Why Employees Are Impacting Corporations' Strategic Decision-Making

In an economy where the most talented, who possess rare and highly sought skills, can choose where they want to work - or not - companies have to calculate the impact of their decisions on their ability to attract and retain the people who increasingly create their competitive advantage. JL


Julian Jonker and Dipayan Ghosh report in Knowledge@Wharton:

Companies are searching for the best and the most creative. And the most creative care about these issues and want some autonomy and some participation in decision-making. There is a difference between allowing internal debate and being responsive. Top talent will see through that.The tensions are likely to intensify as employees feel more empowered and as internal skirmishes once contained in the office escape into headlines. "(An) important factor managers have to consider is how the ethical implications of their choices affect their ability to attract and retain talent.”
Many companies, it seems, are growing their conscience — or at least, their employees are. Workers are exercising greater muscle when they see their employer taking on a contract they perceive as involving morally questionable work, and they are taking action. At Google, employees recently protested their own company’s bid to develop a search engine for China that censors results based on terms blacklisted by the government. Meanwhile, workers at Microsoft have petitioned their bosses to cancel the company’s contract with the U.S. Immigration and Customs Enforcement agency. “We demand Microsoft stop enabling ICE’s mission to punish families seeking safety,” reads the petition, which also calls for all tech firms to end their work with ICE.
Labor unions may be on the wane, but workers, fueled in part by the organizing power of social media during a time of greater political strife, may be ushering in a new era of employee activism on moral and ethical issues.
“All of these tech companies are going to be in the crosshairs,” said Kevin Werbach, Wharton professor of legal studies and business ethics. “Basically these companies have been going along with the belief that they were doing good in the world, and it has come as something of a shock to be suddenly seen as agents of evil. Some of that is about things like violation of privacy, which arises out of the business model. But some of it is about facilitation of government surveillance or military programs or implementing harsh limits for immigration that employees may not feel are really consistent with the company mission.”

Some companies now find themselves facing a difficult choice. “They know that their competitors are going to do it if they don’t, and that’s really the tradeoff for them,” said Dipayan Ghosh, a fellow at the Harvard Kennedy School’s Shorenstein Center on Media, Politics and Public Policy.

“For the most part, we’ve seen that some of these big companies have really decided to go after the profits instead of maintaining the public interest in a sense.”
But, added Ghosh: “Things are slowly changing as employees see that they have power, too.”
Google recently stepped away from bidding for a cloud-computing contract with the Pentagon worth perhaps $10 billion after employees asked for assurances that it wouldn’t develop warfare technology. Microsoft, on the other hand, says it will do business with military and intelligence agencies to help the U.S. “build a strong defense.”
The movement might not be confined to tech companies alone. McKinsey & Company has generated some internal debate about its work with ICE. McDonald’s workers held a walkout in September to raise awareness about sexual harassment claims at the company. But certain characteristics unique to the tech sector are making it the locus for tension between corporate values and profits.
“Skilled developers and engineers have always placed value on aspects of work beyond monetary compensation, like the skills they can learn, the technologies they use, or the work environment itself,” said Prasanna Tambe, Wharton professor of operations, information and decisions. “Increasingly — and especially given the political environment — a key part of this consideration for workers has become the moral and ethical implications of the choices made by their employers, ranging from the treatment of employees or customers to the ethical implications of the projects on which they work. This is especially true given the central role of ‘big tech’ in new fears about information, rights, and privacy and the growing feeling that a lack of oversight in this sector has been harmful.”

