Most Executives Believe in the Business Case for CSR. So Why Don’t They Invest More in It?

Most Executives Believe in the Business Case for CSR. So Why Don’t They Invest More in It?
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Companies achieve remarkable things. They create products for customers, financial returns for investors, and jobs for employees. At the same time, they develop medications that cure deadly diseases, technologies that bring internet access to every corner of the earth, and by making more and more amenities and technologies easily affordable, they steadily increase our general quality of life.

But companies also do terrible things. They set up workplaces such that employees are dying for a paycheck, they cause environmental catastrophes such as oil spills or deforestation, and they sell our data to whoever bids the most for it, possibly to manipulate us not only to buy products but also to vote for specific candidates in political elections.

Given companies’ track record in achieving great things, the question is not whether companies can be a force for good. The question is, why don’t all executives lead their companies to be a force for good? In other words, why do some executives refrain from leading their companies in socially responsible ways, and what would motivate them to invest in corporate social responsibility (CSR)?

The typical way to answer these questions is to invoke the business case for CSR. In other words, to spur corporate investments in environmentally friendly products or safe working conditions, CSR advocates believe, it is crucial to provide business executives with evidence that such investments benefit their company’s bottom line. In turn, the general premise is that if executives don’t invest in CSR projects, what’s holding them back is that they don’t believe in the business case of such projects.

This logic relies on three problematic and thus far untested assumptions. The first assumption is that most business leaders do not believe in such a business case. The second is that they would start believing in the business case if confronted with factual evidence that the business case indeed exists. And the third assumption is that they would invest in socially and environmentally responsible initiatives once they had come to believe in this business case.

But are these assumptions justified? In our recent research, we recruited several samples of executives from around the world to explicitly test them. And we found evidence that will change the way we talk about executives’ beliefs in the business case for CSR.

To investigate the first assumption, we let the executives play a game in which they earned money for making correct predictions. They predicted the financial performance of real companies, based on information about the companies’ past financial performance and corporate social responsibility performance. From these predictions, we inferred executives’ beliefs in the business case for social responsibility. Across the four studies we conducted, we found that 80% of the participants already believed in this business case — thus contradicting the assumption that most executives are skeptical about the existence of such a business case.

Why do so many executives believe in the business case for CSR? The prevailing assumption is that scientific evidence for the existence of the business case is needed for managers to believe in it. Yet the results from our studies tell a different story: They show that executives believe in the business case when such a belief aligns with their general worldview regarding the economic system. Specifically, executives with a positive ideological view on the market economy (a concept termed “fair market ideology” in the academic literature) are more likely to believe in the business case for CSR. In other words, it’s not a belief based on data. It’s a belief based on ideology.

This, then, brings us to the third assumption about executives and CSR. It is commonly assumed that if only executives knew that CSR initiatives would pay off, they would undertake more of them. But this also fell apart in our study. We looked at how our initial findings related to executives’ intentions to actually invest resources in projects aiming to solve social or environmental problems. Perhaps surprisingly, the executives who held a positive view of the market economy were not more likely to make social or environmental investments, even though these executives believed more strongly in the business case than other executives. The explanation for this disconnect: Their market ideology not only leads executives to believe in the business case for CSR but also blinds them to the existence of potential social or environmental problems in the economy. This thereby reduces their appreciation of the need for action to remedy these problems. In other words, because they think the business case for CSR is self-evident, and because they think of companies as self-interested actors searching for business opportunities, they are less likely to see that there are social or environmental problems going unmet. After all, unmet needs present business opportunities — and in a world where the business case for CSR is obvious, what intelligent executive would pass up a good business opportunity? If companies are not acting on these issues, they must not be issues at all.

In summary, executives were skeptical about CSR, but their skepticism did not stem from a lack of belief in the business case. Rather, the very same psychological process that led them to believe in the business case for CSR (their general worldview/fair market ideology) was preventing them from seeing social problems that are caused by business activities — and that could be addressed by investing in CSR projects.

Many academics, nonprofit leaders, and consultants are still trying to convince executives to invest more in CSR by telling them stories about how it will benefit their companies’ bottom line. Yet the findings from our recent research suggest that such attempts at convincing executives of the existence of a business case are probably not going to bear the desired fruits of more responsible and sustainable initiatives by companies, for two reasons. First, we find that the vast majority of executives already believe in the business case for CSR. There is hence no need to convince them of its existence. And second, our findings indicate that the executives who believe in the business case for CSR are also those who have difficulty seeing the problems CSR initiatives are supposed to solve. And since they cannot see the problems, they will not sponsor CSR-initiatives designed to solve them.

Rather than talking to executives about the financial benefits of CSR, advocates would have much more impact by focusing on helping executives to take off their blinkers and overcome their ideology, and in that way make them more sensitive to the social and environmental problems in their vicinity.

For executives who already believe in the business case, there are two main implications. First, despite the constant stream of attempts to persuade them of something they already believe in, they are not alone but rather in the majority. Knowing that their beliefs are not unusual among their colleagues might allow them to be bolder and take more action based on their beliefs. Second, their beliefs might stem from their ideological worldviews, which create certain blind spots. Being aware of these blind spots can be a first step toward more-circumspect decision making not only in CSR but in many areas relevant to their businesses.

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