democracy – BOS

Corporate democratic responsibility – messy and difficult, yet urgent and without alternative

By Dieter Zinnbauer

◦ 4 min read ◦

We live in politically tumultuous times. Authoritarianism is on the rise again across the world. Democratic freedoms have been in decline for 15 years in a row. The share of people living in free societies has shrunk to a meagre 14% of the world population. Meanwhile polarisation and populism, disinformation, mistrust and rising inequality have begun to hollow out the fundaments of even the strongest democracies. Votes for populist parties in mature democracies have risen from 3% in the 1970s to more than 20% today.

With democracy under attack everywhere how does and how should business position itself? What are the democratic responsibilities of companies? A tricky question well beyond the scope of a blog entry, but here some rather random notes and provocations on current trends and gyrations as input to this highly topical conversation.

Inaction is untenable, political neutrality unlikely.

It is less and less of a practical option anymore to hide behind a veneer of political neutrality no matter if rationalized instrumentally (the Republicans-are-buying-sneakers-too argument), normatively (it’s undemocratic for business to engage in high stakes politics beyond its own narrow business interests) or intuitively (the empirically tenuous claim that business tends to only support moderate, mainstream politics anyway). Here some reasons why:

For a start, it is not easy to find real-world contexts, where a principled commitment to free and fair markets and a principled rejection of crony capitalism would not also imply and indeed be predicated upon a commitment to competitive democracy. Or from a slightly different angle, the normative minimum for business – to respect human rights in its sphere of operation and influence –also entails respect for basic democratic rights and a related duty of care.

Remaining silent on democracy is therefore only an option as long as democracy is not in danger, as long as none of the substantive political forces in a country seek to actively dismantle load-bearing democratic norms and rules.

Yet in many countries this is not the case (any more). From Brazil to the Philippines from Poland or Hungary to the US, formally democratic regimes are under attack from within the political establishment. And in many more other countries fringe groups with dubious democratic credentials and intent often propelled by a toxic mix of populism and nativism are moving closer to becoming part of government.

Enter corporate democratic responsibility

Corporate responsibility in such contexts entails having a plan for and executing on corporate democratic responsibility on at least three different levels / time horizons.

For a start and most immediately it requires aligning non-market strategies with regard to corporate support for politicians, lobbying, public relations and other business and society interactions with an active stance and role in support of democracy. E.g. no funding for politicians and parties that have taken to destroying basic tenets of inclusive political participation (not just temporary bans until the PR tempest calms down), no lobbing on issues that corrode the fundaments of political equality, an active promotion of democratic values, for example along the lines of campaigns by German business associations against extremism.

In the medium term it calls for a democracy audit – an active interrogation of one’s own operations’ “democracy footprint”, and how one’s business model can best respect, protect and promote democratic values. Big tech platforms, for example, are being pushed to better understand and address their role for a healthy democratic discourse.

In long-term perspective it demands a deeper probing on how corporate conduct is linked to some of the underlying drivers of democratic decline and disillusionment. Growing inequality and declining social mobility, status anxiety and a profound sense of losing out and losing authorship of one’s life are all empirically confirmed to provide fertile ground for populism and creeping authoritarianism. To help restore a sense of individual economic and political efficacy, trust in societal fairness and public as well as private authority companies may wish to interrogate how practices around tax avoidance, regulatory arbitrage, shareholder primacy etc. intersect with these issues. This also includes questions around how reforms and new formats in corporate governance can help resurrect a sense of being in it together and revive the idea of the business organisation as a shared venture, an important venue for exercising citizenship and co-authoring one’s economic life world and, capable of collectively evolving a strong, responsible corporate purpose.

A rough, but necessary ride ahead

Good corporate democratic responsibility does not come easy. It means wading into a messy terrain and facing up to the perennial tension between defending democracy and curtailing freedom.

