Charity can backfire on companies that cause social harm


My colleagues and I followed what happened after the announcements of 80 initiatives – such as social services donations and switching to plant-based plastics – linked to 55 brands. The companies made packaged goods, from razors to ketchup.

We compared their sales to the sales of comparable brands that were not announcing such initiatives at the time. Our data started a year earlier and ended a year after that news broke. We checked for other factors, such as pricing, ad budgets, and negative press coverage.

We then grouped these efforts into three categories.

We used the term “corrective actions” to refer to companies that tried to make up for harmful environmental or social practices of the past by changing related activities, such as by reducing their carbon emissions. “Compensatory actions” mean that a company donates money to compensate for the damage caused, but does not change its activities. And “cultivating actions” means a company making a donation or encouraging employees to volunteer for programs that have nothing to do with its core business or harmful practices of the past.

Over the year, sales grew by an average of 1% following the announcement of corrective measures and 3% before compensatory measures. Cultivating actions unrelated to a company’s own activities had the opposite effect: sales fell by an average of 3.5%.

We then conducted lab experiments with 507 people. They were given background information on brands we invented that had taken corrective, compensatory or cultivating actions. We asked them to rate how likely they were to buy those products.

We found that consumers perceive corporate social responsibility initiatives differently depending on how genuinely they view the companies. Because they view cultivating efforts as less sincere, people are more likely to buy things from brands that perform corrective and compensatory actions.

Why it matters

As consumers become more aware of the damage that the private sector can do, companies will have more incentives to become socially responsible.

That may be why Fortune 500 companies alone spend about $20 billion a year on these efforts. At the same time, the consequences of many business activities, including pollution or meager wages for workers in low-income countries with weak labor laws, are often passed on to society.

We believe our research is one of the first to compare sales data with corporate social responsibility initiatives to see if these actions influence consumer behavior.

Our findings suggest that when companies engage in corporate social responsibility, they should choose actions related to the harm caused by their core businesses. They should also be careful when communicating their goals and emphasizing responsibility, especially with regard to environmental issues.

What is not yet known

We have focused strictly on the consumer. It’s also important to find out whether employees, shareholders, and the public react differently to corporate social responsibility actions associated with corrective, compensatory, or cultivating efforts.

What’s next

I’m currently conducting a related study with two other colleagues comparing how shareholders and Twitter followers react differently to corporate social responsibility efforts. These future findings may further clarify what corporate social responsibility means for business results.

Dionne A Nickerson is an assistant professor of marketing at Indiana University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.


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