What Aristotle Can Teach Firms About CSR
Rosa Chun, Harvard Business Review
September 12, 2016
https://hbr.org/2016/09/what-aristotle-can-teach-firms-about-csr
Recently, I spoke with senior leaders at a Fortune 500 firm. It’s a leader in
philanthropy, but the executives feel all their corporate giving goes
unappreciated. “We do all the right things, but the public always criticizes us,”
they told me. “What’s wrong?”
That’s something I hear more and more. The public has grown increasingly
skeptical about the motivations behind corporate social responsibility (CSR)
efforts. I don’t blame them. I believe that this is due to the discrepancy in the
two dominant approaches in rationalizing why corporations should be ethical.
To understand this, it’s helpful to examine some important philosophical
history. Basically, corporations are acting the way the philosophical teachings
of Jeremy Bentham or those of Immanuel Kant would tell them. I believe –
and my research shows – they would be wise to learn some Aristotelian
lessons and better incorporate the role of emotion in their CSR efforts.
A Philosophical Tour of CSR
So how is it that companies approach CSR from the duty-based philosophy of
Immanuel Kant? The German philosopher argued people should act out of
moral obligations. Say you see someone begging for money on the street and
you don’t feel compassion for that person. You will help anyway, because you
feel you have a duty to, or that it is the right thing to do. That’s coming from
public pressure, but not from your true respect or empathy for that person.
Corporate social responsibility efforts have this disconnect, too.
Another corporate approach which is more dominant is Jeremy Bentham’s
utilitarian way. The English philosopher argued a unit-based approach; as long
as the outcome is bigger than the input, the action is justified. Profit-driven
organizations see CSR from the utilitarian perspective as a way of gaining a
business advantage or to recover from a reputation loss.
The problem with most corporate social responsibility efforts is that these
duty-based and utilitarian approaches are essentially based on rationality,
albeit with contrasting motivations. The company is there to make money, but
it also tries to appear to meet the public expectation of acting ethically. To
customers and employees, that can simply come across as calculating and
superficial. That’s why the CSR activities often don’t ring true.
There is a significant gap here. And the missing link is emotion. Companies
forget emotion in CSR, and that’s why they fail.
The Aristotelian Alternative
This is where the teachings of Aristotle come in. He advocated for developing a
character of virtuousness that leads to happiness for one’s self and others. He
said these traits of the ideal character derive from natural internal tendencies.
If they’re nurtured over time, eventually they become established.
Aristotle was writing about people. While individual philosophy has been
studied and applied to corporate organizations, I wanted to explore the newer
concept of organizational virtue and how to adapt it to corporate strategy.
To help understand its potential, I conducted a survey of 2,500 employees
and customers of seven British services firms. It shows that organizational
virtue, represented by integrity, empathy, zeal, conscientiousness, warmth,
and courage, is linked to employee and customer satisfaction via
identification. Think of identification as a perceived oneness or emotional
attachment to the company. My findings suggest two organizational virtues
are key for this. For employees, identification with a firm is driven most
significantly by integrity (such as being honest, trustworthy). For
customers, identification with the company is driven chiefly by empathy
(such as being concerned, reassuring).
In other words, when employees perceive an organization to hold high
integrity, this leads to employee identification. This emotional attachment then
leads to satisfaction, and eventually differentiation (unique attributes that
employees perceive as better than competing employers). Similarly, when
customers perceive an organization to show strong empathy, it enhances their
emotional attachment to the company. This leads to satisfaction and
eventually differentiation. The emotional attachment is the important mediator
of CSR success.
A key strategic implication of the research findings is that companies would be
better off changing their CSR strategy from differentiation to identification.
This consideration of stakeholder emotion is what makes virtue ethics
distinctive from the other CSR approaches. Developing strategic virtues in the
minds of stakeholders has the potential to turn positive emotion into a real
competitive advantage.
