A company’s political ideology predicts its commitment to social responsibility

The U.S. Supreme Court has ruled that corporations are, essentially, people. They enjoy many of the same rights and responsibilities as individual Americans. But do profit-seeking enterprises also have discernible political ideologies?

They do indeed, according to new research by Abhinav Gupta, an assistant professor of strategic management at the University of Washington Foster School of Business. Gupta’s study demonstrates that employee donations to the two major American political parties serve as an accurate indicator of an organization’s political ideology.

Moreover, that organizational ideology predicts how socially responsible a firm will be.

“We find that ideology predicts advances in corporate social responsibility (CSR),” says Gupta. “Liberal-leaning companies engage in more CSR than conservative-leaning companies—and even more so when other firms in the industry have weaker CSR records, when the company relies heavily on human resources, and when the company’s CEO has a long organizational tenure.”

Measuring organizational ideology

Gupta follows prior research in defining corporate social responsibility as business practices that benefit society, beyond the interests of the firm and the requirements of the law. CSR can take the form of environmental initiatives, sustainable operations, ethical labor practices and sourcing, philanthropy and volunteering.

Most existing studies of CSR consider such virtuous behaviors a response to external pressures—government regulation, social activism, consumer boycotts, industry standards—or the product of a CEO’s political ideology.

But Gupta wondered whether internal, organization-wide factors might also come into play.

To find out, he collaborated with Forrest Briscoe and Donald Hambrick of the Smeal College of Business at Penn State University to explore one particular internal factor: organizational ideology.

The researchers first needed to establish its existence. They reasoned that a credible way of measuring an organization’s ideology would be to take an average of its employees’ personal ideologies.

And perhaps the purest indicator of personal ideology is one’s choice to financially support a candidate or political party. Unlike corporate political contributions, which tend to seek influence, individual donations are more likely to be an expression of ideology.

Fortunately, the Federal Election Commission makes public its records of gifts to candidates and political parties. Even better, those entries typically include the donor’s employer (one of a few biographical questions asked in online giving forms).

The researchers matched 15 years (1998-2012) of political donors to the Fortune 500 companies that employed them. And in doing so, they were able to chart patterns of support within each firm. These patterns translated into each firm’s political ideology along the liberal-conservative spectrum.

Red firms. Blue firms. And shades of purple in the middle.

Ideology to practice

To test these organizational ideologies, Gupta and his colleagues examined the CSR record of each Fortune 500 firm over the same 15-year period, using three measures:

1. firm rating on the KLD Social Index, a comprehensive measure of CSR activities for socially conscious investors;
2. percentage of women in top management, an indicator of gender equality throughout an organization; and
3. health care coverage for same-sex partners of LGBT employees.

“We found consistent evidence that liberal-leaning companies tended to be strong in all three behaviors,” Gupta says. “Adoption of these practices appears to be influenced by organizational ideologies—above and beyond the ideology of the chief executive.”

Gupta and his co-authors also tested several contextual conditions that make the effect of organizational ideology stronger or weaker, including:

• CEO tenure – A chief executive who has been with an organization for a long time develops a better appreciation for the organizational ideology while a new CEO may often try to act against the ideology to “shake things up.”
• Human capital intensity – People-centered organizations, such as information technology firms, tend to delegate more decisions down the chain of command, to the employees who define the firm’s political ideology.
• Industry standards – When there is broad acceptance of CSR practices in an industry, even conservative companies will get on board with CSR.

The democracy of culture

Modern organizations can be a little obsessive about culture. Yet culture is difficult to define and even harder to measure.

Gupta’s study advances understanding of at least one piece of the larger mosaic of organizational culture.

“Firm hierarchy often looks like a dictatorship on paper,” he says. “The CEO—who we often romanticize as an omnipotent leader who has his hands on all the levers—creates a mandate that middle managers follow and line managers implement.

“But in reality, most decisions in an organization are made by people at every level of the org chart. They make decisions based on their beliefs and judgments.”

Gupta adds that firms may attempt to keep political discourse out of the workplace, but managers should acknowledge that ideology is nonetheless a force that drives decisions at the individual and organizational levels.

“Even though they are advised not to, people carry their values and beliefs to work with them. They derive meaning from them,” he says. “And as a result, those values also influence the ideology of the firm, and the decisions made throughout.”

“Red, Blue, and Purple Firms: Organizational Political Ideology and Corporate Social Responsibility” is forthcoming in the Strategic Management Journal.