The Downside of Corporate Social Responsibility

Beware today's do-gooding companies or CEOs. They're often most likely to do-bad tomorrow.

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Robert Galbraith / Reuters

The road to hell, they say, is paved with good intentions.  So too, apparently, is the road to corporate wrongdoing. At least that’s the conclusion to be drawn from a new study that asks what happens when companies (and their CEOs) engage in socially responsible behavior (and posturing). Short answer: Firms that are focused on pursuing a socially responsible agenda are more likely than other businesses to behave in a socially irresponsible ways. Longer answer: This tendency is even more pronounced when bosses are vocal about their inclinations to do the right thing.The study, by Elaine Wong of the UC-Riverside School of Business Administration and Margaret Ormiston of the London Business School, essentially merges two subjects that have been heavily examined in recent years: corporate social responsibility (CSR), e.g., when a for-profit company willingly acts in a way that benefits interests beyond those of the firm and its owners; and self licensing, a.k.a. moral licensing, or the non-conscious way in which behaving and/or thinking morally frees people to worry less about the consequences of being immoral in the future. (In other words, being good or simply talking about being good leads many individuals to subsequently be bad.)

But in “License to Ill: The Effects of Corporate Social Responsibility and CEO Moral Identity on Corporate Irresponsibility,” Wong and Ormiston explore a new idea: They analyzed Fortune 500  companies to determine if prior CSR correlates meaningfully to subsequent corporate social irresponsibility (CSiR). Specifically, they winnowed down the 2002 Fortune 500 list to 49 companies for which they could assemble sufficient records of CSR-related activity and confidently develop a psychological profile of the man or woman in charge. (They explain their thoughtful methodology in the paper, which was published in the winter issue of  the journal Personnel Psychology.)

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The duo’s conclusion: CSR is measurably related to subsequent CSiR. Their rough assessment, in fact, is that for every five CSR actions a firm takes, you can expect it to commit one-act of CSiR. Moreover, the researchers write, there is a secondary connection worth noting between the self-stylings of bosses and their firms subsequent record: “The relationship is stronger for CEOs who are high on moral identity symbolization rather than low on moral identity symbolization.”

That is, CEOs who behave or speak publicly in a way that enhances their reputation for moral behavior are even more likely than the average head honcho to oversee a company whose actions turn out to be at least in part socially irresponsible. (Yet another instance where Berkshire Hathaway chairman Warren Buffett appears the exception that proves the rule.)

This will not surprise anyone familiar with Enron, the once-high-flying energy company whose bosses were not only responsible for one of the great acts of corporate fraud in history but also an almost unprecedented level of corporate philanthropy in the years leading up to their unmasking. Likewise, just two years before the Deepwater Horizon fiasco knocked the stuffing out of British Petroleum in 2010, CEO Tony Hayward announced that the firm’s safety record was among the industry’s best, reflecting a culture of conscientiousness meant to satisfy internal and external stakeholders. Alas, not everyone was listening, especially those tasked with preventing deep-water rigs in the Gulf of Mexico from blowing up.

Again, the study authors are not suggesting that CSR leads to willful CSiR. Rather, the implications from their research suggests that non-conscious self-licensing comes into play on group and individual levels to such an extent that the reaction to corporate do-gooding ought to be the opposite of what it generally is, e.g., much cheering, praise and awards-giving. Instead, all of us—the media, the public, corporate boards and CEOs themselves—should react to socially responsible behavior and posturing by raising our threat-level awareness in regards to future instances of CSiR. Says Wong: “Corporate boards can’t allow CEOs to rest on their laurels. They need to be vigilant in monitoring CEOs.”

Especially if the worst offenders are those with the best intentions.

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