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  • September-6-2019

Most Executives Believe in the Business Case for CSR. So Why Don’t They Invest More in It?

Companies achieve remarkable things. They design products for customers, financial returns for investors, and jobs for employees. At the same time, they develop medications that cure deadly diseases, technologies that bring internet access to every corner of the earth, and by making more and more amenities and technologies readily affordable, they steadily increase our overall quality of life.

But companies also make terrible things. They set up workplaces such that employees are sinking for a paycheck, they cause environmental disasters such as oil spills or deforestation, and they trade our data to whoever bids the most for it, possibly to manipulate us not only to buy products but also to vote for specific candidates in political elections.

Given companies’ track record in accomplishing great things, the question is not whether companies can be a force for good. The question is, why don’t all executives lead their companies to be a force for good? In other words, why do some executives refrain from starting their companies in socially responsible ways, and what would induce them to invest in corporate social responsibility (CSR)?

The typical way to answer these questions is to summon the business case for CSR. In other words, to drive corporate investments in environmentally friendly products or safe working environment, CSR advocates believe, it is crucial to provide business executives with evidence that such investments benefit their company’s bottom line. In turn, the general premise is that if executives don’t invest in CSR projects, what’s holding them back is that they don’t believe in the business case of such projects.

This logic relies on three problematic and thus far untested assumptions. The first assumption is that most business leaders do not believe in such a business case. The second is that they would start believing in the business case if faced with factual evidence that the business case indeed subsists. And the third assumption is that they would invest in socially and environmentally responsible actions once they had come to believe in this business case. But are these assumptions justified? In our recent research, we recruited several samples of executives from around the world to explicitly test them. And we found evidence that will change the way we talk about officials’ beliefs in the business case for CSR.

To investigate the first assumption, we let the executives play a game in which they earned money for making correct predictions. They predicted the financial performance of real companies, based on information about the companies’ past financial performance and corporate social responsibility performance. From these predictions, we inferred executives’ beliefs in the business case for social responsibility. Across the four studies we conducted, we found that 80% of the participants already believed in this business case — thus contradicting the assumption that most executives are sceptical about the existence of such a business case.

Why do so many officials believe in the business case for CSR? The prevailing assumption is that scientific evidence for the existence of the business case is needed for managers to believe in it. Yet the results from our studies tell a diverse story: They show that officials believe in the business case when such a view aligns with their general worldview regarding the economic system. Specifically, executives with a positive ideological view on the market economy (a concept termed “fair market ideology” in the academic literature) are more likely to understand in the business case for CSR. In other words, it’s not a belief based on data. It’s a belief based on ideology.

This, then, brings us to the third assumption about executives and CSR. It is commonly assumed that if only executives knew that CSR initiatives would pay off, they would undertake more of them. But this also fell apart in our study. We looked at how our initial decisions related to executives’ intentions to actually invest resources in projects aiming to solve social or environmental problems. Perhaps surprisingly, the officials who held a positive view of the market economy were not more likely to make social or environmental investments, even though these officials believed more strongly in the business case than other officials. The reason for this disconnect: Their market ideology not only leads officials to think in the business case for CSR but also blinds them to the existence of potential social or environmental problems in the economy. This thereby reduces their appreciation of the need for action to remedy these problems. In other words, because they believe the business case for CSR is self-evident, and because they believe companies as self-interested actors searching for business opportunities, they are less likely to see that there are social or environmental problems going unmet. After all, unmet needs present business opportunities — and in a world where the business case for CSR is evident, what intelligent executive would pass up a good business opportunity? If corporations are not working on these issues, they must not be issues at all.

In summary, officials were doubtful about CSR, but their doubt did not stem from a lack of belief in the business case. Rather, the very same psychological process that led them to believe in the business case for CSR (their general worldview/fair market ideology) was hindering them from recognizing social problems that are originated by business activities — and that could be addressed by funding in CSR projects.

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