02 Jul 2012  Research & Ideas

Why Good Deeds Invite Bad Publicity

Many executives assume that investments in corporate social responsibility create public goodwill. But do they? Felix Oberholzer-Gee and colleagues find surprising results when it comes to oil spills.

 

Do companies with reputations for acting in socially responsible ways receive public goodwill when unpleasant news hits?

The question of how much (or even if) corporate social responsibility (CSR) policies benefit companies beyond the knowledge that they are good corporate citizens is much debated. There is next to no evidence that CSR positively adds to a company's bottom line, according to Felix Oberholzer-Gee, the Andreas Andresen Professor of Business Administration at Harvard Business School. "You cannot find a robust direct link between CSR and financial performance."

"You cannot find a robust direct link between CSR and financial performance"

It is true that in areas such as environmentally sustainable practices, customers have been willing to pay responsible producers a premium for products; take organic cotton, for example. For the most part, however, companies have had to content themselves with thinking that even if there isn't an immediate payoff for doing the right thing, then at least the goodwill they build up with the public will provide a buffer to offset negative publicity when something goes wrong.

The idea is that corporate social responsibility operates exactly like fire insurance. On any given day, you won't see any benefit. In fact, you could go years shelling out money for a service you aren't using. But on the day that, heaven forbid, your house does burn down, then you will definitely be glad you invested in insurance.

But does CSR "insurance" really pay off when companies need that goodwill from the public? In a recent working paper, No News Is Good News: CSR Strategy and Newspaper Coverage of Negative Firm Events, Oberholzer-Gee set out to test the insurance hypothesis using the real-world example of the 20 largest oil companies in the United States. Along with Jiao Luo and Stephan Meier, both of Columbia Business School, Oberholzer-Gee collected data on several thousand oil and chemical spills (most of them, thankfully, quite small) over a six-year period from 2001 to 2007. The researchers also collected newspaper reports over the same period to see how often companies received negative publicity for those spills, or whether, indeed, they earned brownie points for their superior environmental record when the inevitable accidents occurred.

To get a handle on where each company fell in its CSR initiatives, the researchers used stats from the corporate research firm KLD Research & Analytics, which ranked companies on "Environmental Strength," including positive measures such as pollution prevention programs, recycling, and energy efficiency; and "Environmental Concern," which includes negatives such as regulatory fines and emissions of toxic chemicals.

A faulty insurance policy

The researchers hypothesized that those companies that had higher CSR ratings would be more likely to be reported in the media if a spill occurred. After all, it's not news when a company with a bad environmental record is reported to have been negligent; it's more notable when a good company screws up. But if the insurance argument held true, then greener companies should at least see more favorable coverage when spills occur, with the media being more likely to attribute them to chance or bad luck than negligence or malfeasance.

When the researchers ran the numbers, they found evidence to support the first part of their hypothesis: greener companies did receive more coverage for spills. A one-point increase in the Environmental Strength score resulted in a 25 to 35 percent greater chance that a spill would be covered. Surprisingly, however, they also found that companies with the lowest CSR scores were more likely to be reported in the press when they had a spill.

"Both the leaders and the laggards experience heightened media attention," says Oberholzer-Gee. "We didn't anticipate that."

To explain why companies with a poor CSR record make a convenient target for the media, the authors turned to sociological studies. These show that readers like unexpected news—explaining why accidents at the greenest companies were widely covered—but those same readers also find comfort in stories that conform to already-held beliefs. Therefore, readers might find interest in an oil spill by a company like BP, which for years portrayed itself as a leader in environmental concerns; but they might also find interest in an oil spill by ExxonMobil, demonized by some for its environmental lapses. The companies in the middle, meanwhile, received a pass since their neutral rankings don't fit into an easy narrative.

"A CSR positioning that says either you are already fantastic or you are trying to be fantastic is a risky position"

To test the second part of the insurance hypothesis—that companies with higher CSR scores garner more favorable coverage when spills were reported—the researchers performed a textual analysis of the newspaper stories, mining the text with software that ranks the tone of the words used in a given story. When they added up the scores, however, they found no difference in the tenor of the coverage for greener companies. Those companies with positive environmental records were criticized just as heavily as those with negative records.

