Chicago Booth Review Podcast Do Consumers Care About Corporate Social Responsibility?

Abigail Sussman: In our study, we have an example of a company that is basically addressing a problem around some chemical that's been leaked into wastewater. And so if you fix this by changing your internal practices and you advertise that to consumers, the implication is, well, I didn't realize that you were causing that problem in the first place. I'm glad you're trying to fix it, but I'm much more upset that you were causing the problem than I am happy that you're fixing it.

Hal Weitzman: Do consumers care about corporate social responsibility, and what kind of CSR do consumers think companies should be doing? Welcome to the Chicago Booth Review Podcast, where we bring you groundbreaking academic research in a clear and straightforward way. I'm Hal Weitzman, and today I'm talking with Chicago Booth's, Abigail Sussman, about her research on corporate social responsibility. What kinds of actions can companies take to make consumers more willing to spend money with them? Abby Sussman, welcome back to the Chicago Booth Review Podcast.

Abigail Sussman: Thanks so much for having me.

Hal Weitzman: Well, we loved having you on to talk about mental accounting. Such a fascinating conversation that we wanted to have you back to talk about a different project, which has to do with corporate social responsibility, big topic. There's a lot of initials, some acronyms in this world. So I want you to clarify a little bit what they are. So there's CSR is corporate social responsibility, but there's also ESG, environmental Social Governance and DEI, which has been with us for a while. So what is the difference in your mind between these corporate, social good type activities? For

Abigail Sussman: Sure. So I think you could easily get lost in terminology soup around this space, but if we just take them one at a time. So I think you can think about CSR as being really actions. It's corporate social responsibility. So it's actions that companies are taking that go above and beyond what would be required by law to serve society.

ESG is going to be more used by investors and regulators to help assess what kinds of actions firms are taking. And this is going to have an environmental component, a social component, and a governance component, which are three different dimensions that maybe should or maybe shouldn't all be going together, but they're often lumped together as one.

And then DEI is something that's much more specific. So that's diversity, equity, and inclusion. And that's something that has been probably the most controversial and had the most extreme views about it over time. And that's really much more around thinking about people and diversity specifically. So it's really a subcomponent that can be part of CSR or ESG or it doesn't have to be.

Hal Weitzman: Well, I'm glad you define so distinctly because I feel like in a lot of the debates about woke that those things get lumped together so people particularly will confuse ESG and DEI. I feel like they sort of all get mixed in together. But we're talking about CSR which is much more general, right? Like you said, they're generally doing something that is not necessarily about profit seeking, which is interesting because there's a whole debate, isn't there? A very University of Chicago type debate about the purpose of a corporation, and a famous essay by Milton Friedman 50 years ago where he said that companies should do nothing but seek profits exclusively. Anything else is just a distraction and not good. And then there's this kind of a backlash against that. But there also seems to be quite a lot of evidence that now, that there is some practices that are just good business sense and do social goods. Do you think the whole thing is a bit of a false debate, false dichotomy?

Abigail Sussman: Yeah. I mean, I think if you go back to Milton Friedman's original essays and you think about them, you can read into a lot of the assumptions that are being made. So for example, this idea that focusing on the shareholder and focusing on social good are necessarily in conflict. And so I think there are many companies and many specific policies where they would be in conflict. So you could imagine just taking something simple, but a company that donates to a charity that has nothing to do with it, but let's say is in the pet interest of the CEO of the company. That's something that you could think about in this classic idea of a business diverting resources away from its profitability.

But you could also imagine a lot of cases where a company either through, even something as simple as making a donation or through other changes in its business practices could do something that is actually quite good for the bottom line and also good for society. So you could think about here, McDonald's, let's say changes its packaging. It has less cardboard in its packaging, and this is something that is good for the environment. Also, because of the scale that McDonald's is going through this packaging, it's also going to be actually quite cost-effective for them from a supply chain perspective.

And so both in terms of thinking throughout the supply chain, the different types of actions that companies could take, and the way that they interact with consumers in both of these cases, you can think about cases where there would be a lot of alignment between profit and social good.

