The ‘Corporate Social Responsibility’ Mask

Companies score higher on virtue tests when they engage in fraud, studies find

By Noah C. Gould. He is alumni and student programs manager at the Acton Institute. Excerpts:

"some companies use CSR scores to avoid detection of financial fraud.

A study published in January emphasized the gap between CSR reporting and reality, with some businesses touting their CSR scores to win favor with investors and the public. Like “greenwashing,” CSR-related activities can project virtue while distracting attention from misconduct. Researchers found evidence of “intricate coordination between fraudulent actions and their coordination with CSR initiatives” among the 502 U.S.-listed companies they studied.

A 2021 study from the University of Hong Kong analyzed 131 companies that had been convicted of financial fraud. Researchers compared the firms’s CSR scores during the period when they were committing fraud with the period before they committed the fraud. They also compared the scores with those of similar companies in the same industry. The companies’ CSR scores were higher on average during the period when fraud was committed than during the period before the fraud, and when compared with similar industries. While high CSR scores are supposed to indicate ethical companies, the reverse seemed to be true."

"“Managers use CSR strategies to both maintain good relationships with key stakeholders and to manage the firm’s corporate image to reduce public suspicion.”" 

"In 2019 the Business Roundtable released a statement redefining the purpose of a business to include value for a broad set of stakeholders."

"the companies that signed the statement were 16 percentage points more likely to have a federal compliance violation than nonmember firms."