When CSR Is Only Skin Deep
Let’s look at what happened in the past to a pioneering company that
successfully differentiated its brand as being socially responsible. It turns out,
differentiation is hard to sustain. Mergers and acquisitions are often the time
when differentiation by CSR falls short. Mergers might succeed for financial
reasons, but they can just as easily fail for emotional ones.
The cosmetics and skin care company, The Body Shop, long promoted its
business through social and environmental campaigns. It counted opposition
to animal testing on cosmetics as a core value. Then it agreed to be acquired
by L’Oréal, mainly to gain financial synergies.
At the time of the acquisition, many consumers and observers questioned
whether the company could maintain its ethical stance. The Body Shop
received criticism for L’Oréal’s poor reputation associated with animal-tested
cosmetic products. It seemed to be in polar opposite position to the brand
identity of The Body Shop. The company’s reputation with customers suffered,
as we’ll explore below.
This merger is a good example of how companies often try to differentiate
their brand based on corporate social responsibility, believing the
differentiated image will lead to a competitive advantage. However, my
research applying Aristotle’s teaching on “virtue ethics” shows that the CSRbased differentiation strategy will not last if stakeholder identification with the
brand is weak.
Three Steps to Change CSR Philosophy
The Fortune 500 company that doesn’t get enough return on CSR will need to
change its approach. So how might companies leverage virtues to build
stakeholder identification? How can they build emotional attachment with their
customers and employees by being more responsible and ethical? The
following steps may be useful in translating organizational integrity and
empathy into consumer and employee identification.
Renew the CSR function. Many global firms put this function under the
responsibility of departments of corporate affairs or corporate social
contribution. This departmentalization sends the wrong signal. Analogous to
Maslow’s hierarchy of needs, ethical responsibility needs to reside at the lower
level of the CSR pyramid. This needs to be fulfilled before philanthropic
activities can be appreciated. When the CEO is being investigated for
corruption, donations and CSR projects will not be effective. CSR strategies
must be integrated into the overall corporate strategy.
Redefine the CSR vision, but don’t oversell it. A founder’s vision is often crucial
in defining a CSR-led brand but it needs to reflect reality over time. The
founder of The Body Shop, Anita Roddick claimed that common values have
“given it a campaigning and commercial strength and continues to set it apart
from mainstream business.” This stated formula linking shared ethical value
with differentiation and commercial success lost its validity and appeal with
the takeover by L’Oréal. Loyal customers accused The Body Shop of not
standing by its own principles.
Promote empathy during a crisis. When Steve Jobs announced his plan to step
down as CEO and appoint Tim Cook as his successor, he sent a personal letter
to the Apple community through the company website. In the acquisition of
The Body Shop, loyal consumers should have been reassured that the
company’s core values would be left unchanged after the takeover. In
contrast, bad press and falling ratings show that longtime customers were left
feeling betrayed, their loyalty penalized rather than rewarded. The two
situations were similar: in each, consumers and employees felt insecure about
what the future would bring. Apple tried to engage the loyal customer about
the bad news, and the crisis was a bonding moment for the company. During
a crisis, the empathy virtue can turn a negative emotion to a positive one,
altering betrayal to sympathy, anger to forgiveness, and dis-identification to
identification.
The Alarm Bell for CSR Campaigns
Companies are increasingly turning to innovative CSR campaigns, community
projects, and hefty charitable donations. However, my research sounds an
alarm bell for those efforts to create a differentiated image that is
unfortunately based on weak customer and employee identification. A global
firm that won multiple CSR industry awards but has poorly perceived integrity
and empathy by stakeholders should not be surprised when consumers decide
to dis-identify themselves by buying less, or worse, boycotting the brand
altogether.
In Aristotelian thought, virtue ethics are supposed to lead to a good outcome:
happiness. A good CSR strategy should aim for happiness too. I believe
corporate virtues, once nurtured and established, can lead to happy
stakeholders and, ultimately, better performance. But it will take a rethinking
by companies around the globe.