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Geoffrey Jones on income inequality, Sustainability, and Corporate Social Responsibility

April 2018. GrowthPolicy’s Devjani Roy interviewed Geoffrey Jones, Isidor Straus Professor of Business History at Harvard Business School, on income inequality, sustainability, and Corporate Social Responsibility. | Click here for more interviews like this one.

Links: Geoffrey Jones’s faculty page at Harvard Business School | His latest book, Profits and Sustainability: A History of Green Entrepreneurship (Oxford University Press, 2017) | Research page on DASH (Digital Access to Scholarship at Harvard) | Business History Initiative at Harvard Business School | SSRN research page

Growthpolicy.org. What should we do about income inequality?

Geoffrey Jones: As a historian, my first response to this question is that we must take extreme wealth and income inequality very seriously. It is ethically unacceptable that an affluent country such as the United States has over 40 million people living below the poverty line, infant mortality rates significantly higher than other developed countries, and many other shocking indicators of social distress. It is equally unacceptable that the top 1 percent of households own more wealth than the bottom 90 percent combined. This situation is morally wrong, and it is unsustainable, as it undermines the legitimacy of a democracy, and of the capitalist system as a whole. We have been there before. We know that in the so-called first global economy of the late nineteenth and early twentieth centuries income inequality reached epic proportions, in the United States, and elsewhere. It ended badly with movements such as Communism, fascism, and Latin American populism, all of which can be seen as reactions by the many people who felt the existing order was unfair. Today the United States needs major fixes to its deeply flawed public education and health care systems, if there is to be a long-term assault on extreme inequality, but as a business school professor I would argue also that the corporate system as a major generator of wealth and innovation needs to be a central part of any solution. Business needs to accept a wider stakeholder view of responsibility to society – of the kind envisaged in the B Corporation movement. Companies need to invest in well-paying jobs rather than playing games with executive remuneration with stock repurchases. When companies outsource jobs, they should make the social investments in communities and people left behind. Meanwhile chief executives need to lead from the front by stopping paying themselves obscene salaries for mediocre performance.

Growthpolicy.org. Your latest book presents a far-less-known history of capitalism, in the sense that you trace back the foundations of “green” entrepreneurship to the mid-nineteenth century. I am interested in the point you make in the book’s final chapter, “Corporate Environmentalism and the Boundaries of Sustainability,” that environmental reporting, certification, and, to use your term, the “mainstreaming of sustainability” since the 1980s have collectively widened the concept of sustainability to an extent such that any large corporation today can claim to be engaged with it. Is there anything that worries you about this phenomenon?

Geoffrey Jones: I am extremely worried by this phenomenon, but I would like to put this view in context. The creation of sustainability reports and certification schemes in the recent past was in some ways a welcome step forward. The institutional entrepreneurs behind these developments believed that policy makers, capital markets, and consumers would not take corporate claims of sustainability seriously unless there were hard metrics to justify such claims. I think environmental reporting and certification schemes have provided a means for large corporations to make significant efforts to become more sustainable, but the devil is in the detail of the metrics. Certification schemes have incentives to set standards at levels at which businesses will sign up to them. Even in the best of circumstances, it is hard to capture what sustainability really means. Buildings, for example, can be certified as sustainable if they have the right materials and heating systems, but their location in semi-arid areas might make absolutely no sense from an ecological viewpoint. Large consumer products companies can make impressive ecological savings in reducing unnecessary packaging and in improving water consumption, but this does not address the fact that aggressive advertising and marketing strategies are driving unnecessary consumption in the first place, generating the very problems that their environmental teams are seeking to solve. Successful retailers can promote consumption of organic vegetables by attractive displays and other means, but if those organic vegetables are shipped from another continent, the overall environmental impact is negative. Most measures of sustainability are socially constructed and only capture an element of environmental impact. This all helps to confuse rather than enlighten consumers and others, and as a result is serving to reduce pressures to take the urgent measures needed to reduce current levels of environmental deterioration.