Hal Weitzman: Right. But I suppose on the margin there are more vague cases. People often made the case that reputationally, this was good for the company. Even in the example you talk about, I gave some money to a charity that I happened to be on the board of and the company, it was donated and came through the company, but it's good for the company to be associated with that. It's the halo effect. So there was always a kind of sense of that. What you're talking about is something much more specific like a measure, right? So is that a newer thing that we are talking more about kind of corporate social responsibility where we can measure the effect on profits?

Abigail Sussman: We can think about strategic actions where you can directly measure the impact, and that's going to be a really sweet spot I think for ESG or CSR. I think that's going to be fantastic. I think other times CSR is going to be strategic and it's going to have a long-term impact that might actually be harder to measure. And so there we can still think about things like what is consumer sentiment? How do consumer attitudes towards the brand change? But there might not be our sales go up tomorrow kind of impact. It might be something that you have to think about from a reputational perspective. And so I think both of these are going to be valuable, but you have to think at least from a strategic perspective that there could be some data you could collect that would show an impact, not just the CEO thinks it's nice.

Hal Weitzman: In your research on this, you draw a distinction between what you call internal and external corporate social responsibility. What's that distinction?

Abigail Sussman: Yeah. So I think we've moved very much to a world where companies are becoming smarter and smarter about the ways that they're engaging with CSR. And it's very common for companies to be engaging on topics that are relevant to their business or with issues that are relevant to their business. And so you can think about something like Coca-Cola is a company that has gotten a lot of flak for its impact on the water systems and water security. And so they might choose to tackle that problem. They realize that they're sort of causing harm in that space. And they could either, let's say, change their production process to involve less water use, or they could make a donation to the Nature Conservancy or to some sort of third party organization. And so we would think about these changes to this internal production process would be an internal change that they could make to address this core issue. Or, in the case of donating money to the Nature Conservancy, that would be an external version of CSR.

Hal Weitzman: You're a behavioral scientist. Do you think that we think more of ... I mean water is something that we all need to drink, Coke is something that some people choose to drink. So is that the connection? Therefore, if it was another company, if it was a sneaker company, we think less about their connection to water. Is that the way it works?

Abigail Sussman: I think that's right. I mean, I think there's also just frankly the question of how much press has it received. And so Coke is also such a big company that it also produces all these plastic bottles. So I think Coke has gotten a lot of negative publicity around some of these topics, and so it's trying to do a lot to counteract that.

Hal Weitzman: So tell us a little bit about how you incorporate this distinction into your research. What are you trying to find out?

Abigail Sussman: In our research, this is a project that's led by a current PhD student at Chicago named Yusu Wang, who's fantastic. And in this project, what we're looking at is trying to understand not just whether firms should always engage in CSR that's internal versus external, but also to think as a bit more about when consumers might prefer one or the other. And so here, if you think about measurement, what we are going to be concerned about here is not necessarily like a profit number, which is going to be very hard to measure. We're going to try to think about what are consumer reactions and when consumers hear information about what firms' activities are, which type of actions are going to make them more likely to purchase a product from a firm engaging in one type of CSR.

Hal Weitzman: So you're measuring their likelihood of purchasing, not like their feeling about the company in general?

Abigail Sussman: So we're measuring a few different things. We have a handful of studies, and so in some of them we're going to measure purchase likelihood. In others we'll give them an incentive compatible choice where they can choose, let's say, between buying a product from a Pepsi versus Coke, or in some cases we'll be measuring perceptions of the company. So we can measure all different types of-

Hal Weitzman: Okay, so tell us about how you test. What's your research? How do you test this?

Abigail Sussman: Yes. So first off, in terms of the baseline result, which I think is quite consistent with what other people have found, is that there's overall tends to be a preference for internal CSR over external CSR in a range of different cases. So if you take this sort of let's say Coke versus Pepsi, we brought people into the lab and we had people choose between Powerade and Gatorade, which are owned by Coke and Pepsi.

