Does A Great CSR Policy Allow A CEO to Make Dumb Decisions?

Finding a company that has a great corporate social responsibility reputation isn’t hard these days. Most businesses have caught on to the fact that the public likes companies that like doing good things for others. And studies show that we aren’t afraid to reward businesses who have great CSR track record.

But interestingly, it also isn’t hard to find news these days about companies whose sterling reputations have been broadsided by scandal. British Petroleum (BP), Hewlett Packard (HP), Enron and to a lesser degree, Safeway all boast a concern for CSR in their interaction with the public, but have all been subjected to scrutiny for events that seemed out of character with that image.

According to a recent study published in the Journal of Personnel Psychology, this isn’t really unusual. Margaret E. Ormiston, who serves as assistant professor at London Business School, and Elaine M. Wong, assistant professor at University of California Riverside’s School of Business Administration say that the link between companies with high CSR records and events based on bad decisions isn’t coincidental.

“You wouldn’t think doing well by one’s stakeholders would set the stage for actions that harm stakeholders in the future.”

Findings published in License to Ill: The Effects of Corporate Social Responsibility and CEO Moral Identity on Corporate Irresponsibility, suggest that companies that have a history of altruism through CSR “are more likely to then engage in socially irresponsible behavior.” What’s more, the likelihood of this occurring is greater in companies whose CEOs try to put forth a good, upstanding or moral image.

“The finding is very counterintuitive,” Wong said. “You wouldn’t think doing well by one’s stakeholders would set the stage for actions that harm stakeholders in the future.”

A classic example is the BP Deepwater Horizon accident in 2010, which resulted in one of the worst environmental catastrophes in U.S. history, and which the company was severely criticized for what some felt was a dispassionate and inappropriate handling by its CEO Tony Hayward.

Hewlett-Packard Company’s dismissal of its CEO in 2010 had a similar public relations impact. Mark Hurd’s firing by the company sent stocks plummeting after the news broke that he had allegedly falsified documents in an effort to conceal an affair. In 2009, the company was ranked No. 1 by Newsweek’s Green Rankings 500 because of HP’s effort to reduce greenhouse gasses. Yet its standing couldn’t offset the stock plunge a year later when Hurd was fired.

More recently, Safeway’s actions regarding an altercation that occurred on its premises has led to widespread public criticism of company management. In Safeway’s perspective, the suspension of an employee involved in a fight was the correct and moral stance to take. According to those who witnessed the incident however, the employee was protecting a pregnant customer from being beaten by her boyfriend. Safeway’s refusal to return the employee immediately to his job and unwillingness to listen to its customer base has infuriated some members of the public and worsened – not bettered – Safeway’s public image.

The challenge for companies may be to figure out how to use the valuable tool of altruism and CSR to contribute to a better world and at the same time, prepare for those unseen calamities that are a company’s worst nightmare. Finding the balance between the two through training and doing its own corporate monitoring may be the moral call for the 21st century corporation.

“[Corporate] boards can’t allow CEOs to rest on their laurels. They need to be vigilant in monitoring CEOs,” Wong said.

 

Image of BP Deepwater Horizon drilling disaster courtesy of US Coast Guard (public domain)

Image of workshop courtesy of Fortune Live Media