Corporate Social Irresponsibility

Corporate social irresponsibility can be defined as a process in which a firm, inadvertently or otherwise, is pursuing a set of its own narrow interests and thereby sacrificing the broader interests of its internal and/or external stakeholders in ways that violate widely held expectations. For this purpose, the term stakeholder refers to any party who is affected directly or indirectly by the decisions and actions of the corporation. Internal stakeholders would include employees, managers, and shareholders. External stakeholders would include customers, suppliers, governments, local communities in which the business operates, and society at large.

The notion of irresponsibility connotes negative moral evaluations, meaning that the corporation’s behavior is deemed inappropriate or improper according to expectations rooted in socially constructed value systems. This entry covers the types of corporate actions that could be classified as socially irresponsible, the reasons for discussing irresponsibility separately from responsibility, the reputational effects of corporate social irresponsibility, and the factors that affect attributions of corporate social irresponsibility.

Examples of corporate actions that could be categorized as socially irresponsible are marketing consumer products that are inherently hazardous or that have undisclosed dangerous defects, polluting or degrading the natural environment, not paying the company’s fair share of taxes, producing more harm than good in the locality in which the company is operating, violating the human rights of employees, exposing workers to unnecessarily dangerous health and safety conditions, not fully paying employees their wages, employing underage workers, engaging in financial fraud, colluding in price-fixing arrangements, rigging bids, wasting resources, exacerbating egregious economic inequality, and engaging in false advertising.

Violations by the company of laws and regulations—for example, illegally disposing of hazardous industrial waste or manipulating the reporting of company financial results—typically fall into the category of corporate social irresponsibility. But social irresponsibility can also encompass corporate actions that are not proscribed by law or regulation. For example, a company’s targeting of children in the marketing of high-sugar, low-nutrient foods could be well within the law, even as it is arguably socially irresponsible.

Since at least the time of Henry Ford, businesspersons and those who study business have been discussing and debating an idea that has come to be known as corporate social responsibility (CSR). This is the idea that businesses may be socially and morally obligated to play a positive role in society beyond the narrow economic and technical interests of the corporation. CSR gained considerable currency in the second half of the 20th century, and present-day practical and scholarly interest in the subject may be greater than ever. Societal expectations for CSR have developed, and in turn, attention paid to CSR by businesses has increased and evolved. Against the background of these broader discussions and debates on CSR, the separate term corporate social irresponsibility has emerged in academia and in the business press.

Why Talk About Irresponsibility Separately From Responsibility?

An assumption underlying the use of corporate social irresponsibility as a term separate from CSR is that it represents more than low CSR or the absence of CSR. The commonality between the two ideas is that CSR and corporate social irresponsibility both reflect the value systems that exist within the firm’s environment. However, the former term implies behavior in accordance with and satisfying those value systems, while the latter term implies behavior markedly in contradiction to those value systems. The importance of that distinction is that, relative to positive behavior, negative behavior is more emotionally and cognitively arousing to the firm’s audiences. When a firm behaves in ways that violate people’s value systems, those people simply pay more attention to, think more deeply about, and feel more strongly in response to that behavior than they would if the firm behaved in ways consistent with their value systems. Irresponsibility, more than responsibility, triggers the firm’s audiences to search for causality and to extend extreme judgments and the resulting negative attitudes and behaviors toward the firm. Perceptions of social irresponsibility therefore have important implications for a corporation’s reputation.

Reputational Effects of Corporate Social Irresponsibility

Because negative behavior is so salient and memorable to observers, acts of social irresponsibility can be defining moments for the corporation, serving as key turning points in establishing what it is known for and how unfavorably it is perceived—helping to build its negative reputation. Perceptions that the corporation has acted in a socially irresponsible way can have reputational effects that greatly outweigh the reputational effects of the corporation’s socially responsible behavior. This idea is reflected in Warren Buffett’s frequently quoted observation that “it takes twenty years to build a reputation and five minutes to ruin it.”

When a corporation acquires the reputation for harming internal or external stakeholders, its positive reputation for dependability, reliability, and trustworthiness may be immediately undermined. In turn, its ability to garner from its environment the active endorsements and other resources needed for survival and success may be hindered. As a corporation’s reputation for social irresponsibility grows, it may, for example, have a harder time attracting customers, investors, business alliance partners, qualified employees, and supporters in regulatory and legislative bodies.

