There’s a soft spot in my heart for Freakonomics. Leavitt & Dubner’s exploration of the truly weird results found in the field of behavioral economics is fascinating. Apparently, I’m not alone: The Freakonomics blog and podcast has a massive following. So when a recent episode stated that “customers don’t seem to care all that much” about CSR, and suggested that firms practicing CSR might be encouraging their employees to behave badly because of moral licensing, I thought it might be a good time to clarify things a bit.
In the episode, Stephen Dubner interviews John List, chair of the economics department at the University of Chicago, about his recent research in CSR. Unsurprisingly, Dubner starts by exhuming Milton Friedman, but List, being extremely well versed on the subject refuses to take the bait.
The effects of CSR
The editing of the podcast makes it sound like CSR has no positive effect on demand. Dubner says, “In other words customers don’t seem to care that much.” Except that the actual article they’re talking about says this: “On the demand side, some evidence suggests that consumers value a responsibly produced good and are willing to pay a higher price for it.” In fact, a 2003 meta-analysis found that “across [30 years of] studies, [corporate social performance] is positively correlated with [corporate financial performance].” What that means is that the demand question is really settled science at this point, and that there are more interesting research questions in the “how does it work” domain or in interesting edge cases.
One such edge case is the one discussed in the podcast. List and his team conducted an experiment to determine the effect that CSR had on worker misbehavior. They found that workers were more likely to cheat if they had received a message about social responsibility. In other words, the good of the CSR program licensed the workers to behave badly.
Various researchers have described the effect that an action can have on a future action. For example, if I go for a run in the morning, am I more likely to splurge on dessert after dinner? Or am I going to remember the good decision I made in the morning, and want to continue the streak of good decisions by skipping dessert? Let’s generalize the question. If I do something good, does that free me to do something bad later?
Moral licensing
For a detailed and fascinating summary of the science check out this article in Social and Personality Psychology Compass, otherwise here’s a summary: Over many domains, research has shown that engaging in pro-social behavior can license later self-indulgent or immoral behavior. But the researchers also note that sometimes past behavior tends to encourage people to be consistent, and other times it does the opposite. Why?
One reason for this inconsistency is that the initial act can be viewed two different ways. Either it’s the expression of an existing quality, or it’s just progression toward a goal. Let’s go back to our dessert example. If I view myself as a healthy person who makes good exercise and nutrition choices, the morning run is more likely to result in no dessert. On the other hand, if I view myself as person who is trying to get more exercise and make better nutrition choices, the morning run registers as progress toward that goal sufficient to allow me to get dessert after dinner as a reward.
TL;DR
The existence of a CSR program can provide a moral license for bad behavior if it isn’t truly a commitment. And I suspect that a for significant number of the 90% of G250 firms that publish annual CSR reports, it isn’t. As we’ve noted before, mediocre commitment to CSR is worse than no CSR at all. And as you might expect, hiring random people off the internet is unlikely to result in a strong internal commitment to social responsibility.
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