A company’s good reputation is thought to shield it in times of trouble that’s one of the reasons many firms undertake corporate social responsibility (CSR) programs. By investing in a local community or implementing eco-friendly practices, the firm builds up a reservoir of good will.
“CSR activities are viewed as insurance policies,” says Professor Stephan Meier. “If a firm faces a product recall or a labor dispute, a good reputation can shield it from the fallout.” At the same time, when crises occur at companies with positive public images such as when Toyota faced concerns about sticky accelerator pedals in 2010 it risks being viewed as hypocritical. “When that happens,” Meier says, “all of the good will the company built can actually backfire.” The media attention paid to a crisis has a huge impact on how the crisis and the firm is perceived by the investors, shareholders, and customers.
Meier worked with Columbia Business School PhD candidate Jiao Luo and Felix Oberholzer-Gee of Harvard to determine how a company’s CSR affects media coverage of a negative event. They used data from the National Response Center (NRC), a federal office under the United States Coast Guard, that focused on oil spills from 2001 to 2007 among the 20 largest U.S. oil companies. Oil companies, such as BP and Exxon, are good examples of the effects of CSR on media coverage because they frequently face environmental slip-ups and vary considerably in their CSR efforts and reputations. Perhaps the best example of an oil firm pursuing CSR is BP. The company launched its “Beyond Petroleum” campaign in 2000 to position itself as environmentally friendly. The campaign highlighted the company’s investment in renewable energy, such as its 1999 purchase of solar energy company Solarex. By contrast, Exxon is not generally perceived as environmentally responsible by the public and has not tried to position itself as green.
The researchers searched for news coverage of the spills found in the NRC database using the LexisNexis media database. They also considered the influence of public relations by controlling for how often each oil company was in the news for non-spill related stories.
Their investigation yielded intriguing results: being too dirty or too clean can get a firm into trouble. The media reported more on accidents if they occurred at a company with a strong CSR reputation and record than at a company with an average CSR reputation. Meanwhile, the tone of news coverage was no less critical for organizations with a greener reputation. This suggests that rather than acting as a form of insurance, adopting CSR practices can be a liability.
However, firms with significant past environmental problems were also more likely than firms with average CSR reputations to find their negative events in the news. For instance, despite a dismal safety record, BP suffered considerable fallout from the Gulf Coast oil spill in 2010 because of their green image campaign, which, after the spill, was dismissed as hypocritical. Exxon also received a large amount of negative press when any spill occurred, in large part because of its known history of large spills such as the 1989 Valdez spill. Both received more negative media coverage than oil companies that engage in some CSR efforts. The effects of negative headlines often reverberate far from the front page. Bad press can lead to a damaged reputation and, in turn, the potential to hurt a company’s bottom line or invite increased regulatory scrutiny and fines.
The takeaway for firms across industries: choosing to undertake CSR activities is complicated, and it’s crucial to consider all ramifications, including media response, if crises occur. That outlook also has consequences for policymakers trying to encourage more firms to engage in CSR efforts the increased media attention paid to CSR laggards creates an incentive to invest in CSR activities, though only to a point. If a company chooses to engage in CSR efforts, it needs to have a firm understanding of its reputation to understand the potential consequences if the firm faces a crisis especially one that directly reflects on an area of CSR focus for the company.
“Executives need to be careful in thinking about the not-so-obvious consequences that CSR can bring,” Meier advises. “It makes the cost-benefit analysis of being socially responsible a bit more complicated, but media reaction is crucial to consider. It’s about finding the right balance for each company.”
Stephan Meier is the Regina Pitaro Associate Professor of Business in the Management Division and a senior scholar at the Jerome A. Chazen Institute of International Business at Columbia Business School.