Companies That Do More Harm Also Do More Good

A new study strives to answer that age-old question: Why does the Goldman Sachs website brag about sending their employees to bake cupcakes for the Jewish Community Council of Canarsie?

Everyone has heard the old saw that companies can do well by doing good. But many companies actually appear to do more good when they are doing harm, according to a new paper [PDF] on corporate social responsibility (CSR). The researchers, Matthew J. Kotchen of the Yale School of Forestry & Environmental Studies and Jon Jungbien Moon of the business school at Korea University, surveyed nearly 3,000 publicly traded companies over 15 years. They write:

We seek to explain why companies engage in CSR, but we do not focus directly on the link to financial performance. Instead, we investigate the proposition that companies engage in CSR in order to offset corporate social irresponsibility (CSI). While the link to financial performance is implicit, our analysis seeks to evaluate a different causal mechanism underlying CSR: that CSI is a liability and companies do "good" in order to offset "bad." 

The paper find evidence for what you might have already suspected: It's bad business to be seen as an irresponsible company, but an image as a socially responsible company can, to some extent, be bought with public do-gooding.

There is much empirical support for the notion that companies are penalized if they are perceived to conduct business in ways that conflict with social values. This is particularly true when inconsistencies arise between the pursuit of corporate profits and social goals—such as environmental protection, public health, and human rights, among others. In cases where the inconsistencies are large and there is sufficient public awareness, it is advantageous for companies to anticipate the social pressure and to take a proactive stance toward lessoning the potential for conflict. 

Tellingly, when the problem is perceptions of poor corporate governance—overpaid CEOs, for example, or lack of political accountability—the study finds that acts of corporate social responsibility increase, but not in the category of governance. Instead, companies choose to engage in projects related to the environment, community relations, or human rights. Thus the banker bakers. 

Of course, the definitions of good and harm here are slippery. For more on that, check out one of the best Reason features ever: Milton Friedman vs. Whole Foods CEO John Mackey vs. Cypress Semiconductors founder T.J. Rodgers on corporate social responsibility.