Not only can a reputation for social irresponsibility lessen the support the corporation has in its environment, but it can also embolden and strengthen the firm’s opponents, generating and facilitating active antagonism. The more the firm is known for neglecting the duties it has to others and ignoring its negative externalities—that is, the more it is known for violating widely held moral expectations—the more likely it is to draw the ire and active opposition of its critics. For example, in the late 1990s, Nike was met with organized university student boycotts of its products in response to perceptions that it was abusing workers in developing nations. Perceptions that BP’s negligence led to an environmental calamity in the 2010 Gulf of Mexico oil spill resulted in civil proceedings and criminal charges, and billions of dollars paid by the firm in penalties. Perceptions that the tobacco industry was intentionally targeting its marketing at children and covering up the negative health implications of its products helped empower its opponents, leading to a landmark 1998 settlement with the attorneys general of most of the U.S. states. In that settlement, the marketing practices of the tobacco industry were greatly curtailed, and it agreed to pay hundreds of billions of dollars in compensation to states in the subsequent decades.

Corporate Social Irresponsibility as a Subjective Construction

When describing corporate social irresponsibility, it is necessary to make reference to its subjective nature, as it is rooted in the prevailing value systems and stems from observer expectations and perceptions. An important point is that to the extent that there are reputational penalties for socially harmful corporate behavior, those penalties do not occur because of some objective measure of harm caused but, rather, because of perceptions that harm has been caused. We can think about those subjective perceptions as the result of attributional processes, whereby observers weigh organizational and situational explanations for a corporation’s behavior. The trigger for attributional processes arises when observers learn some new information about a firm’s potentially negative behavior or when new negative interpretations of a firm’s prior behavior arise.

Authors in the management literature have pointed out that attributions of corporate social irresponsibility depend on the strength of three different factors. First, the effect (e.g., dead fish in the Gulf of Mexico or poisoned citizens in a city in India) must be perceived as highly undesirable. Second, a particular corporation must be seen as both causal and morally responsible for that negative effect. Third, the victims of the effect must be perceived as having relatively little responsibility for their negative fate.

Effect undesirability in itself is a subjective perception that derives from the values, perspectives, and interpretations of the perceivers. People will find effects more undesirable when they feel personally endangered or when they closely identify with a victim who is endangered. People will see effects as more undesirable if they find them morally repugnant. For example, people generally react quite negatively to human suffering, but perceptions of what constitutes suffering can differ depending on the culture and institutions in which the perceiver is immersed. Furthermore, if the effects are somewhat expected or spread out over time and space, such as long-term environmental degradation over an enormous geographical area, they will not draw as much observer attention and concern as effects that are unexpected and very concentrated in time and space.

Along with perceptions that an effect is highly undesirable, attributions of social irresponsibility depend on the perceptions that a specific corporation both caused the effect and was morally responsible for it. Observers look for clues as to whether a corporation caused the effect and may be swayed by the availability of strong alternative causal explanations that let the corporation off the hook. But observers will also assess the corporation’s moral responsibility for the effect. If the corporation appears to have been forced into the action or to have a strong moral justification for it, attributions of social irresponsibility will be weakened. Alternatively, those attributions will be strengthened if observers believe that the firm’s leaders were cognizant of the harm being caused, had other options, and chose to engage in the harmful behavior nonetheless. Interestingly, when observers have a strong identification with a corporation, they may find it incongruous that the firm would so violate their expectations. Accordingly, for example, ardent Apple Inc. fans might tend to underplay the severity of alleged labor abuses in Apple’s supply chain and dismiss Apple’s causality and moral responsibility.

Corporate social irresponsibility attributions require perceptions of a negative effect and a culpable corporation, but they also require perceptions that the victim of the effect was relatively innocent. Victims who are seen as complicit in their negative outcomes, for example, adult cigarette smokers who suffer negative health consequences, will receive less sympathy from observers. Consequently, corporate social irresponsibility attributions will be undermined. However, those attributions will be strengthened when the victims are perceived as having little foresight or power to prevent their negative fate. Thus, the perception that innocent children were being targeted with cigarette advertising helped intensify the sense that tobacco companies were operating in a socially irresponsible manner.

Certain characteristics of corporations make them susceptible to attributions of social irresponsibility. In particular, the corporation’s prior reputation for bad behavior will bias observers’ interpretations of new behavior. Also, a corporation’s large size and prominence make it a salient and plausible target for irresponsibility attributions. Given Nike’s prominence, it is no surprise that it was singled out by activists trying to draw attention to sweatshop abuses.

Finally, the way in which information is filtered and framed by parties such as the media, politicians, and social issue advocates, and even by the corporation itself, can have a substantial influence on the inferences and judgments that observers make. When the information available is ambiguous or in dispute, framing can have the biggest effect on corporate social irresponsibility attributions. Frames can affect perceptions of effect undesirability, the culpability of the corporation, the innocence or complicity of the victims, or the degree to which observers identify with the victims or the corporation.

Because corporate social irresponsibility is a subjective construction, there can be a sharp disconnect between the objective harm that a corporation is doing in the world and the reputational penalties that it is incurring as a result. A corporation’s leaders may be frustrated if they feel that perceptions of social irresponsibility unfairly exceed reality, but stakeholders and social issue advocates may be equally frustrated if they feel that the firm is getting away with murder.