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Home > Business Ethics Viewpoints > The Paradox Of Corporate Social Responsibility: The Sincerity Nexus

Business Ethics Viewpoints

The Paradox Of Corporate Social Responsibility: The Sincerity Nexus

by Timothy Fort and Alexandra Countess of Frederiksborg

Table of contents

This Chapter Covers:

  • Companies today spend significant money and effort on corporate social responsibility (CSR) practices. Although these efforts—including philanthropic activities—have value, they are difficult to assess in terms of impact and the company’s level of commitment given the enormous budgets possessed by major companies.

  • Mainstream economics analysis from the perspectives of concrete business practice and academic ethics scholarship demonstrates that economics and ethics are deeply entwined and can be mutually reinforcing.

  • We thus propose that a complementary—and potentially sturdier approach—is to focus on building trustworthy business behavior through three levers: hard trust (compliance with the law), real trust (aligning rhetoric with performance awards to increase the likelihood that responsible behavior has an economic payoff), and good trust (which comes through the cultivation of an affective, aesthetic desire to achieve ethical goods).

  • We propose, perhaps paradoxically, that CSR activities are most economically effective when they are pursued for sincere reasons of good trust rather than to achieve public relations or economic return. It is when companies, and the individuals who run them, sincerely seek to do good that they are the most trustworthy.

Introduction

Pharmaceutical companies frequently find a place in examples of exemplary conduct, none being more famous than Johnson & Johnson’s handling of the 1982 Tylenol crisis. Tylenol was the leading brand of painkiller in the United Sates in the 1980s. In October of 1982, seven people died after taking extra-strength Tylenol capsules, which had been laced with potassium cyanide. Johnson & Johnson recalled all Tylenol in the US market, which cost the company roughly US$100 million (1982) dollars. Advertisements for the product were removed at the same time. When asked why the company took such strong action, even though company practices themselves were not implicated, CEO James Burke responded that to have done otherwise would have caused the company to fail to live up to its famous corporate credo, which placed customer well-being as the most important responsibility for the company.

The commitment of Johnson & Johnson to protect its stakeholders from any danger related to the tampering has been universally recognized as an ethical action, precisely because so much of the company’s financial well-being was at risk. In the face of that risk, the company stood by a central tenet of its credo. But how have pharmaceutical companies behaved since then? Or, for that matter, given the fact that enormous numbers of companies—from the financial, food, apparel, extractive, and other sectors—tout their corporate social responsibility (CSR) practices, how do such rhetorical commitments stand up?

Practically every major company has a significant philanthropic outlet. But are these practices really good enough? How do we compare the impact of philanthropic practices on those who it is claimed they help, or measure a company’s commitment when corporate profits are as high as US$40–60 billion? How do we evaluate corporate rhetoric? Does the combination of rhetoric and philanthropy actually indicate commitment—or is it merely window dressing as companies try to counteract dreadful publicity, regulatory prosecution, and endless lawsuits?

Still others adopt a strategic approach to CSR, where a company seeks alignment between its social outreach and its core business products. Strategic CSR embeds practices that can address social issues more sustainably exactly because the facing of the social issue is framed to promote the company’s self-interest. Yet that seems to turn ethics into just another business strategy, on par with a money-back guarantee. Shouldn’t ethics exist on a higher moral level?

We do not suggest that an ethical action is only ethical if it shuns self-interest, but we do want to suggest that the more a company—and the individuals in it—are sincere about a commitment to doing good, the more their actions become trustworthy and beneficial to the company’s interests in the long term.

Nobel prize-winning economist F. A. Hayek argues that trade is fostered by individuals adhering to some basic integrity-based virtues such as truth-telling and promise-keeping. Hayek acknowledges that one could understand the instrumental benefits of these virtues and therefore have a reason to practice them, but it is more effective if institutions such as religion, education, and other normatively oriented organizations teach the virtues as good in and of themselves.

This is crucial and at the same time paradoxical. If businesses practice philanthropic CSR or strategic CSR simply for their economic benefits, they short-sell the opportunities through which ethics can be beneficial to business.

