Donations to charity can backfire for companies that cause social harm

My colleagues and I tracked what happened after announcing 80 initiatives – like giving to social services and switching to plant-based plastics – involving 55 brands. The companies manufactured packaged goods ranging from straight razors to ketchup.

We compared their sales to sales of similar brands, which did not announce such initiatives at the time. Our data began a year earlier and ended a year after this news broke. We controlled other factors such as pricing, advertising budgets and negative press coverage.

We then divided these efforts into three categories.

We have used the term “corrective action” to refer to companies that attempted to offset past harmful environmental or social practices by changing related operations, for example by reducing their carbon emissions. “Compensatory measures” mean that a company donates money to compensate for the damage it has caused, but without changing the way it does business. And “cultivation actions” include a company making a donation or getting employees to volunteer for programs unrelated to its core business or past harmful practices.

Revenue increased 1% on average for the year after corrective action announcement and 3% for compensatory measures. The non-company care measures had the opposite effect: sales fell by an average of 3.5%.

We then ran laboratory experiments on 507 people. They received background information about brands invented by us that had taken corrective, compensatory or cultivating actions. We asked them to rate how likely they would be to buy these products.

We found that consumers perceive corporate social responsibility initiatives differently, depending on how sincere they perceive the company to be. Seeing cultivation efforts as less righteous, people are more likely to buy products from brands that carry out corrective and compensatory measures.

Why it matters

When Consumers are becoming more aware the damage that the private sector can do Companies have more incentives engage in … corporate social responsibility.

That’s perhaps why Fortune 500 companies alone are spending about $20 billion a year on these efforts. At the same time, the consequences of many corporate activities, which may include environmental pollution or meager wages for workers in low-income countries and weak labor laws, are common passed on to society.

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

Our results suggest that when companies engage in corporate social responsibility actions, they should choose actions that are related to the harm caused by their core business operations. They should also be careful to communicate their goals and emphasize accountability – particularly around environmental issues.

What is not yet known

We have strictly focused on consumers. It is also important to find out whether employees, shareholders, and the public respond differently to corporate social responsibility actions that involve corrective, compensatory, or cultivating efforts.

What’s next

I am currently conducting a similar study with two other colleagues comparing how shareholders and Twitter followers respond differently to corporate social responsibility efforts. These future results may further shed light on what being socially responsible means for a company’s bottom line.

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

This article is republished by The conversation under a Creative Commons license. read this original article. Donations to charity can backfire for companies that cause social harm


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