Growthpolicy.org. On the subject of Corporate Social Responsibility (CSR), you note, “By 2013 there was hardly a large corporation … that claimed in its published annual report that its primary purpose was solely to maximize the wealth of its shareholders. Of course, the reality was often quite different. … CSR was frequently used as little more than public relations [.]” Yet there is a contrasting academic position that high-CSR firms maximize stakeholder value, not merely shareholder value, and that, on average, firms that engage in CSR tend to have fewer agency problems than firms that don’t. Considering that CSR, whether in rhetoric or practice, appears to be here to stay, where do you see role of CSR going over the next one hundred years?

Geoffrey Jones: A great deal of academic research has gone into showing that engaging in CSR improves overall firm performance and has a beneficial societal impact. This work mostly rests on aggregate firm data employing the firm’s own published statements. I think such research is problematic, much as I would like to believe the conclusions. A bigger problem with CSR is that the concept largely ghettoes doing good as one part of a firm’s overall portfolio of activities. I am one of those in the camp that believes everything that a firm does should benefit multiple societal stakeholders as well shareholders. This may well reduce short-term shareholder returns, but in the long-term we will all be winners. Historically HBS Deans such as Wallace Donham (Dean 1919-1942) were major proponents of such stakeholder capitalism.

Growthpolicy.org. Let us talk about the role of historicism in research. You’ve argued that “historical perspective allows researchers to examine the significance of an action in relation to developments before and after it, a point of view Schumpeter (1947) argued was essential for understanding entrepreneurship.” What are the challenges of being a business historian?

Geoffrey Jones: A better place to start might be the challenges of NOT being a historian if one wants to understand business and entrepreneurship. We know that entrepreneurship is a dynamic phenomenon operating in specific contexts. These contexts are both chronological and geographical. It makes no sense to explore entrepreneurial cognition, or performance, divorced from time and place. For good measure, history also matters in preventing false descriptions of things as “new,” when they are far from new, a mistake which management scholars are particularly vulnerable to make. The primary challenges faced by business historians are those faced by all scholars working in interdisciplinary and smaller fields. It is hard to be heard. It is also hard for younger scholars to find career paths, because of the incumbency of large disciplines with strong professional norms about what is good research, and what is not. The situation is frustrating as business historians generate compelling empirical research, typically unencumbered by excessively narrow methodological assumptions and techniques, which address many of the great problems of our age, including the drivers of wealth and poverty, inequality, and environmental collapse.

Growthpolicy.org. Your book on the history of the beauty industry is among the most cited in the literature and a lively, engaging read. The history of the beauty industry is both deeply gendered and includes women entrepreneurs such as Elizabeth Arden, C. J. Walker, Coco Chanel, and Helena Rubinstein, and direct marketing micro-entrepreneurship as represented by Avon. In what ways does the history of the beauty industry reflect the changing role of women and economic opportunity?

Geoffrey Jones: The beauty industry has been the home of many of the most iconic female entrepreneurs in modern history. This is wonderful, but it also provides an important lens on the gendered nature of work in the history of modern capitalism. As industrialization spread in the nineteenth century West, distinct gender identities grew in everything from dress to consumption patterns. Women were largely excluded from leadership positons in the new large corporations which appeared at this time. This pattern persisted. Significantly the Harvard Business School only admitted women as MBAs in 1963, a year after Kabul University in Afghanistan. Female business leadership was seen as only legitimate in industries which primarily served female consumers such as beauty and fashion. Of course this has changed in recent decades, although absolutely not as fast as it should have done. The beauty industry offers multiple paradoxes from the perspective of gender. It has been a major source of economic opportunity for women – not only rock star entrepreneurs, but also tens of thousands of direct sellers, beauty salon employees, and so on. By enabling women to choose their personal appearance it has provided confidence and re-assurance on a vast scale, yet it has also too often been restrictive and even harmful when it promoted narrow and unrealistic beauty ideals. Helena Rubinstein’s famous dictum that “there are no ugly women, only lazy ones” might be seen as liberating, but is better interpreted as burdensome, serving to reinforce rather than challenge restrictive and superficial notions of attractiveness.