It involves business decisions on whether fitness-bikes should be permitted to spread rumours about voter fraud, whether couches and guest rooms should welcome riot tourists, whether rumour-mongers deserve cloud hosting or whether the president of the United States should be kicked off the world’s largest social network. Yet, all these things need to be reckoned with one way or the other as doing-nothing only cements a status quo of what is often democratic backsliding.

All these tricky questions around corporate behaviour in the context of democratic countries that are at risk of backsliding will also bring into sharper relief the perennial question of what companies can and should do when operating in outright authoritarian settings – a discussion well beyond the scope of this short blog entry but one that is returning with a vengeance given high-growth prospects in authoritarian settings or military coups in popular foreign investment destinations.

Finally, an honest grappling with corporate democratic responsibility will be agnostic to partisanship in principle and approach. But it is highly likely to be partisan in outcomes. Political incivility and anti-democratic behaviour are unlikely to be evenly distributed across the ideological spectrum in any given setting. So brace yourself for a partisan backlash and for a constant tight-rope walk between supporting democracy and being drawn into day-to-day politics. Getting this right will require the best of corporate strategy, corporate governance and corporate communication. But ultimately there is no escaping from corporate democratic responsibility. Flourishing economies and flourishing democracies ultimately depend on it.

About the Author

Dieter Zinnbauer is a Marie-Skłodowska-Curie Fellow at CBS’ Department of Management, Society and Communication. His CBS research focuses on business as political actor in the context of big data, populism and “corporate purpose fatigue”.

Photo by Fred Moon on Unsplash

The Winners and Losers of Reward-based Crowdfunding

By Kristian Roed Nielsen.

Proponents of reward-based crowdfunding have touted its emergence as an alternative source of innovation finance as an exciting and democratizing event. This democratization is enabled via the unique blend of crowdsourcing (Poetz and Schreier 2012) and micro-financing (Morduch 1999). Fundraising is enabled by a widely dispersed community of users, whose interactions are facilitated by one or more platforms (e.g., IndieGoGo, Kickstarter, Kiva), trading “a small group of sophisticated investors” for “large audiences (the ‘crowd’)” (Belleflamme, Lambert, and Schwienbacher 2014:2). But how does the change in investors really change who is rewarded – basically who are the winners and losers of reward-based crowdfunding? It was with this question in mind that Caleb Gallemore, Kristjan Jespersen and I set out to follow the money and identify exactly where and who benefits from this new source of finance by analyzing data from the large US-based reward-based platform IndieGoGo.

Where does the (crowd) money go and why?
Firstly, and perhaps not surprisingly, it appears that it is the already affluent regions that benefit the most from crowdfunding activities, while less well-off areas still receive the short end of the stick. Clearly while crowdfunding may offer an extra opportunity for achieving financing, this does not offset other factors that play an important role in entrepreneurial success e.g. background, education and social network that favour areas already affluent.

More surprisingly we also found that increased competition – i.e. more campaigns – actually increase the likelihood of funding success. For each percentage increase in the number of campaigns in the same neighborhood, we estimate a decrease of about 11% in the odds that each of those campaigns will receive no funding pledges. Indicating the increased competition actually results in a net positive outcome where campaigns rather than leeching of one another, generate momentum for further success. This may be because of increased levels of visibility of crowdfunding activities as a whole at the local level. In other words, people living in areas with more crowdfunding activities might be more aware of the practice, increasing the pool of potential investors. Another possibility is that areas with high levels of crowdfunding activities might generate local communities that can share knowledge and advice about the process, improving the quality of local ventures.

Finally, and still undergoing analysis, we increasingly find that certain people are – naturally – more successful then others at achieving crowdfunding success. Witnessing that for each successful campaign launched by an individual or group the likelihood for future success increases dramatically – hence after five successful campaigns launched by a given person or group they have a near 100 pct. chance of future success. We are perhaps witnessing the birth of the professional crowdfunder.

