13 minute read
CELEBRATING OUR 45TH ANNIVERSARY
FACULTY& RESEARCH
How Can Companies Balance Profits with Social Responsibility?
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—Toyah Miller
BY BENJAMIN KESSLER
It’s an exciting but also potentially confusing time for business leaders, says Toyah Miller, professor of strategy and entrepreneurship at Mason. Increasing demand for social responsibility to be prioritized alongside profits can often create “an institutional contradiction” with “increased potential for conflict.” Bridging the areas of management, innovation and entrepreneurship, Miller’s research illuminates the issues that will determine whether companies succeed or fail in their newly broadened mission. This is well-trodden territory for Miller. She began her career as an Ernst & Young consultant who loved talking strategy with top leaders of organizations such as Time Warner and Bell South. At the same time, she sought opportunities to make a difference in the wider world, not just for companies. Growing up, she saw her mother organize outreach programs to help the elderly and other vulnerable groups, driven by “a strong sense of values, connection to her community and the idea that she had a role to play even if no one assigned her that role.” Her career crossroads came after developing educational programs for a children’s home and thinking “Could I turn this into a venture?” From there, she became fascinated by the often-overlooked questions and problems of making social entrepreneurship work. Unpacking these dilemmas would require fusing her social mission with knowledge gained from her past experience as a strategy consultant. As she terms it, “I got the PhD bug,” pursuing a doctorate at Mays Business School at Texas A&M University, and later joining the faculty of University of Oklahoma, Indiana University – Kelley School of Business, and University of Texas at Dallas before coming to Mason in 2021. Miller’s research on social entrepreneurs shows how identity and cognition help shape their entrepreneurial strategy. “A lot of the way [social entrepreneurs] behave or react to challenges is influenced by their own background,” she says. For example, an Academy of Management Review paper Miller co-authored in 2012 posited compassion as a driving force for venture creation in social entrepreneurs. But she has also found that the emotional investment of social entrepreneurs can make them highly resistant to inevitable trade-offs between societal mission and business needs. The good news is that social and financial objectives do not necessarily clash; in fact, they can be highly compatible. A diverse leadership team, for instance, may devise better strategies than a more homogeneous one, because “having different people with different experiences in life and different points of view…could help the firm have access to needed information to navigate change,” Miller says. Organizational reality, though, is often more complicated than that. In a 2013 paper in Organization Science, Miller and her co-authors found that gender-diverse boards improved the ability of the firm to enact strategic change under certain conditions and not others. When the board is not experiencing a threat due to low firm performance and women directors have greater power, the relationship between board gender diversity and strategic change is the most positive. Conversely, when the board is threatened by low firm performance and women directors have greater power, the relationship between board gender diversity and strategic change is the most negative. Diversity and inclusion, then, could have good or bad effects, or no effect, depending on how it’s done. Miller recommends that leaders ask themselves, “‘How am I taking on this idea of being inclusive?’ It may need to look differently when you’re bringing people into the fold.” Miller will continue to delve into these issues as they overlap with her interests in entrepreneurship. “My contribution is developing avenues for researchers to identify social problems or investigate how business can be used to address social problems or play a greater leadership role in society,” she says.
FACULTY& RESEARCH
Peleton’s Business of Well-Being
BY BENJAMIN KESSLER
As I started observing Peloton and its members, as well as my own behavior being a part of the community, I started realizing that it wasn’t just physical fitness and meeting people....My idea of health and well-being was expanding.
