The Catch-22 of CSR

The FINANCIAL — Employees may work less if they suspect a selfish motivation behind corporate social responsibility initiatives, says Professor Stephan Meier

Your company’s corporate social responsibility initiatives may be backfiring.

Of the largest 250 companies in the world, more than 90 percent publish annual CSR reports full of glossy photos and flowery messaging around strengthening communities and minimizing environmental impacts. Fortune 500 firms spend more than $20 billion a year on CSR activities, making it a part of doing business today.

But while CSR has been found to attract talent and increase retention, new research finds it can also undermine productivity if workers become leery of their employer’s motivations.

“People are not stupid,” says Professor Stephan Meier, whose new study with Lea Cassar of the University of Cologne is titled, “Intentions for Doing Good Matter for Doing Well: The (Negative) Value of Prosocial Incentives.” “If it becomes possible that you’re doing something for the wrong reasons, then it can have a backlash.”

In recent years, CSR has become a mandatory part of corporate financial reporting in many countries — and even a required business expense for companies operating in the world’s second most-populous country, India. CSR is touted as being good for the bottom line, as well as a way of marketing to millennials who care about a business’s social and environment impacts.

Meier wants to insert a caveat: As soon as people suspect that a firm is trying to reap reputational benefits from CSR, then the whole endeavor potentially leads to lower worker effort and less consumer interest than if the firm had done nothing to begin with. Meier describes this as the “hotel towel problem,” referring to the signs inside hotel rooms that encourage patrons to reuse their towels to save the environment. The skeptic might suspect that the hotel is using the guise of CSR to exploit the environmental conscious of patrons to save money, which highlights the catch-22 of CSR.

“Our result indicate that firms cannot just instrumentally use non-monetary incentives or CSR initiatives as another tool in their HR strategy,” according to his new working paper, which was featured earlier this year in the Harvard Business Review. “Workers do care about the genuine use of prosocial incentives and will react negatively to firms using social initiatives in a calculated manner to increase profits.”

The Hotel Towel Problem

As with the person who donates to charity and then brags about it, firms can’t tout their CSR initiatives without people growing wary of the motivation, as Meier and Cassar found in an experiment involving 3,000 people. They recruited gig workers from the crowdsourcing marketplace Amazon Mechanical Turk, offering everyone $1.50 to generate three slogans for a real Italian pharmaceutical disturber that sought help developing advertising. For an additional three slogans, half the workers were offered $0.75 while the other half were told that their extra work would lead to a donation to the charity Doctors Without Borders.

For half of each group, the payment or donation was conditional upon completion of three extra slogans, while for the other half the bonus payment and charity donation were unconditional. Some workers were also given explanations around the company’s CSR policy: Some were told that doing CSR made sense for the firm’s bottom line, while others were told that the company was committed to social responsibility even at the cost of profits.

Perhaps unsurprising, the researchers found that workers were on average more motivated by money than by charity.

More surprising is that when the company made its charity conditional upon worker effort, the average response was 5 percentage points lower than when charity was unconditional — highlighting how people were less motivated to work for a company that didn’t inherently embrace CSR. Worker effort fell even further when the company explained that doing CSR is profitable for the firm.

“If workers perceive CSR to be done strategically to increase profit (e.g. by improving the company’s image) it may not be as effective or may even backfire,” according to the paper. “If this is the case, the insights learned from our model and our empirical findings are much broader and extend beyond the use of pro-social incentives in the sense of performance-based charitable giving.”

CSR In Your DNA

This is not the only research to show a negative side to CSR. The University of Chicago’s John List found that “company-sponsored social initiatives can trigger poor employee performance because doing good deeds in one area encourages the employee to behave unethically in another.”

Similarly, so-called organizational citizenship behavior (OCB) such as picking up an absent coworker’s slack can lead to feeling entitled to take an extra break later.

Firms must be careful about their motivations for doing CSR, says Meier. Citing Walmart, which is known more for operational efficiency and rigorous cost-cutting than for its social or environmental initiatives, Meier says that the mega-retailer will have difficulty reaping any reputational benefits from CSR initiatives — such as improving the fuel efficiency of the world’s largest truck fleet — because this is seen as primarily being a cost-effective decision (like reusing hotel room towels).

“People want to work for good firms,” says Meier, who has a line of research into the question of what motivates employees. “But if CSR becomes another marketing trick, then the effect is gone,” he says. “It then puts a little more pressure on firms to think about why they’re doing CSR. You can’t just do it as an add-on.”

For an example of a company that is reaping the reputational benefits from CSR, Meier points to Patagonia, an $800 million outdoor apparel empire that was branding itself as an environmentally and socially conscious company decades before the term “CSR” came into vogue. The company famously ran a full-page Black Friday ad in the New York Times that detailed how Patagonia’s products harm the environment and advised “Don’t buy this jacket.” Annual revenue has since grown by more than $250 million.

“It comes across that Patagonia genuinely cares about doing the right thing,” says Meier.

“CSR has to be in your DNA,” Meier adds. “If it’s just marketing, if it’s just an ad campaign, then I’m skeptical that CSR actually helps. Firms must be very careful about that.”

Authors: Stephan Meier is a Professor of Business at Columbia Business School.
Based on research by Lea Cassar and Stephan Meier. Colombia Business School