Before Enron hit the gutter, it was a huge philanthropic investor. This apparent contradiction is actually part of a trend in which CEOs who have strong CSR records feel that they have built up “moral credits” that they can then spend.
“License to Ill: The Effects of Corporate Social Responsibility and CEO Moral Identity on Corporate Irresponsibility” is the name of a fascinating paper by Elaine Wong, professor of management at the University of California Riverside, and Margaret Ormiston, a faculty member at the London Business School.
The study itself:
In their study, using the 2002 Fortune 500 list, they examined firms’ longitudinal corporate social responsibility and corporate social irresponsibility. They also examined the role of CEOs by focusing on those who received a reasonable amount of media coverage (at least 10 articles of approximately 1,000 words). That ended up being 49 firms, including companies such as IBM, Nike and Pepsi.
They found that prior corporate social responsibility was related to subsequent corporate social irresponsibility. More specifically for roughly every five positive actions that a firm takes, this gives them license to commit one negative action.
An explanation of Enron:
“Prior to the Enron scandal, former chief executive Kenneth Lay endowed chaired positions at universities and donated vast amounts of money to charity,” Professor Ormiston said to the Telegraph. “Such behaviour on the part of the leader builds his social responsibility credits, which may license him to commit socially irresponsible behaviour in the future.
“In other words, top leaders may feel that when they have acquired moral credits through a CSR strategy that balances the needs of multiple stakeholders they can then put forth a strategy that cuts corners or is potentially harmful to stakeholders.”
The tendency towards unethical behavior by corporately responsible CEOs might be a rational strategy in that the CSR initiatives could act as a “cover-up” or PR distraction for unethical behavior. In this case, the CSR initiatives are an inauthentic, and even instrumental, declaration of humanity.
But it could also be a case of more subtle psychological self-deception, in that CEOs who emphasize CSR may have be much like “someone who is a healthy eater for 11 months out of 12 and indulges during the holiday season. A generally healthy diet gives them confidence that they will not be discredited as an unhealthy person.” In this case, a moral audit is very much in order.
In any case, this study affirms the importance of thinking in terms of an “operating system” instead of just “apps” (in this case, they would be CSR initiatives), as well as insight into internal, moral disconnects that can emerge not just for CEOs but also for anyone else.