So we can say, okay, Gatorade and Powerade. Now, we're thinking about buying one of these two products, which people have I think less strong preferences about than Coke and Pepsi, so it works a little bit better. And we can give them information which is truthful information because Coke and Pepsi have both engaged in many different kinds of CSR activities. And so we can say in one case, Coke has donated X number of dollars to improving its internal CSR around water use and limiting its water use. And in one case, the parent company of the other one has invested the same amount of money or donated the same amount of money to a third-party organization that's addressing the same problems.

And then we basically ask, "Which of these companies would you prefer to purchase from?" And so the main finding that we have is that, overall, in many cases, people tend to have this preference for basically internal CSR over external CSR. So people feel like they want the company to address the problem that they've caused directly, particularly in something where there's a very direct link, a causal link of harm. So the company is responsible for causing harm, they're trying to fix the harm. The best way to do that is themselves rather than going to a third party.

We find that this is related to two different underlying beliefs. One is about sincerity or authenticity, so it feels just much more authentic. This is something we talk about a lot in the CSR space. It feels like the firm actually cares if they're fixing the problem internally. The other piece that we look at, which has received a lot less attention is this idea of ability, that it's just going to be a lot more effective at solving the problem if you essentially stop the bleeding, right? So-

Hal Weitzman: Right. I mean, you assume that one of the reasons it's motivating people is prevention is better than cure.

Abigail Sussman: Exactly.

Hal Weitzman: Right. So it stopped causing the problem rather than continue causing it, which was ... So to go back to the debate, I mean, that was actually the classic thing, wasn't it, that if you wanted to pursue social causes in the age of when Friedman was writing, that Friedman's argument was not that you shouldn't pursue them, but you should make profits and then use the profits to let's say, clean up the environment or whatever.

Abigail Sussman: Absolutely.

Hal Weitzman: But actually, people nowadays at least would prefer that the company does that before. They don't cause the damage in the first place, correct?

Abigail Sussman: That's correct.

Hal Weitzman: Okay.

Abigail Sussman: Now that is contingent on the idea that the company is causing harm. So there are lots of cases, actually, where firms are engaging in CSR where they're not causing harm. And so this can be places where a company thinks about its supply chain, it's still a very relevant, it could be a business relevant activity, but it's not necessarily one where they're causing harm. And so it could be firms, if you think about different sorts of employee benefits, or if you think about COVID. That was a time when a lot of companies were engaging in CSR where they were sometimes actually relying on their internal supply chains to help. But at the same time, nobody thought that Coke caused COVID or had any role in that, but Coke was able to use some of its distribution channels to actually get vaccines to people who couldn't have them otherwise.

And so Coke, in that case, was not culpable at all for the problem. But here they had options of they could donate to a third party to help get vaccines to people in rural areas, let's say, or they could use their own supply chain to do that. And in this case, what we find is that there's much less of a difference in perceptions where, actually, consumers in that case don't really care if the company isn't responsible for causing the harm. People don't really care that much whether the action is internal versus external, and in many cases would actually prefer the external action.

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Abby Sussman, in the first half, we talked about your research on CSR and the distinction between internal and external CSR, doing it yourself and paying other people to do it. And then you talked about how whether you're culpable, whether you're responsible for something, how consumers would prefer you to do internal, clean the mess up yourself or stop it from happening, versus external. But if it's not your fault, and you use the example of COVID, then people are sort of neutral on whether it should be internal or external. Have I understood correctly so far?

Abigail Sussman: You got it.

Hal Weitzman: Okay. So now I guess that leads me to ask, do you get bigger bang for buck from one or the other? If you're cleaning up your own mess, is that more effective in the eyes of the consumer than contributing to a good cause that you weren't responsible for?

Abigail Sussman: Yeah, so that's interesting. So I mean, I guess that the challenge is that if you are fixing a problem that you caused, you get probably more benefit from the perspective of that action, but you also get more blame for the fact that you've caused the problem in the first place. So net, it's better off to be a company that is not causing any harm and doing something good. Across the board that would be better. So I don't think it's causing harm in order to fix it. But I think if you have a portfolio of potential things that you could invest in, fixing the problem is probably going to be the most important thing to do first.

