Based on research by Jennifer M. George

• Can corporations function under a policy of “do no harm?”
• Going a step further, can corporations be compassionate?
• What would encourage corporations to take compassion seriously?

Since the early 2000s, the business of doing business has changed its looks markedly. As corporations gain power and reach, many in the public are subjecting them to increasingly insistent questions about their impact on the lives of workers, the environment and society at large. At the same time, academics have focused more attention on compassion in management and business organizations. Today, considerable research parses the way corporate conduct affects employees, laid-off workers and the well-being of society as a whole. A considerable segment of this academic literature advocates for what once seemed like an oxymoron: compassion in corporate management.

Most of the recent research on compassion focuses on individuals and the group. Most management research, meanwhile, centers on economic performance and efficiency. In an editorial for Journal of Management, though, Rice Business Mary Gibbs Jones Professor Emeritus of Management Jennifer George argues that compassion research can actually be a jumping-off point for focus on social problems, well-being and identifying the conditions under which organizations do the least harm.

But what is compassion in business, exactly? According to George, it’s the practice of setting up organizations so that they respond to the vulnerable groups in their orbit. To do this, George says, companies should reconsider the concept of “American Corporate Capitalism (ACC),” which operates when corporations, workers and consumers pursue self-interest. ACC follows the laws of supply and demand, and is founded on the bedrock principles of respect for private property, an emphasis on economic growth and using profits as the measuring stick for making business decision.

Make no mistake, George adds: “ACC is an ideology.” A host of institutions provide the underpinnings that allow ACC to flourish, among them the legal system, governmental agencies, stock markets, media and advertising and trade organizations.

But, notes George, the rewards from American Corporate Capitalism are narrowing sharply. ACC, she contends, now concentrates benefits upon fewer and fewer people. One article she cites suggests that outsized CEO salaries and compensation, coupled with large income inequality within a company, may result in organizations that do harm to their workers.

In fact, “the tenets of ACC seem to downplay the importance of compassionate organizing,” says George. Harm done by corporations, such as laying off employees, may occur unintentionally, but those decisions still cause suffering. ACC, she says, “has the potential to create conditions under which compassion is much less likely to occur.”

As a result, it’s crucial to closely examine the tensions and contradictions between ACC and compassion. A focus on compassion would “identify the conditions under which organizations inflict the least harm and alleviate the most suffering,” George writes.

She proposes a wide-ranging agenda to achieve this. First, researchers should look at organizational decision-making to track the influence of ACC values and whether criteria such as dominance or hierarchy override harmony and egalitarianism. Identifying the factors that spur organizations to favor only shareholders and customers over employees and neighboring communities could offer insights for management. Other research, George suggests, ought to examine a range of companies operating in the same sector, tracing which cause more damage and which are more successful at reducing suffering.

Finally, George says, academics should develop case studies of organizations that successfully pursue policies such as employing the disabled – policies designed to promote the well-being of vulnerable groups inside and outside the company.

Because corporations wield such vast influence, the harm they do can reach wide swaths of the population. It’s time, George writes, for researchers to examine the disconnects between prevailing corporate culture and compassion. Effectively done, she says, such research could vault over the ivory battlements into the heart of everyday life.

Jennifer M. George is the Mary Gibbs Jones Professor Emeritus of Management in Organizational Behavior at the Jones Graduate School of Business at Rice University. 

George, J. M. (2014). Compassion and capitalism: Implications for organizational studies. Journal of Management, 40(1), 5-15.

Companies that go public on the stock market provide an economic boost to the local communities where they’re based, according to new research from Rice University’s Jones Graduate School of Business.

After businesses file for an initial public offering (IPO), ZIP codes close to the company’s headquarters see certain home prices and consumer spending rise, according to researchers led by Alexander Butler, professor of finance at the Jones School. New businesses and new jobs are also created in those areas, the researchers found.

“An IPO doesn’t create a new company,” Butler said. “It does, however, generate significant liquidity for the firm, for employees and for other shareholders who go forth into the community to spend their new cash.”