“[An] extremely important factor that tech managers now have to consider is how the ethical and moral implications of their choices affect their ability to attract and retain talent.” –Prasanna Tambe

Given the competition for a limited supply of people with skills in key areas like machine learning, tech employees can vote with their feet, said Tambe. “So they are increasingly making their voices heard, and we see more and more examples of activism of this type. Essentially, what it means is that another extremely important factor that tech managers now have to consider is how the ethical and moral implications of their choices affect their ability to attract and retain talent.”
When it comes to competition for talent, it’s a buyer’s market for top job-seekers, said Wharton professor of legal studies and business ethics Julian Jonker, also on Knowledge@Wharton radio. “These companies are not just vying for people who are able to engage with these technologies. They are searching for the best and the most creative. And the most creative engineers are ones who also are really going to care about these issues and who are going to want some measure of autonomy and some degree of participation in decision-making.”
Carrying Out Orders
Most younger employees seem to be under the impression that they have more rights than they do, according to Janice Bellace, Wharton professor emeritus of legal studies and business ethics. “As a result, they are surprised when the company or employer does something unilaterally that strikes them as unfair,” she said. “Generally, companies do not try to disabuse employees of these incorrect assumptions. They want employees to think that they will be treated fairly and will be listened to. In reality, an employee will be treated fairly and listened to as long as the employer wants to do so. But at any time, this can change.”

Except for Montana, she said, this is an “employment-at-will” country. “The employer can terminate the relationship for good reason, bad reason, or no reason at all as long as the employer does not violate a statutory prohibition such as discrimination. And if a change occurs, or the employer takes an action that employees don’t like,” — such as granting a $90 million exit package, as Google reportedly paid one executive accused of sexual misconduct — “well, they can quit if they don’t like it.”
Some have quit over various ethical issues. But other Google employees took a different tack recently when workers across the globe staged a brief but massive walkout to protest the company’s “boy culture” generally, and, more specifically, Google’s system for handling sexual harassment incidents. They also demanded a greater level of employee representation and empowerment. (Listen to the Knowledge@Wharton podcast: “Will an Employee Walkout Lead to Changes at Google?”)
The question of ethical and moral consonance between employer and employee hinges in part on governance. “If the business was a partnership, we would think the leadership would always act in ways consistent with the ethical principles of the partners,” said Peter Cappelli, Wharton management professor and director of the school’s Center for Human Resources. “In a corporation with employees, we would not expect that. Especially in the U.S. model, employees are required to carry out the orders of the employer whether they like them or not.”

“The most creative engineers are ones who also are really going to care about these issues and who are going to want some measure of autonomy and some degree of participation in decision-making.” –Julian Jonker

Still, he said, there are good reasons for the smart employer to avoid getting deep into businesses and practices that employees find objectionable. One is the competition for talent and the fact that it is often easy for people to leave. But the other is that it is “certainly possible for employees to withdraw effort, especially in jobs where they have discretion and where it can be done subtly. That is also the case in these tech companies where it is pretty easy for employees to resist getting assigned to teams working on projects they find objectionable or to just not work on them very hard.”
If workers are displaying more idealistic behavior, they might be taking cues from their own companies. “Some companies today have mission statements that sound incredibly noble. They [say they] will help humanity,” noted Bellace. “Those companies may well attract employees who want to do socially useful work and who do believe in the noble mission.”
Facebook’s stated mission is to “give people the power to build community and bring the world closer together.” Nike exists to “bring inspiration and innovation to every athlete in the world” (and everyone is an athlete). And Google aims to do nothing less than “organize the world’s information and make it universally accessible and useful.”
“What happens when the company’s actions don’t seem to match the message it has been broadcasting? Vast disillusionment and/or anger,” said Bellace.
Workers may feel as if a psychological contract has been broken in such cases, according to Maurice Schweitzer, Wharton professor of operations, information and decisions. For those who thought they were working at a search engine company only to discover that they are working for a defense contractor, “that disconnect can cause employees to feel empowered today given how fluid the contract is between labor and employers.”
The other shift, said Schweitzer, comes by way of the corporate social responsibility movement and what that means for the CEO.
“We are expecting business leaders to have a voice in leading world affairs,” he said. “When you see the Starbucks CEO or Apple CEO advocating on behalf of certain kinds of policies, whether it is diversity or immigration or rights for people with different sexual orientations, you are seeing CEOs taking more responsibility for leading not just the company but on the broader stage. I think it’s made the environment more complicated for managers. There is a real tension.”