"The idea that if you invested in CSR in the past, then people will think more highly of you in the case of an accident, this idea is not borne out in our data," concludes Oberholzer-Gee.

In other words, at least when it comes to oil spills, the goodwill "insurance policies" weren't worth the paper they were written on.

Lessons learned

One lesson to take away from the findings is that managing media coverage and a company's reputation with regard to CSR programs is not trivial.

"A CSR positioning that says either you are already fantastic or you are trying to be fantastic is a risky position," says Oberholzer-Gee. Such claims raise the public's expectations and make the company a lightning rod for media coverage in the case of an accident or some other negative event. Meanwhile, he says, "those that make less extreme claims either are disregarded by the press or have a far less likelihood of seeing their failings exposed."

While that conclusion may seem cynical, Oberholzer-Gee does point out that there may be other perfectly legitimate reasons to engage in CSR—perhaps consumers will pay a premium for specific sustainably produced products; or perhaps having an environmentally responsible image will help in recruiting top talent.

"And of course," he emphasizes, "there is also the idea that companies should try and be good because they believe it's the right thing to do for the environment or their community."

In such cases, it's important to realize that there are consequences. "Sometimes in my interactions with executives, they say, 'We meant really well and we were socially minded, and now we don't see any return or gratitude,' " says Oberholzer-Gee. "It's important to have reasonable expectations about the consequences of that engagement, and hopefully that makes it more sustainable over time."

In other words, while doing good may be its own reward, sometimes it may be the only reward. It's up to each individual company to decide whether that is enough.

Comments

    • Helena Ancos
    • CSR Consultant- Proffessor

    There seems to be consensus that corporate reputation is an intangible asset that holds potential for business. This is not the case with the methodologies used, the variables selected, and especially with regard to the alleged causal link between corporate reputation and social responsibility.

    In a society where structures are less and less vertical and increasingly networked, where a more holistic perspective is taken and the public is more educated about the financial, social and environmental impacts of firms, the results provided by corporate reputation studies are being called into question by some business practices. In the opposite sense, some companies seem to be immune to the negative perceptions of their stakeholders.

    Several colleagues opened this debate a few months ago in a series of articles: "Schumpeter" from The Economist "What's in a name? Why companies should worry less about their reputations"; Alberto Andreu in ""Sobre Schumpeter y su (limitada) visi?n de la reputaci?n de las empresas" and its sequel "La mala reputaci?n de la reputaci?n corporativa (a vueltas con Schumpeter y otros blogueros " and Antonio Vives with several articles including "?Reputaci?n como fin o como resultado de la RSE?".

    I refer to all of them due to their undeniable interest. However, I will summarize the context of this discussion in the words of Antonio Vives, whose thoughts are in line with the thesis of the Blog in The Economist: "Reputation is not synonymous with accountability. There is no direct relationship between responsibility and reputation. It depends on the communication received from all parties involved and how it is processed. The company "manages" these last parts to its benefit." His articles contain very interesting opinions that I would like to share here, such as:

    • Reputation is made up of many different issues,

    • Reputation is overrated and there does not seem to be a clear causal relationship between reputation and its influence on businesses and consumers,

    • And as a corollary, the best way to handle reputation is reputation management.

    This debate is even more important in the depths of the current crisis, where the true effectiveness of reputation can be tested. The heightened critical awareness of all stakeholders has stripped corporate reputation of some of its ornaments and it has been affected by the contagion effect of country risk. Both of these factors have called into question traditional measurement methodologies although interesting efforts are being made to reach new a consensus and deploy them in the enterprise.

    Company reputation is the perception that the public has of the activities it performs and in a very objective and accurate definition Villafa?e states that corporate reputation is "the recognition of corporate behaviour by a company's stakeholders based on how well it complies with its commitments in relation to its customers, employees, shareholders, and the community at large."(1)

    However, this recognition comes from perceptions. Andreu quotes Carl R. Rogers and F.J. Roethlisberger (Barriers and Gateways to Communication, Harvard Business Review, December 1991) who defined perception as the mechanism by which people complete the partial information they have of reality in order to understand and encode the messages they receive. Based on this, Andreu concludes that "nothing is true or false: it's in the eye of the beholder."