Crowdfunding as the democratizing agent of innovation?
As money seems to coalesce around certain regions and individuals we have to wonder whether this trend will continue. Will we increasingly see certain regions and individuals benefitting while other less well-off or professional lose out? And what does this mean for crowdfunding as the democratizing agent of innovation? It offers opportunity for you and I to drive innovation, but that innovation process itself perhaps unsurprisingly still seems to cluster around certain regions and persons. While this is by no means the final word – this is still early day research of only one sample – these observations nevertheless complicate the idea of relying on crowdfunding as a new mechanism for economic development, poverty reduction, or social action. While crowdfunding certainly provides a new way to access capital, it may not provide such access equitably.

Kristian is Assistant Professor at the Department of Management, Society and Communication and Visiting Researcher at Mistra Center for Sustainable Markets – Stockholm School of Economics. His research explores the potential role that “the crowd” could play in enabling sustainable entrepreneurship and innovation. Follow him on Twitter @RoedNielsen.

Pic by olgavisavi, via Fotolia.

The Dark Side of Transparency

By Lars Thøger Christensen.

Transparency is essentially about creating insight into organizational and institutional practices in order to allow for critique, stimulate improvement and hold politicians and decision makers accountable. As such, transparency is an essential dimension of a rational, open and democratic society. Without transparency, there is great potential for manipulation, negligence and fraud. Yet, transparency may itself be manipulative. Even when the intention is to disclose and stimulate insight, the results may be less benign. Whenever something is illuminated and pulled out for further inspection, something else remains in the dark.

Any serious pursuit of transparency needs to consider what the pursuit itself is doing to public insight, what it “hides” so to speak and what remains out of view.

Part of this problem resides in the way we understand transparency. While openness and insight may be the ultimate goals, it is commonplace to define transparency in more prosaic terms, for example as information provision. With oceans of information available at our fingertips, the world certainly appears far more transparent than ever before. Yet, accurate information about complex issues, such as sustainability or social responsibility, is usually not easy to digest. Most information about such matters, thus, is often accessible only to experts. And whenever it is made accessible to lay people, it has been subjected to multiple processes of editing and simplification.

No information speaks for itself and attempts to make it “speak” hide as much as it disclose.

Another problem concerns the organizational behavior we hope to see and understand better through practices of transparency. If we think that organizations and decision makers continue to conduct business as usual when subjected to increased transparency, we are utterly wrong. Transparency is not a neutral tool that simply illuminates a preexisting world. When people in organizations know that their talk, decisions and actions are publicly accessible, they are less inclined to experiment, take chances, share ideas, or talk freely about their accomplishments, ideals, assessments and aspirations. This is the case in numerous organizational processes, including meetings, bargaining games, conflict resolutions, idea generation, etc. where the need to withhold some information and protect identities or strategic positions are often important concerns. In such cases, the willingness to share complete and accurate information may be limited and replaced by a desire to “send the right signals” or make the right impressions.

Transparency may cause organizational members to hold back or otherwise adjust behavior.

As a result, we may see less than we think. Even when transparency is enforced by rules and regulations, like for example social responsibility reporting in some countries, participants have a tendency to alter and edit their behaviours in ways that conform to social norms and expectations (i.e. by creating a “front”). Organizational behaviour is certainly not unaffected by increased transparency demands. Thus, we know that organisations carefully select, simplify, and summarize data before they are revealed, that they selectively disclose or leak information, for example through competitive signalling and they shrewdly manage the timing of disclosure, sometimes with the intention of deflecting critique or handling potential issues. Moreover, producers and custodians of data often shift the medium, the classification scheme, or the level of comparisons when forced to share information that used to be confidential.

Demands for more transparency are likely to be handled strategically by organizations.

None of this is to suggest that transparency should be avoided or reduced. Quite the contrary. But it is a reminder that transparency ideals and practices are shaping organizations in dramatic ways and that our desire for more transparency needs to include a desire to know its limitations.

Lars Thøger Christensen is Professor of Communication and Organization at the Department of Intercultural Communication and Management at Copenhagen Business School.

Pics by Roland Molnár and I Want a Poster, Flickr