“Especially in the U.S. model, employees are required to carry out the orders of the employer whether they like them or not.” –Peter Cappelli

The old mindset of simply focusing on the bottom line, Schweitzer noted, is “not what the mainstream corporate executive can do today. If you are leading a major company, the expectations have been raised. Often there is some congruence – that is, Starbucks talking about promoting diversity and immigration is not only taking a political stand but also talking about hiring immigrants to work at Starbucks. Some of it is going to be consistent with the bottom line, and some of it isn’t.”
What any new employee activism doesn’t represent, however, is a greater conscience on the part of a younger generation of workers. “No group of new hires was as committed to social justice as baby boomers were, and it had no effect on their employers,” said Cappelli.
‘What’s in It for the World’
Greater say by employees in tech is part and parcel of the ongoing pull between idealism and profit as the industry matures, and until recently, tech has largely had little direction from government and regulation in the U.S. on how to balance these interests. That has been changing somewhat, and more change is likely on the way.
“We’re in a space now where these companies are really on the hook,” said the Shorenstein Center’s Ghosh. “Regulation is coming and this whole industry is going to have to figure out a way to socialize the ideas that it has and to make decisions that are a little bit more in the public interest. That’s where this whole conversation is going. I think that they are going to have to start thinking more about what’s in it for the world, and if they don’t, other people are going to step in and decide for them.”
One potential piece of regulation is the Accountable Capitalism Act, which was proposed by Sen. Elizabeth Warren and has received some support. Among other things, it calls for employees to elect 40% of the board of directors at any company with more than $1 billion in tax receipts, with 75% of shareholders and directors approving political spending. Another proposed piece of legislation, the Reward Work Act, has drawn multiple sponsors, and would allow employees to elect a third of a company’s board.
In the meantime, though, management experts like Cappelli don’t see any easy way for companies to navigate the issue of employees weighing in on big decisions. “Do you poll the employees before you bid for new work? How many have to say ‘no’ before you don’t pursue it? You’ll likely cause rebellion or maybe just distraction if, say, 20% say ‘no,’ and you do it anyway, and they continue to complain about it,” said Cappelli. “Better not to be asking and instead just try to read the mood in advance. I think the best and simplest thing to do is let people know when you are hiring that this is the business we are in, these are the types of projects we take on, and if this kind of work could make you uncomfortable, don’t come here.”

“It’s time to realize that good people can do bad things.” –Kevin Werbach

There are no hard and fast rules for how a company should handle employee dissent, said Werbach. It depends on the scale of the company, since what might be a tough project for a small company to let go would be easier for a larger one to turn down. It also depends on whether a prospective project or client is strategic to a company’s future. “If it’s important to the company and equally for the employees not to participate, those employees may have to leave,” he said. “But in most cases, it doesn’t get to that point. The main problem is when management gives the impression that it doesn’t care, when it gives the impression that it opposes the employees’ views because it doesn’t want to engage with them expressly.”
Companies that have “a culture where people can express themselves without feeling everything is a battle-to-the-death are going to have an easier time having these hard discussions about ethical quandaries,” Werbach added.
But, as Jonker pointed out: “There is a difference between allowing internal debate and being actually responsive to that internal debate. The concern here is that there might be the debate but there might be no responsiveness, and I think then there is a loss, and the top talent will easily see through that and prefer maybe to work on their own. Remember, the competition for employees is not, say, Facebook or Apple, but ultimately start-ups.”
And so the tensions are likely to intensify — as employees feel more empowered, as workers connect and organize via social media, and as internal skirmishes that were once contained in the office or boardroom escape into headlines.
And the pure idealism with which the tech sector announced its arrival? “It’s over,” said Werbach. “It’s been over for several years. That idealism was a beautiful thing and it helped those companies build world-changing businesses. But it’s time to realize that good people can do bad things.”