    If we start from this premise, the fact that we all have our own encoding system means that communication strategies will have a key role. Or as Villafa?e states, "For reputation to be a value driver it should be managed and communicated."

    But how do we build reputation? Or rather, what is the relationship between reputation and a firm's activity? This is precisely what this article and the comments that follow deal with: encoding and communication strategies.

    The image or reputation of a firm stems from perceptions that may be collective but may be composed of images that come from different parts of the corporate entity. As Italo Pizzolante says (en La Geometr?a de la Comunicaci?n Empresarial): "When we dig deeper into the analysis of corporate image and remember that the 'image' comes from perceptions that may be collective and that 'corporate' comes from the Latin 'corpus' (body), that is, the sum of the parts of the company, we realize that 'each one' of these parts makes up, by themselves, 'images' in each of the different audiences. The team that works at the Financial department, creates perceptions in the financial sector and suppliers, among others; the Manufacturing and Distribution team... in the consumer; the Management staff... in the government, the competition, and the community; and the staff at the plants in the neighbours, among many other audiences. Each and every one of the parts of the company as a whole are IMAGES and each public may perceive and thus maintain a particular 'image' of the organization. These are publics that, as a result, may have different and even contradictory views of the same company."

    In short, one of the key challenges is to get a reputation or image that adequately brings together these different perceptions, to achieve a reputation that is truly aligned with the "reality" of the company.

    Now, if we consider the main reputation assessment and management models (Reputation Quotient, Rep Track, MERCO, The World's Most Admired Companies and the World's Most Respected Companies) we find that there are no uniform standards in the selection of variables, or in what groups to survey, or the inputs that are taken into consideration.

    It is true that rules are set down for weighting the different categories of stakeholders surveyed, and for the weight given to the different dimensions analyzed, but these corrections are often not explicit in the various models (MERCO is an exception). Furthermore,

                -What is the order? Is weight first assigned to each of the dimensions analyzed, or to the strategic prioritization of the stakeholders of each company? In the case of Rep Track, it is explained on its website that seven dimensions are considered and "Inside of each dimension lie specific attributes that can be customized for clients in order to allow for program and message-ready analysis". If this is so, the result is reputation indexes that are impossible to compare and tailored to the needs of each company.
    
                - Can we then speak of a unique reputation instead of reputation indexes?
    
                - If reputation is a question of responsibility and falls within the issue of sustainability and is not just part of the communication strategy, is it a contradiction or not to measure the perceptions of our stakeholders when there is no proper stakeholders management policy first?  In short, if reputation is going to be a mechanism for self-evaluation and improvement and not merely a communication tool, should it not be aligned to what we want our relationship with stakeholders to be and thus set the indicators accordingly? In my article Stakeholders in Search of an Author, I already expressed my scepticism about genuine stakeholder management by firms and even the relationships among themselves.
    

    Another interesting issue is what Pizzolante calls the traditional mistake of giving great importance to what "people say" about the company and not focusing on "why they say it and repeat it." Antonio Vives in his post on the halo effect talked about one aspect of this problem that has nevertheless multiple facets:

                -What factors influence consumer perception and distort the message? 
    
                -Does all of the relevant information reach stakeholders, or only partial information?
    

    We can take an example from Solomon Asch's experiment. We have the description of two people, Alan and Ben.

    -Alan is smart - a hard worker - impulsive - critical - stubborn - envious

    -Ben is envious - stubborn - critical - impulsive -a hard worker - intelligent

    According to Asch's experiment, most people would give Alan a higher rating than Ben, because listing the positive values first affects the perception of others (anchor effect).

    In addition, the discordant views of the different publics, sectors, markets, and countries are not taken into account.

    Andreu is critical of those who say the real purpose of reputation is to influence perceptions or manage "reality". As long as such issues remain unsolved, there is indeed a danger that reputation becomes a kind of "logical framework" in the communication strategy of the company, where the firm is broadcasting or encoding the messages it want to convey to its stakeholders. Namely, "reputational frameworks of excellence" are created first, but they have nothing to do with the activity of the company.

    As Pizzolante concludes, the challenge is to achieve comprehensive and transparent communication that combines both form and substance.

