(Illustration by Adam McCauley)
What might prevent executives from backing investments to improve their company’s social behavior and performance? A popular view holds that they require reassurance that such investments will not hurt the bottom line—that corporate social responsibility (CSR) is compatible with financial performance. Once the facts show that there is money to be made from investments in CSR, such executive holdouts will then happily put their money behind it.
As natural as this inference seems, new research suggests that it fails. First, executives are already predisposed to believe the business case for making investments that are socially responsible because they hold a fair market ideology—the tendency to idealize the market economy system. Under such an outlook, they already think that socially responsibility and profitability go hand in hand. Second, such executives paradoxically tend to be less interested in investing in socially responsible projects, because their ideological outlook makes them less receptive to the moral outrage that CSR is supposed to allay. In the end, there is little reason to believe that a fact-driven case will move businessmen in the way CSR advocates might hope.
Daniel Waeger, assistant professor of strategy and international management at the University of Amsterdam, and colleagues conducted four studies to determine how the outlooks of corporate executives might influence their need for, and responsiveness to, data about the financial performance of socially responsible companies. In their first study of 47 executives, Waeger and his colleagues tested their beliefs by running a game, in which participants predicted the financial performance of a company based on stipulations about social performance. Here, the researchers found that the belief that social performance and financial performance are linked is positively correlated with an executive’s tendency to hold a free-market ideology. In the second and third studies, the researchers demonstrated a causal link between the executives’ ideological outlook and their tendency to equate social and financial performance.
In the fourth study, the researchers ran an analysis of 105 managers and executives to investigate their willingness to make CSR investments. Waeger’s team determined that those with a fair market ideology do tend to believe in the business case for CSR. However, these same executives feel less morally outraged about the ethical problems that CSR investments address, which thereby undercuts their motivation to pursue them. “Overall, these two effects cancel each other out, such that managers with a fair market ideology are not more willing to invest in CSR activities than other managers, even though they believe more strongly in the business case for CSR,” Waeger says.
Trying to convince company leaders that CSR programs pay may therefore be a waste of time. Managers who believe in the business case often do not have the moral and emotional propensities for investing in CSR programs. Consequently, Waeger argues, company leaders may not be able to relate to the intrinsic value of CSR investments and activities and thus may have a harder time endorsing them. “In order to anchor CSR deeper in strategic decision making, we do not need more evidence on the business case but to appeal to the deeper emotional layers of managerial decision making,” says Guido Palazzo, professor of business ethics at HEC Lausanne, University of Lausanne.
Executives need to understand the ethical or moral implications of their actions, Waeger says; otherwise, they will not take action to remedy some of the negative implications of their actions. Business leaders must be made aware of the ethical issues inherent in many of their actions and activities. But more research is needed to understand the best way to engage their moral sentiments.
“Investing in CSR in my view requires first a recognition that business and societal issues may often not be aligned, and then still making a conscious decision to invest in societal issues—out of responsibility, not simply sound business,” says Klaus Weber, associate professor of management and organizations at Northwestern University’s Kellogg School of Management.
There are many socially responsible projects with profit potential that executives could pursue, Weber says. “They only pursue a few of them, perhaps those with the best business case, or the business case that is the easiest or fastest to implement, or the business case that is strategically important.” Often it comes down to a matter of attention and priorities, not of financial viability, he says. While executives that Weber meets acknowledge a general case for CSR, they are unclear about how to take action. Nonprofit leaders can help them by offering solutions that are simple to adopt and have a business case, says Weber. “It is much easier to decide to do something that is ready than to innovate.” In addition, social sector actors should challenge executives’ market ideology with arguments on the limits and failure of markets, says Palazzo. “As soon as managers understand the limits of market fairness and believe in the business case, they might engage more seriously,” he says.
Read more stories by Corey Binns.