order of society and how it can be achieved – may directly relate to culture – beliefs about the organization.

STI: Speaking of culture, you also inquire into its relationship with misconduct. How can this project inform the sustainability transition?

FF: The general public and corporate employees rightly expect corporations to behave ethically. Corporate misconduct refers to behaviour that is socially considered to be morally (and legally) wrong. Firms may take public political stances on a specific controversial issue, but then show incoherence by misbehaving, acting against the same principle that they publicly defend. Together with my PhD student Andrea Cavicchini, we investigate the cultural and structural antecedents of corporate misconduct. In particular, we investigate the role played by toxic cultures – those focused on performance and on achieving aggressive goals - in predicting regulatory and law violations. Far-reaching targets may translate into durable characteristics of organizational culture, and importantly influence employees into making unethical decisions.

To lead in the sustainability transition, corporations are laying out ambitious plans with aggressive targets, which in line with our findings might lead employees to cut corners and perhaps lead to misconduct. Thus, we suggest that even in the sustainability domain, it is essential for firms to understand the long-term consequences of their actions – for example in setting goals - as these may affect their firms’ culture and their employees’ ethical behaviors, and thus their ability to respond to the current social and environmental challenges.