    @helenaancos www.helenaancos.com

     
     
     
    • Mitch
    • Kennedy, Design with Nature, llc

    IMHO, and without having reviewed the actual paper, I have to say - Way too big a leap of a conclusion. too Small sample size within an a very large industry, and one that is the press's easiest target.

    Also there could be wide variability in intent of press clippings word use in contextual search. Just because someone writes a word and someone else writes the same word about the same subject does not mean it carries the same message.

    Finally, I think the pressure to do CSR is driven largely from shareholders not the general populace. And in Tier 2 &3 suppliers the CSR suggestion often comes from the brand customer, again not from general populace.

     
     
     
    • Adjoa Acquaah-Harrison

    I know companies with genuine agendae on CSR. They practice the Platinum Rule by contributing value to the communities they operate in because the communities need the support to grow, thrive, and also benefit the companies in advertent ways. Just like a selfish person always seeks reward for doing something good for another, I am sure some companies also practice CSR with entitlements in mind. In that case, why not draw a clear-cut contract with the community and spell out mutual expectations? Of course, nobody gets far acting out of selfishness so if companies set out to do good, hoping society owes them favors in bad times, they might have themselves to blame. I believe that companies should automatically participate in CSR because it is a good faith reflection that they are proud of the communities they operate in and committed to investing in its growth. Ultimately, the human capital they will draw on to fill positions w ill be the educated workforce they help groom. The safety of the communities they work will reflect on the quality of lives for all their employees, and the health of the companies and their communities will all be reflective of future prosperity. Companies owe it to themselves to take full responsibility for their behaviors; commitment to transparency, and levels of social responsibility should be decisions to "just do the right thing" by the communities in which they operate. What do they do when no-one is watching?

     
     
     
    • RB
    • Collective Responsibility

    Using the oil industry as the baseline was a mistake.

     
     
     
    • volney
    • retired

    what a selfish attitude. the idea that one should be financialy rewarded for helping others is certainly not Christian or even sensical. we should help others because we have been fortunate to have the resources to do so. to seek benefits from being generous rather than selfish is a major cause of the economic mess the world finds itself in. shame on you for a callous attitude. for sure you desrve nothing but scorn for thinking good works should earn you benefits.

     
     
     
    • Erik Wright
    • Professor, Naval War College

    I'd be curious to know if data was also collected for civil service or government organizations and agencies that don't operate on a profit-based existence. Does the available data suggest that such organizations with strong reputations are also subject to greater media coverage and scrutiny following a mishap of some type because expectations are higher? Anectdotally, it seems this is the case. Additionally, it seems logical that companies with a high CSR or organizations with good reputations for acting in socially responsible ways would still benefit in other ways, such as gaining some degree of social influence that positively affects status.

     
     
     
    • E Yau

    Although I do think the methodology may not be ideal given the limitations with sample size and sample industry, I do agree with the headline conclusion: that good deeds are seldom rewarded with kindness. Given the desire of both politicians and media to find easy, visible targets when things go wrong, corporates have no escape. Perhaps this is more so when the target is one that has been taking the "moral high ground": the higher you stand, the harder you fall, and all the previous good work would now be deemed "green-washing".

    I believe corporates should simply brainwash themselves from thinking that "good deeds = goodwill", and that society would appreciate your "corporate social responsibility". So should corporates still be pursuing CSR? Personally, I much prefer the concept of "sustainability" over "CSR" since sustainability doesn't imply altruism or charity. Corporates are "doing good" because by sustaining others (community, environment, staff, etc) they are indirectly sustaining their own businesses and futures. And perhaps they won't feel as bad if negative publicity hits.

     
     
     
    • Anonymous

    Two quick points: The idea that a good company has to be a great community servant or serve what is deemed to be "socially responsible" in many cases works against their primary mission which is to be a profitable, growing concern. The second a company decides to do activities that do not further their primary mission then they are sub-optimizing their opportunity. A good example is the company who donates $X millions of dollars to a specific cause. Those dollars are coming in lieu of potentially new employees or pay raises or capital equipment, or investments in growing the business.
    If a company does get into a charitable endeavor, it should be tied to their core business. A good example of this is the work that Integra Lifesciences do with the Children's Neuro Foundation. This is a foundation that helps further Integra's broader business mission and it puts Integra into the proper light that other "marketing" dollars would fail to do.