—David Miller
In November 2016, former Mason entrepreneurship professor and current affiliate faculty member, David J. Miller’s wife made a purchase that would change how he viewed our societal and economic future: a Peloton exercise bike. At first, Miller wanted nothing to do with it, preferring to stick with his established treadmill routine. However, curiosity eventually got the better of him. Soon after his first on-demand “Beginner Ride,” he found himself on the Peloton more and more, and using the treadmill less and less. Cut to five years later. Miller is now a die-hard Peloton fanatic. In addition to taking more than 5,000 Peloton classes, he has made several pilgrimages to the so-called “Mothership”—the main studio in New York City where Peloton’s famously charismatic instructors shoot their workouts for the platform. His book, Sweating Together: How Peloton Built a Billion-Dollar Venture and Created a Community in a Digital World (Ideapress Publishing), is the culmination of that journey. Sweating Together combines Miller’s personal story of falling in love with the Peloton brand with strategic lessons taken from the company’s meteoric rise. The book draws upon Miller’s extensive interviews with top executives (including the current CEO/co-founder John Foley), four superstar instructors and hundreds of devoted Peloton fans. Peloton has indeed enjoyed astonishing growth. Even before the pandemic, the company was doubling its registered membership every year. The first year of COVID saw Peloton’s revenue more than triple, as lockdowns made at-home workouts the only option. Sweating Together’s big takeaway is that Peloton’s appeal as a brand goes far beyond exercise equipment. Peloton users constitute a close-knit, voluble community of millions, interacting not just in Peloton’s online classes but also in dedicated Facebook groups and even in the flesh. Before COVID, groups of brand loyalists frequently met up to ride together in local Peloton showrooms. “As I started observing Peloton and its members, as well as my own behavior being a part of the community, I started realizing that it wasn’t just physical fitness and meeting people. I was going to museums and reading books that other members were recommending. My idea of health and well-being was expanding,” Miller says. The Peloton community perhaps owes its vibrancy to the fact that the company allowed it to grow organically, rather than trying to dictate its development. Miller says this leading-from-behind strategy aligns with Peter Drucker’s principle of “the unexpected success”, from the seminal 1985 book Innovation and Entrepreneurship. Drucker highlighted the spontaneous and unpredictable dimensions of human behaviour as golden opportunities that entrepreneurs should watch out for. As Miller writes in the book, “for the Peloton team, the community has been a surprise and an asset to be leveraged to expand and improve the business model and the value it generates for the members and others.” To cite just one example, the company’s referral program allows community members to convert their brand ambassadorship into cash rewards. Miller estimates that he and his wife alone have driven at least $70,000 in Peloton hardware sales alone through word of mouth. Community cohesion is further fostered by the positive vibes that infuse virtually everything connected with Peloton, from the high-end yet approachable brand identity to the tightly integrated elements of gamification and friendly competition. Users can see a leaderboard that ranks their performance against that of everyone else that has ever taken the same class. To Miller, what makes Peloton an exemplary company is the way it transforms something gruelling but good for us—heart-pounding workouts—into a fun, emotionally enriching experience. The Peloton story points to what Miller claims is the biggest untapped entrepreneurial opportunity in today’s world: “the business of well-being.” He refers to the official definition of well-being, according to Mason’s Center for the Advancement of Well-Being: “building a life of vitality, purpose, resilience and engagement.” The recipe for successful capitalism is changing, Miller suggests. Selling guilty pleasures—fast food, fast fashion, etc.—is becoming a less tenable business model than helping consumers build lifestyles that are beneficial to themselves, as well as their organizations and communities in the long term. Peloton shows that conscientious consumerism isn’t always about choosing vegetables over dessert. Users can have their cake and eat it too. “If you can make people happy, they’re going to keep coming back,” Miller explains. “As obvious as that sounds, entrepreneurs often forget it. You fall into other things, like ‘I’m competing with someone else’ or ‘I want to be the lowest price’. But when you get on the bike or follow [Peloton] on Instagram, all of a sudden, you realize, ‘Oh, this is just a happy space’.”
FACULTY& RESEARCH
Even Smart Investors Get the Rainy Day Blues
BY BENJAMIN KESSLER
Large institutional investors are often presumed to be cut from a different cloth than your average retail trader. But Lin Sun, an assistant professor of finance at the George Mason University School of Business, has uncovered that even top investors share a very human weakness—inclement weather. For institutional investors, bad weather may dull ordinarily sharp market reflexes. When surprising earnings announcements come through, it takes more time for them to register a proportional response. This amounted to an approximate ten percent reduction in the range of immediate response, compared to normal-weather announcements. The delayed reaction was corrected over the following months, producing a higher-than-average post-announcement price drift. For firms as a whole, whether their actual earnings were surprising or not, institutional investors affected by bad weather gave a higher price discount during the pre-announcement period. Once the earnings were announced, there was a correction, resulting in higher average returns during the announcement period. Bad-weather conditions such as washed-out weekends and sunless skies produce a malaise that weighs on our minds, limiting our attention to work. Practical inconveniences such as longer commutes and residential damage may worsen the distraction. Adverse weather also heightens anxious feelings of being out of control, explaining why investors may discount shares of firms in the suspenseful period preceding the earnings announcement. W
The Strange Effects of Sexist Humor
BY BENJAMIN KESSLER
Management professor Mandy O’Neill’s forthcoming paper in Organization Science, written with Natalya M. Alonso of Haskayne School of Business, documents the “sexist culture of joviality” among trainees at a Latin American site run by a major U.S. tech company. A main theme—if not the main theme —of the trainees’ non-work-related conversations was what they themselves called “Guerra de los sexos” (war of the sexes). Jokes expressing a dim view of the opposite sex were routinely told in mixed company. Several women trainees showed they could dish it out as well as take it. Indeed, women who took part in the sexist banter reaped social rewards. Their peers hailed them as “bromistas,” or comedians. Also, the trainees were surveyed on their social ties within the training program. Bromistas were more likely to hold central positions in this web of social relationships. Put another way, they enjoyed higher esteem or status than non-bromistas as a rule. For the male trainees, however, an opposite effect was evident: The more they participated in sexist banter, the lower their status on the whole. For O’Neill and Alonso, social sophistication helps explain these unexpected findings. Bromistas are rewarded for fitting into a culture where sexist humor is a common pastime. But men who enthusiastically promote this culture are seen as lacking tact. Therefore, it seems that even as men and women participate in a sexist working culture, they may secretly resent it and view it as out of date. W
In an Algorithmic Workplace, How Can Humans Excel?
