In my Graziadio Business Review article, I mention how
corporate social responsibility (CSR) activities can lead to higher future productivity…These findings complement previous research that finds “that firms can strategically engage in socially responsible activities to increase private profits. Given that the firm’s stakeholders may value the firm’s social efforts, the firm can obtain additional benefits from these activities, including: enhancing the firm’s reputation and the ability to generate profits by differentiating its product, the ability to attract more highly qualified personnel or the ability to extract a premium for its products.”
It’s important to emphasize that companies must “strategically engage” in CSR activities in order for them to be beneficial. In other words, not all CSR activities are created equal and, as should be clear from the bulk of the article, what truly helps society is managing well. In fact, recent research suggests that CSR activities can lead to employee misconduct:
In this paper, we explore another supply-side channel through which CSR can affect profitability: the impact on employee misbehavior on the job. Employee misbehavior is a common and costly problem facing businesses and organizations. It has been estimated that companies lose about 5% of their annual revenues to various forms of internal fraud (Association of Certified Fraud Examiners, 2016). A survey from the National Retail Federation (NRF) reports that in the retail industry alone, employee theft amounted to $15 billion (over a third of the total inventory shrinkage) in 2014 (NRF, 2015). Another survey reports that in 2015, one in every 38 employees in the retail industry was apprehended for theft from their employers (pg. 2).
They explore the possible effects of CSR through two channels:
- “First, [CSR] can serve as a social incentive tool for motivating workers to reduce unethical and counterproductive behavior on the job. Previous studies have shown that, consistent with the standard gift-exchange model, workers reciprocate a higher wage from their employer by reducing misbehavior on the job that hurts the employer (Flory, Liebbrandt, & List, 2016; Ockenfels, Sliwka, & Werner, 2015). Similar to how monetary-incentives reduce worker misbehavior through a gift-exchange mechanism, social incentives in the form of CSR may reduce misbehavior, by triggering reciprocity towards the employer. CSR may thus reduce worker misbehavior through the gift-exchange channel” (pgs. 2-3).
- “A second channel is that CSR can increase worker misbehavior through moral-licensing. Prosocial behavior is motivated in part, by self- (and social-) image motives: people act prosocially, in part to signal to themselves (and to others) that they are good and moral individuals (Benabou and Tirole 2006, 2011). While prosocial deeds can boost individual self-image, unethical behavior can damage it. As our moral standards are constantly challenged in multiple dimensions, good behavior in one domain may liberate us to behave unethically in another domain. Such a dynamic of moral licensing in individual behavior has been documented in the social psychology literature” (pg. 3).
“To shed empirical evidence into our theory,” the authors write,
we conduct a natural field experiment with over 3000 workers who we hired ourselves. In this manner, we served as the employer of an online labor market platform (Amazon Mechanical Turk) and invited interested workers to our website to perform a short transcription task for payment. The task and the payment structure were designed in a manner that provided opportunities for workers to misbehave. For example, all workers in our experiment received 10% of their total payment upfront, and immediately upon accepting the contract, and received the remaining 90% of their wage, once they completed the task. Receiving a percentage of the wage upfront creates an incentive for workers to accept the contract without actually working on, or completing the task. To provide the necessary variation to identify the critical pieces of the model, we randomized workers’ into one of the 6 treatments, across which we varied wage, CSR incentive, and the framing and timing of the CSR message (pg. 3).
Overall, our results suggest that our usage of CSR increased cheating. First, the share of workers who shirk their primary job duty increases significantly –by roughly 20%– from the baseline to our CSR treatments. Indeed, CSR not only increases the number of people who misbehave, it also increases the level of shirking: the average level of cheating by workers increases by 11%. Second, consistent with the moral-licensing effect of CSR, we find the share of cheaters to be the highest when we frame CSR as a prosocial act on behalf of workers. While CSR increases cheating, we do not find any effect on the average quality of work after accounting for the cheating. We also do not find any differences in cheating behavior across workers who could and could not sort themselves into the CSR job. We argue that our inability to document any selection effect may be due to the relatively high rate of accepting the contract by our workers in all treatments.
…As we decrease the wage and increase the expenditure on CSR, we find the share of cheaters to increase considerably. In other words, we find that substituting just about 5% of the wage with CSR increases the share of cheaters by 25%, while substituting 28% of wage with CSR increases the share of cheaters by over 50%. Likewise, the intensity of cheating per worker increases as well (pg. 4).
our results reveal a potential dark side to the supply-side effect of CSR. We find that CSR can increase worker misbehavior on the job by generating a moral-licensing effect. Our findings also have important implications on how employers should communicate CSR initiatives to their employees. Importantly, we find some suggestive evidence that the way CSR is communicated to workers can play an important role in the extent to which it leads to moral licensing. When communicated to the employees as a benevolent act that the employer engages in, on workers’ behalf, CSR is (marginally insignificantly) more likely to exploit workers self-image and to lead to less moral choices in the future. This result is consistent with the findings of Kouchaki and Jami (2016) who document a higher level of moral-licensing, when consumers are exposed to a CSR message that praises the consumers compared to a message that praised the company for CSR (pg. 4).
This is why my GBR article focused on good management. This does far more good than image-boosting CSR activities. As business ethicist Chris MacDonald explains, businesses contribute to society by making useful products or providing useful services, providing employment, providing investment opportunities for investors, obeying laws and regulations, and paying taxes. CSR, according to MacDonald, misunderstands capitalism, acts as a smokescreen, and squanders public/activist/media attention:
The central tenet of CSR — namely that the best way for business to contribute socially is through good works — is faulty, and implies a misunderstanding of the basic wealth-and-welfare generating function of markets. Businesses contribute by producing things we want; they facilitate voluntary exchanges of goods and services that, when conducted honestly, leave all concerned better off. (Ask yourself: when did Bill Gates start contributing to society? Was it in 1994, when he founded the Bill & Melinda Gates Foundation? Or was it in, say, 1975, when Gates founded the firm — Microsoft — that would help put the power of computers in of millions of offices and homes?
…When business leaders start bragging about their CSR activities, we should smile politely, and then enquire how their companies are doing in terms of honest advertising, corporate governance and regulatory compliance.
In the face of corporate scandals and economic instability, what we ought to be asking of business executives is that they focus on doing their job honestly and diligently. In any given week, millions of dollars are being spent on academic and industry conferences, round-tables, and dinners to talk about the importance of CSR. In any given week, newspaper stories are being drafted about which companies are doing well, or badly, in their CSR efforts. And in any given week, activists are staging protests, writing letters, and educating the public about the failures of companies to be “socially responsible.” What would happen, I wonder, if all of that money and effort were redirected to the simple idea of getting more people, in more businesses, to behave more consistently according to basic rules of honesty and integrity?
I think this fits pretty well with the overall theme of my article: do your job. And do it well.