     
     
     
    • Sam Heffner
    • MBA'70, retired

    Press coverage may be a convenient method for a researcher to use in measuring "public goodwill," but I do not think it is a reliable one. Surely the newspaper-reading public is aware of the biases that unfortunately characterize newspaper reporting these days. (I apologize for calling you Shirley.)

     
     
     
    • Naim Keruwala
    • Consultant, Janwani- Mahratta Chamber of Commerce, Industries & Agriculture

    The function of CSR is not to cover-up the bad deeds. If I am regularly donating money for Police welfare fund, it does not mean that I can murder someone and Police won't take action against me out of obligation.

    CSR undoubtedly helps in enhancing the Goodwill of the company as hence the companies have to function more responsibly to maintain that high goodwill. It definitely increases the pressure on companies but also generates higher returns.

    As pointed out by many readers, Oil Industry was too minor an example and sample too small to jump to any conclusion. However, it was interesting to read a very different perspective to CSR.

     
     
     
    • SATYENDRA SINGH
    • MANAGER, UCO BANK INDIA

    Focusing only on oil sector is not a great idea when it comes to meaning of CSR for such companies. actually whole energy sector (considering all conventional energy resources like oil, coal gas, nuclear) has always been the biggest threat for the environmental stability. a little bit of negligence can create a huge environmental damage. though it is a fact that such companies spends billions on CSR to improve their CSR ratings but damage caused by even a small mishap for example oil spill will not be able to be recovered by their CSR expenditure.

    spending on CSR never provides any right to create any harm to environment intentionally or unintentionally. incidents like chernobil, fukushima, BP oil spill & many other can not just forgotten for the sake of spending done on CSR because it can not minimize the sufferigs of the peoples of such incidents.

    this why i think CSR is not a much meaningful term for the oil sector companies.

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    It is a fact, even though ironical, that human expectations from the better go on increasing. Once you reach a certain " high" standard, even a small error is not accepted. You are expected to better every day. Thus, if we are a company manufacturing good products at competitive rates, any downfall in quality or a rise in cost will lead to adverse criticism. People appreciate and speak high of ethicallly responsible companies which show concern for environment and the society served by them - this reflects their CSR initiatives. However, CSR is not well understood and practised as what may be considered by some as laudable social work may be dubbed by others as something just a gimmick and not very worthy of any special attention. This is a dilemma. Financial performance of any company depends on many facors and CSR is not one of these. If a company with good and well-publicised CSR record expects that it can have some benefit of this in time of distress, then it is asking for moon. Linking CSR to insurance looks fine but there is a vast difference for the insurance would compensate in case of need but it is doubtful whether CSR would do likewise. Doing good for the sake of doing good without expecting rewards ( if they come, ok; if they don't, no worry) gives real satisfaction and hence CSR needs to be nurtured.

     
     
     
    • sonu chopra
    • Sr Manager, Manager in MNC

    Its true many companies spend lot of money on CSR report. They want to show positive image among their stakeholders. Or never their false commitment come out which brings negative attitude against company. Mostly this happen in last five years in financial and insurance sector.

     
     
     
    • T Anupam
    • CEO, lotuspi mall advisory

    Poorly conceived research and theory - environment compliance cannot be termed CSR . The laws are just lax.

    CSR is surely investing in a community or landscape that helps nurture future employees and customers and builds goodwill among authorities(law makers and law enforcement alike) and of course opinion shapers like Media etc.

    In a crisis irrespective of your track record you will struggle to find friends- you may be able to weather it better if the perception of the Group is +ve ,case in point Infosys weathering Phaneesh Murthy scandal and Tata weathering the Radia tape scandal. However Oil companies notorious for their profiteering and destruction of environment and of course BIG money rarely have that kind of good will to weather disaster storms. It is lobbying all the way.

    As you see, election funding and media buying is the best source of Good will insurance any firm can buy and definitely not CSR.

    The purposes and benefits of CSR must be properly defined- here India can surely show the way to the world where it was not uncommon for Merchants and Kings to donate their entire wealth to their communities or be committed to causes throughout their lifetimes . Even in Modern India, Corporates like Birla and Tata have shown the way, how to build a formidable corporate Brand though consistent behaviour .

