Examining Flip Side Of A Firm's Social Responsibility Record
Companies often practice image management. That is, after being caught doing something bad, they invest in philanthropic projects. Research is asking whether companies that do good are ever motivated to "cash in" on their good credit?
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Goldman Sachs has given hundreds of millions of dollars to charity in recent years. In part, its effort to do good has been shaped by the battering its reputation took during the financial meltdown in 2008 when Goldman traders were accused of misleading investors.
The efforts of companies to look good in the public eye may seem positive but there is also a disturbing side of doing good work, as NPR's social science correspondent Shankar Vedantam tells our own Steve Inskeep.
STEVE INSKEEP, HOST:
SHANKAR VEDANTAM, BYLINE: Hi, Steve.
INSKEEP: Wait a minute. You're going to tell me it's bad to do good?
VEDANTAM: I'm not going to tell you it's a bad idea, Steve. But I will say that it comes at a risk. I spoke with Elaine Wong. She's a marketing professor at the University of California, Riverside, and along with her colleague, Margaret Ormiston, she's analyzed the behavior of dozens of Fortune 500 companies. These are companies like IBM and Nike and Pepsi, and she's looked at that corporate social responsibility behavior. So this is everything from their philanthropy to their environmental stewardship, how well they treat their employees. I asked her whether there was a relationship between corporate social responsibility and its evil twin, corporate social irresponsibility. Here's what she told me.
ELAINE WONG: Oh, yes. We're find a very strong relationship for that, in fact. So what our main finding is, is that engaging in corporate social responsibility at one point in time actually leads to an increase in corporate social irresponsibility at a later point in time.
INSKEEP: Whoa. Whoa. Whoa. Whoa. You're saying that if a company gives money to start a school in Africa, or to help kids get medicines or something, that's going to cause them to commit crimes later on?
VEDANTAM: Cause might be too strong a word, Steve. And this might not be every company and every time, but it does seem to be a correlation. So Wong asked me to think about Enron. You know, at its height, Enron was Houston's North Star when it came to philanthropy. Same with Bernie Madoff in New York. So when she looked at these individual examples, she started saying is it possible these examples are actually part of a larger pattern?
Here's how she got and analyzed the data. Many investors want to know what the environmental, labor and philanthropic track record is of companies in their portfolio. So there's a research outfit that tracks companies on their corporate social responsibility. It's called the KLD Scale.
VEDANTAM: So Wong tracked how 49 companies in the Fortune 500 scored on corporate social responsibility. And she found that when companies were headed by leaders who care a lot about their social reputation - they want to be seen as kind and ethical and compassionate - at those firms scoring high on corporate social responsibility predicted subsequent corporate social irresponsibility.
INSKEEP: I'm trying to figure out what's happening here. Are you saying that at some companies they put some good works in the bank and then later on they spend it by doing bad things?
VEDANTAM: Well, Wong actually is drawing on a large body of psychology that looks at the same behavior at the individual level. Here she is again.
WONG: People are actually more likely to engage in morally questionable behavior after they have engaged in moral behavior. So moral behavior can almost function like a type of monetary currency and you can bank this.
VEDANTAM: So I think what she's trying to say, Steve, is that all of us carry around the sort of mental account of our moral worth. So when we do bad things we feel the need to compensate by doing good things.
You know, a staple idea in the movies is a guy has an affair and he comes home and he buys his wife a diamond bracelet, right?
INSKEEP: This is the opposite of that.
VEDANTAM: Right. Now the wife doesn't know he's had the affair, so who is he compensating for? Who's the audience? He's actually compensating for himself. This is exactly the opposite of that; that sometimes we do good things, we bank them, and we cash them in. The theory is called moral licensing, and it's been demonstrated quite widely at the individual level. What Wong has done now is to show the same thing works at the corporate level.
INSKEEP: So if I want to make sure I'm dealing with a company that doesn't rip me off, should I go to the company where the people act like jerks and they seem really nasty all the time?
VEDANTAM: I think that's the last thing that Wong and Ormiston would want to see, Steve. I don't think she's necessarily saying that we want companies to stop acting in philanthropic ways or stop being good environmental stewards. And, in fact, there's a compassionate to look at what's going on. Companies are often answering to different stakeholders. So sometimes when you do good by citizens, you're not doing so well by your shareholders. And after some time of doing a lot of good by your citizens, you say let me give shareholders a turn.
So I think the point of the research really, is that we have to be vigilant of the possibility that doing good can make us feel entitled to do bad. And look, we've just come out of the Thanksgiving holiday weekend, and a lot of Americans eat healthy through the year, so when it comes to Thanksgiving, they say OK, we can pig out. And it turns out the way we think about morality is a lot like the way we think about calories.
GREENE: NPR's Shankar Vedantam, speaking with our colleague Steve Inskeep. You can follow Shankar on Twitter @HiddenBrain. You can follow Steve @nprinskeep. Follow me @nprgreene. Follow this program @morningedition. Transcript provided by NPR, Copyright NPR.