Hal Weitzman: So when you gave the example earlier of, let's say, paying people more. In COVID, we're paying our workers an additional whatever to help because it's a difficult time. Is that seen as that's seen as internal even though there's not necessarily a problem that you're trying to solve?

Abigail Sussman: Yeah. So first off, I would say that you could think about this as a continuum, but yeah, that still is. That's not about internal versus external. That's about CSR. That could still be CSR. So Microsoft is an example where they could give ... let's say internally, they could help their own employees get advanced education. Or another thing that they do is they would donate to local colleges and facilitate education for everybody in the community. So you could think about that as two different paths. Microsoft is not causing the problem of lack of education or sort of insufficient higher skills, but at the same time, there are these two different actions that they could take to help remedy it, if that makes sense.

Hal Weitzman: Yeah, and so I'm asking which ... In the case where you're not responsible, people don't really care. There's no better way of doing it, correct?

Abigail Sussman: In the case where you're not responsible, people-

Hal Weitzman: You say Microsoft doesn't cause a lack of skills.

Abigail Sussman: That's right. And so in many cases, people are going to prefer, actually, even the external in that case.

Hal Weitzman: Oh, okay.

Abigail Sussman: Sometimes it's neutral across our different studies. Sometimes it's neutral, sometimes it's not. So I'll give you an example of a study that we ran. So what we do here is, actually, we take the same outcome and the same action, and we basically shift people's beliefs around responsibility. So we take this idea of a sports drink company like Gatorade is investing in women's sports. So now there are two different ways that they could do that. So they could take this internal action of changing their advertisements to have more women in their advertisements. Or, they could donate money to for women in sports or girls in sports.

And then this is something that I think people walking around don't have super strong beliefs about. So you were sort of asking earlier about Coke and do people associate Coke with these water challenges? And I think sometimes yes, and sometimes no, depending on what information they've been exposed to. This is similarly people who are in the weeds in disparities in terms of gender and sports. I think many people who are in the weeds on that topic feel like some of these companies have played a role by representation, like differentially representing athletes, let's say. But most people aren't thinking about that a lot.

So in one case, we got people to think about any role that Gatorade might've been playing in this process. And in another, they just filled out some other filler question, basically. And so what this does is its shifts perceptions of culpability either so people think Gatorade was responsible or people don't think Gatorade was responsible, essentially is what happens. And so people only prefer the internal action when they think that Gatorade was responsible. And so this again ties to both this ability point. So if Gatorade wasn't causing the problem in the first place, how are they going to help it? How are they going to help solve it? If that wasn't causing the problem in the first place, then the action probably isn't going to help and it doesn't seem any more sincere or authentic if you're not really helping.

And so in that case, we look to this external donation, which is going to be equally effective or more effective, because now you have this third party charity, and the third party charity is the one that actually has dedicated expertise at solving this problem. And so you can see that lever in many cases, when actually when you estimate that the third party is going to have better ability to fix the problem, in those cases, the external CSR is going to be preferred.

Hal Weitzman: Right. Okay. Now, one of the things that makes CSR tricky or risky is there's a possibility of a backlash. We've seen that on all sorts of attempts of a CSR have provoked a backlash. Or, I guess even people who didn't do it, then there's a backlash as well. So what does your research tell us about when a backlash is likely to happen in the minds of consumers?

Abigail Sussman: So I think that there are a couple of things here. One is just generally, consumers are very skeptical of firm actions, especially right now. And so as soon as you are the one advertising the fact that you're doing something good, you're going to get a lot of scrutiny from customers. They're not just going to take what you say at face value, and the messaging is going to matter quite a bit as well.

In our research, we actually identify one very specific situation where firms can get into more trouble, which is if you're advertising an internal action, it can actually signal the fact that you were causing a problem in the first place. So let's say in our study, we have an example of a company that is basically addressing a problem around some chemical that's been leaked into wastewater. And so if you fix this by changing your internal practices and you advertise that to consumers, the implication is, well, I didn't realize that you were causing that problem in the first place. I'm glad you're trying to fix it, but I'm much more upset that you were causing the problem than I am happy that you're fixing it. Versus if you give money to a third party to fix the problem, you just care about your community, you're not getting penalized for having caused the problem because the information leak isn't happening there.

