Research Shows How Corporate Social Responsibility

Newswise — It’s lately been considered good business for companies to show they are responsible corporate citizens. Google touts its solar-powered data centers. Apple talks about its use of recycled materials. Walmart describes its support for local communities.

But these narratives, according to new research by Haas Associate Professor Tim McQuade, have some downsides. With Emanuele Colonnelli and Niels Gormsen of the University of Chicago, McQuade demonstrates how positive corporate messaging can evoke negative associations among consumers, in turn nudging them away from policies that support corporations in times of crisis.

“Even if you frame information in a positive way, consumers with pre-existing negative beliefs regarding social responsibility might draw up mostly negative experiences from memory,” McQuade says. “In this manner, the messaging can do the opposite of what’s intended.”

Their results were published in The Review of Economic Studies.

Working with faulty memory

These results hinge on an updated model of how consumers call information to mind when making decisions. Traditionally, economists assumed consumers to be rational actors sifting through all the relevant knowledge they have when making a decision. McQuade and his colleagues draw on a more recent understanding of cognition in which people have limited recall—meaning they generally only draw on a limited set of information to make decisions—and in which specific cues can influence what information they use.

Much of advertising relies on this premise. For instance, if people are cued with the old Snickers tagline, “Hungry? Why wait,” they may buy the candy simply because they are prompted to think about their hunger and not consider whether they need the calories or could better spend money on something else.

With this picture of consumer psychology in place, the researchers recruited nearly 7,000 participants to complete a four-part survey. The survey took place in May of 2020, when many companies were struggling under pandemic restrictions and the federal government was discussing the possibility of bailouts.

A landscape of “big business discontent”

The first portion of the survey asked basic questions about socioeconomic background. The second contained four different animated videos—three of which were used to cue distinct patterns of thought, and one used to create a control group.

The control group watched a video detailing basic instructions to complete the survey along with definitions of concepts like “corporate bailout” and “stakeholders;” the rest of the videos started with this control segment but included additional content. One framed big companies as relatively bad citizens—polluting, overpaying executives, underinvesting in communities, and so forth. The second video framed them as good citizens. The third mentioned nothing of corporate citizenship but talked instead about the economic stability provided by corporate bailouts.

After participants watched one of these four videos, they were asked the degree to which they thought large companies were doing what they should when it comes to environmental, social, and governance (ESG) goals. Another section asked participants how strongly they supported economic bailouts for large corporations. (The ordering of sections three and four varied randomly.)

The raw results from this survey found that people have an overwhelmingly negative view of corporate citizenship. “Our first key contribution showed that, on a variety of dimensions, there is this broad perception in society that corporations are not doing what people think they should be doing,” McQuade says. “We call this ‘big business discontent,’ and it becomes a necessary condition for what we find next.”

How positive messaging elicits negative associations

The researchers looked next at public support for bailouts.

They found that survey participants who were cued by videos to think about corporate social responsibility—whether the video framed this work positively or negatively—expressed much lower support for corporate bailouts than those who watched the video about stabilizing the economy. In fact, those who watched the video framing companies’ ESG efforts positively expressed lower support for bailouts than those who simply watched the control video.

“When we primed people to think about these policies through a corporate social responsibility lens, even when we put that work in a positive light, the fact that there is this pre-existing big business discontent meant that the messaging backfired relative to giving them no information at all,” McQuade says. “Because recall is imperfect, the positive framing still brings to mind negative experiences,” such as the Enron accounting scandal, various environmental disasters, or poor wages.

This effect was even stronger among the survey participants who were asked how well they thought companies were doing on ESG goals before being asked their level of support for bailouts. This particular ordering of questions, it seems, dredged up more negative memories. Lack of support for bailouts was also strongest among young people and liberals, who expressed the highest levels of big business discontent.

Finding a message that works

Survey participants who were instead shown a video discussing how bailouts contributed to economic stability expressed support for the policy. In other words, the topic that people are cued to consider—in this case ESG goals versus economic health—significantly influenced their policy preferences.

The implications extend beyond corporate messaging into all realms of influence or persuasion. As McQuade notes, groups often try to update people’s beliefs by providing positive information on some policy or action. Companies talk about their good citizenship; politicians talk about their achievements.

“But if the domain or topic they’re talking about is one that many people have negative views on, then it is probably not the most effective way to gather support, since the framing effect could outweigh any positive PR effects of the communication,” he says. “Rather, they might want to refocus attention on some other policy domain. This insight shifts the way we think about optimal communication and optimal messaging.”

Read the full paper:

Selfish Corporations
By Emanuele Colonnelli, Niels Joachim Gormsen, and Tim McQuade
The Review of Economic Studies, 2024