     
     
     
    • Ross Leo
    • CEO, Cirrus Informatics

    I readily see that there is no direct or robust link between CSR and bottom-line performance. If anything, CSR probably adds some element of cost, might even constrain revenues. That notwithstanding, I consider CSR as a sign of integrity on the part of people and organizations. Having integrity is not a shield against criticism, misunderstanding, or outright stupidity. That people do not seemingly appreciate them sufficiently is probably because too many in business management and political office employ the principles of expedience and minimalism extolled publicly through lipservice, only to be exposed publicly at some point when touch choices must be made. As such, psychological callouses form.

    My perspective is that having and operating on principles is worth these risks. It is not personal ego, nor really a question of being "good" - it is about character, integrity, trustwothiness. These things are about who and what we are (us and our institutions as extensions of ourselves), and how we behave consequentially.

    When I do business, I look for these things in the companies and people I choose, and it makes a difference as to whether I choose a particular one or not. It tells me I can trust them, or not. This is not naive either: my decision is begun by this and validated by due diligence. As Reagan said: trust, but verify, because being trusting is not about being easily fooled. It means making choices based on sound judgment and serious consideration. Principles (and CSR) are one of the pivot points.

     
     
     
    • Anonymous

    If the leadership truly believes in CSR for its own sake, that should be a sustainable driver of its investment in the CSR agendanfortunate events. The discouraging results of the 'fire insurance' cited would then be part of risk management. One wonders, though, if media opinion is a true reflection of consumer sentiment and other stakeholders and what pro-active action an organisation can take to portray its own CSR case.

     
     
     
    • gabe chesman
    • Social Media Consultant

    Being engaged in CSR cannot be compared to an insurance policy. First, nobody boasts about their amount of insurance, if you must use that analogy. Second, CSR doesn't necessarily target the media. Therefore, if a well-respected company has something go wrong, the media doesn't care if the company is good or bad - it's all about the story. However, consumers, stakeholders, and the like may be more forgiving of a good company that suffers an accident.

     
     
     
    • I. S. NDAO
    • Junior Consultant, Senegal

    It seems like showing what your company is and promising to get better in terms of "Environmental concern", is better than playing hypocritical communication campaign on how "Environmental concern" your company is, or remaining as a "No environmental concern" company. It's na?ve to think that consumers and media might believe that an oil company can become green in the majority of its activities. I think the first step to apply CSR for a company is to play honesty in its communication, so deeds must follow.

     
     
     
    • Joyce Fok
    • Office Coordinator, Australian Centre for Corporate Social Responsibility

    I think it is important to clarify that this article refers only to a study of media coverage rather than an extensive survey of stakeholder perceptions. The picture potrayed by media outlets should not be assumed to be the same as a company's reputation for key stakeholders, such as investors and employees.

    That is my two cents! Cheers.

     
     
     
    • Sin Declerc
    • advisor CSR and strategic mobility issues, www.uitrit4.be

    This article starts off, as so many articles on this topic, with the idea that making profit out of CSR is wrong or impossible. Well, a strange point of view if you think about it: isn't it all about 3P and not 2P?

    Greenwashing is the result of no more or less then a false statement - be it intentional or not. There is no greenwashing if you implement CSR combined with a clear target, a high ROI, a performent measuring campagn. It is as if being professional about CSR is not done...

    Neither is there a problem with failure. There is a problem with neglect, cover-up, not learning from mistakes, not taking responsability for the hurt that is done.

    If you do that as a company, if you have the courage to face your stakeholders and act upon it, there will be no problem. The BP shows something else: it's not because you have a CSR in place that you perform well on CSR in a crisis. It is not because you lied once that you will tell the truth next time. CSR remains a matter of ethics, and ethics is not like a label that is valid for the next three years...

     
     
     
    • Tim Gieseke
    • President, Ag Resource Strategies,LLC

    Your hypothesis makes sense if the intention of the CSR efforts are only a PR insurance, rather than lowering the odds that an environmental mistake might happen; outcomes follow intentions.

    If a corporation is successful in integrating natural capital values into the personnel DNA, then spills or other environmental woes would presumably happen less - people would genuinely care. When you care, solutions come easy. No matter what people do, they are human first. Tapping into the human aspect of the worker is the key.