For the study, “Local Economic Spillover Effects of Stock Market Listings,” researchers looked at 1,365 ZIP codes in which at least one company filed for an IPO between 1998 and 2015. They also identified ZIP codes that were 2 miles, 5 miles and 10 miles from a newly public company’s headquarters. The team determined that the listing decision, rather than actual raising of capital, boosts local labor markets, business environments, consumer spending and real estate.

“Investors’ wealth also rises if a firm’s stock price climbs after listing, as does a firm’s wealth as it raises new capital,” Butler said.

To reach their conclusions, the researchers compared their selected ZIP codes to other ZIP codes in the same county using a matching process to compare “apples to apples.” They compared figures such as changes in home prices, the number of new mortgages, ZIP code business patterns, credit card spending, and income and wages for the two years following an IPO.

Analyzing this data, they found that when a company goes on the stock market, each $10 million in proceeds leads to an extra 0.7 new businesses in the surrounding area and 41 new local jobs. And while the price of expensive homes in the new public company’s ZIP code didn’t increase, the prices of expensive homes in other ZIP codes within 2 miles of headquarters did rise — by $3,900 for the average home valued at $590,000. Prices were also higher in ZIP codes 2 to 5 miles away from headquarters, but less so.

IPOs are not all good news for communities. The study also found IPO activity increases the odds that middle-to-lower-income residents may have to move to lower-income ZIP codes. In the years following Facebook’s IPO, for example, workers in the San Francisco Bay Area such as police officers, teachers and firefighters were priced out of the housing market and relegated to long commutes to work.

Researchers found the growth of home prices gets a boost after the lockup period ends and shareholders can sell their stock, supporting the hypothesis that changes in investor liquidity cause that spillover. Further evidence of this came when they found that home prices climb even more when a firm’s stock price jumps after the IPO.

Ioannis Spyridopoulos, assistant professor of finance at American University’s Kogod School of Business and co-author of the study, said he and his colleagues are doing this work is, in part, to raise awareness of the positive side of finance.

“People have this demonized view of finance,” Spyridopoulos said. “They see and remember financial scandals. They think that finance is only about speculating and making profit in the short run, but they forget that finance is more than that. We need a well-functioning financial system. We need to have a functioning stock market that people trust and benefit from selling their stock quickly at a fair price. Our work shows why this liquidity is so important, by documenting positive economic effects in communities where people become flush with liquidity after their firms get listed in the stock market.

“It is an important reason why the U.S. is the best economy in the world,” Spyridopoulos said. “We have the most developed financial system and a very good framework to protect it.”

The study, which will be published in an upcoming print edition of the Journal of Financial and Quantitative Analysis, did not receive external funding. It was co-authored by Larry Fauver, associate professor of finance at the Haslam College of Business at the University of Tennessee, Knoxville.

Rice University has a VideoLink ReadyCam TV interview studio. ReadyCam is capable of transmitting broadcast-quality standard-definition and high-definition video directly to all news media organizations around the world 24/7. Rice also has a university backdrop, 1080p web cam, light kit and wireless mic for Skype interviews.

For more information or to set up an interview, contact David Ruth, director of national media relations at Rice, at david@rice.edu or 713-348-6327.

For more insights from and information about Rice Business faculty research, visit the school’s Rice Business Wisdom online ideas magazine at https://business.rice.edu/wisdom.

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Located on a 300-acre forested campus in Houston, Rice University is consistently ranked among the nation’s top 20 universities by U.S. News & World Report. Rice has highly respected schools of Architecture, Business, Continuing Studies, Engineering, Humanities, Music, Natural Sciences and Social Sciences and is home to the Baker Institute for Public Policy. With 3,962 undergraduates and 3,027 graduate students, Rice’s undergraduate student-to-faculty ratio is just under 6-to-1. Its residential college system builds close-knit communities and lifelong friendships, just one reason why Rice is ranked No. 1 for lots of race/class interaction and No. 2 for quality of life by the Princeton Review. Rice is also rated as a best value among private universities by Kiplinger’s Personal Finance.