BY BENJAMIN KESSLER
Most executives would argue there’s much more to making decisions than just the numbers. A smart, experienced human has gut instinct and familiarity with how the real world of business operates. You can’t capture that on an Excel spreadsheet. Tarun Kushwaha, a professor of marketing at the George Mason University School of Business, recently ran an experiment that pitted the brainpower of actual human executives against trained algorithms. He and his research partner collaborated with an automobile replacement parts retailer to launch a randomized controlled trial (RCT) centered on the corporate buyers responsible for stocking the shelves for affiliated stores across the United States. The retailer had created an AI tool to flag underperforming products for removal. However, the buyers rejected the algorithm’s choices more than half the time, opting to hang onto the flagged products rather than remove them. The researchers found that stores that honored the human overrides were 5.77 percent less profitable than those that obeyed algorithmic recommendations to the letter. However, the algorithmic advantage was confined to mature- and late-stage products. The professors theorized that AI’s vaunted data processing capabilities fell flat when faced with new products, which by definition have no past performance record on which to base decisions. By contrast, buyers can tap their networks for priceless clues. The main takeaway? Smart humans have private information that should be extracted and added to the data-driven decision making that algorithms perform much better. W
How Tax Uncertainty Threatens Economic Recovery
BY BENJAMIN KESSLER
Police Bodycams Are Making NYC Safer
BY BENJAMIN KESSLER
With her co-authors, Kelly Wentland, an accounting professor at the George Mason University School of Business, recently published a paper that specifies and quantifies firm response to tax uncertainty. Its main analysis focuses on exceptional or “lumpy” investments as analogous to constructing a new chemical plant or expanding factory equipment. The researchers surmise that because tax uncertainty exposes firms to greater financing costs, it would affect large investments more than, say, incremental R&D or hiring. The paper hinges on the Internal Revenue Service’s phased rollout of Schedule UTP from 2010-2014. The new policy requires firms to list their uncertain tax positions—i.e. claimed tax liability adjustments that often fall into gray areas in the tax code—on their annual return. Over the course of the phased rollout, the researchers compared investment activity of firms that barely made the cutoff for Schedule UTP to those whose assets fell slightly short of the requirement. They found that the onset of Schedule UTP eligibility was associated with lumpy-investment delays of 4.5 months on average. But even this non-trivial number understates the chilling effect of tax uncertainty. When Wentland and co-authors compared firms that were never affected by the new policy to those that were, the relative delay rose to 18 months. Wentland says that in calculating costs and benefits of legislation such as the American Families Plan, policymakers should take into account the drag on investment that could come with increased tax uncertainty. W For Brad Greenwood, a professor of information systems and operations management at the George Mason University School of Business, the NYPD—one of the world’s largest urban police forces—mandating body-worn cameras (BWC) across the board on an indefinite basis was a research godsend. He and his collaborators combed through publicly available datasets detailing all NYPD stops, as well as arrest records and civilian complaint databases for the period January 2017-December 2019. The three years covered by the study enabled the researchers to draw before-and-after comparisons for all 77 New York City police precincts. The results of the study showed three clear patterns. First, fears that BWC would deter police from doing their job appeared unfounded. In fact, the number of investigative stops increased by nearly 17% after police were equipped with BWC. Second, citizen complaints against police decreased by roughly 20 percent post-BWC, after accounting for the increase in stops. The category of complaint that saw the biggest decline was so-called “abuse of authority”—allegations of mistreatment or intimidation that may include improperly stopping, threatening, or seizing property from citizens. Of all the types of complaints investigated by NYC’s Citizen Complaint Review Board, abuse of authority is the most common. Third, after adoption of BWC, the likelihood that a stop resulted in arrest went down by 16 percent. Taken together, the findings indicate that, far from inhibiting police work, BWC emboldened police to undertake more investigative activity than they had before, without crossing the line into abuses of authority. W