And so this is, I think as much about communication as it is about the actions that the firms should be taking in the sense that the firm should probably fix the problem no matter what. Because let's say they don't fix the problem, and you have some third party that then learns about the problem and calls them out for it, they're going to be in a lot more trouble than if they address the problem themselves. So that's going to be a worse situation for the firm, but at the same time, they might not want to publicize that they're fixing the problem.

Hal Weitzman: Right, and that makes me think that there's a problem, or a challenge is when firms try to do stuff and then people point their finger and say, "Well, what about this other thing that you're doing? It looks like distraction." A classic example was during the Black Lives Matter protest, when all sorts of organizations gave money to groups that were campaigning for more diversity. And then people said, "Look, but look at your board, look at your senior management. They're all white men." And so they ended up looking like ... it was almost worse. They were trying to distract. How about that? How about this idea that there's a contradiction between what you're doing, as you say, telling the world that you're doing, and then something else that you're doing that's damaging?

Abigail Sussman: Yeah, I think that firms are in a hard spot, and I do think that a lot of this is around the communication. So when you are doing more advertising than you're taking action and when it's on a temporary basis, I think these are two things that consumers will be really responsive to. I think if you have a company that's making a sustained effort over a long period and they slip, I think consumers will be much more forgiving of that kind of-

Hal Weitzman: Is that right? Is there evidence that we care more about a long-term thing than a big ... If you gave a large donation of $100,000, one off, is that worse than giving small donations over a period of time to show-

Abigail Sussman: I think in terms of demonstrating that you're credible and that you care about the cause, having this be a sustained effort is going to be really critical.

Hal Weitzman: Okay. What would you say to someone who says, "I still agree with Milton Friedman. This whole thing is just a waste of time. It's just window dressing, it's just a distraction." And that could be someone who's, frankly, agrees with Milton Friedman, so on the hard left, who sort of thinks all corporations are evil, therefore anything they do is evil. What do you say to that person about the role of CSR?

Abigail Sussman: I think that there's a space for companies that are taking frivolous actions and calling it CSR, and they probably shouldn't be doing that, but I also think that there's a space for strategy. And so if you say, "Should firms be engaging in CSR?" I actually think that this is the wrong question to be asking. I think it is too big and too broad, and you really have to think about what is a specific action that a firm is taking, and is this good or bad for the bottom line?

And so let's take, again, you can think about Microsoft, let's say. So they were the first to develop a line of video games for people with physical disabilities in their hands to play, okay. Is this CSR? You could say yes, because you're serving this market that has this unmet need. You could also say, this is purely a business decision. They now have a huge market that they didn't have before for people who had a high demand for these video game controller, okay. So I think it's very hard in that situation to say the firm shouldn't do ... I mean, is it because there might be some positive externality, like you definitely shouldn't do this? That seems like a very hard [inaudible 00:24:56].

Hal Weitzman: In that case, how is that CSR rather than just finding a new market?

Abigail Sussman: I think you can use CSR as a lens for finding a new market, is the way that I would think about it.

Hal Weitzman: I see. Okay.

Abigail Sussman: Sorry, this gets back to your very first question about the terminology.

Hal Weitzman: Yeah. You're right. We haven't moved on much, yeah.

Abigail Sussman: I'm going to say, forgetting about the terminology, I think that that's using this lens of thinking about how can I think about social good as a lens for identifying new opportunities?

Hal Weitzman: Yeah. Okay.

Well, Abby Sussman, this has been a great conversation, a different approach to talking about this topic, which I appreciate. Thanks for coming back on the Chicago Booth Review Podcast.

Abigail Sussman: Thanks so much for having me.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis and insights, visit our website at chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research. This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe, and please do leave us a five-star review. Until next time, I'm Hal Weitzman. Thanks for listening.