Harvard professor Lynn Sharp Paine synthesizes these insights in her book Value Shift (2003), in which she argues that companies do not get the full value of ethical behavior unless stakeholders firmly believe that the company is acting for sincere reasons. Returning to Johnson & Johnson, Paine argues that the sincerity behind the company’s actions on Tylenol gave it a halo effect. In a video that accompanied the Harvard Business School case study on Johnson & Johnson, former CEO James Burke talked very explicitly about this sincerity factor (Aguilar, 1984).

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Further reading

Books

  • Fort, Timothy L. Ethics and Governance: Business as Mediating Institution. New York: Oxford University Press, 2001.
  • Fort, Timothy L. Business, Integrity, and Peace: Beyond Geopolitical and Disciplinary Boundaries. Business, Value Creation, and Society series. Cambridge, UK: Cambridge University Press, 2011.
  • Hayek, F. A. The Fatal Conceit: The Errors of Socialism. Chicago, IL: University of Chicago Press, 1988.
  • Mackey, John, and Raj Sisodia. Conscious Capitalism: Liberating the Heroic Spirit of Business. Boston, MA: Harvard Business School, 2014.
  • Margolis, Joshua D., and James P. Walsh. People and Profits? The Search for a Link Between a Company’s Social and Financial Performance. Mahwah, NJ: Lawrence Erlbaum Associates, 2001.
  • Paine, Lynn S. Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance. New York: McGraw-Hill, 2003.

Articles

  • Aguilar, Francis (dir.). “Johnson & Johnson (A): Philosophy & culture, James Burke, video.” Harvard Business School video supplement 884-525, April 1984. Online: www.hbs.edu/faculty/Pages/item.aspx?num=24632
  • Christina, Alexandra. “The essence of trust in business today.” Speech presented at the 2012 Business for Peace Summit, Oslo, Norway, May 7, 2012.
  • Dalberg Global Development Advisors and JPMorgan Chase Foundation. “The small and medium enterprise (SME) sector: Catalyst for growth in South Africa.” February 2012. Online: http://tinyurl.com/pfe4y5c
  • Griffin, Jennifer J., and James Weber. “Industry social analysis: Examining the beer industry.” Business & Society 45:4 (2006): 413–440.
  • Harris, Gardiner. “Psychiatrists top list in drug maker gifts.” New York Times June 27, 2007. Online: http://tinyurl.com/nrnh5wd
  • Knowledge@Wharton. “Patients versus profits at Johnson & Johnson: Has the company lost its way?” February 15, 2012. Online: http://tinyurl.com/7jtzsnw
  • Nussbaum, Alexander K. “Ethical corporate social responsibility (CSR) and the pharmaceutical industry: A happy couple?” Journal of Medical Marketing 9:1 (2009): 67–76.
  • Orlitzky, Marc, Frank L. Schmidt, and Sara L. Rynes. “Corporate social and financial performance: A meta-analysis.” Organization Studies 24:3 (2003): 403–441.
  • PPorter Wright. “Shareholders’ derivative complaint filed against Johnson & Johnson for FCPA violations.” Federal securities law blog May 5, 2011. Online: http://tinyurl.com/nso9dvc
  • Randall, Tom, and David Voreacos. “Merck legal costs for Vioxx reduce profit six years after drug’s recall.” Bloomberg News October 29, 2010. Online: http://tinyurl.com/o3jkojv
  • Robinson, Frederick, and Mark T. Oakes. “Johnson and Johnson settles derivative litigation through corporate governance and compliance reforms.” Norton Rose Fulbright website July 23, 2012. Online: http://tinyurl.com/no48jr3
  • Thomas, Katie, and Michael S. Schmidt. “Glaxo agrees to pay $3 billion in fraud settlement.” New York Times July 2, 2012. Online: http://tinyurl.com/bore279
  • US Department of Justice. “Bristol-Myers Squibb to pay more than $515 million to resolve allegations of illegal drug marketing and pricing.” US DoJ website September 28, 2007. Online: http://tinyurl.com/2av6klp

Company CSR Material, Reports, etc.

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