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An Extended Model of Moral Outrage at Corporate Social Irresponsibility

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Abstract

A growing body of literature documents the important role played by moral outrage or moral anger in stakeholders’ reactions to cases of corporate social irresponsibility. Existing research focuses more on the consequences of moral outrage than a systematic analysis of how appraisals of irresponsible corporate behavior can lead to this emotional experience. In this paper, we develop and test, in two field studies, an extended model of moral outrage that identifies the cognitions that lead to, and are associated with, this emotional experience. This research contributes to the existing literature on reactions to corporate social irresponsibility by explaining how observers’ evaluation of irresponsible corporate behavior leads to reactions of moral anger. The paper also helps clarify the difference between moral outrage and other types of anger and offers useful insights for managers who have to confront public outrage following cases of irresponsible corporate behavior. Finally, the analysis of the causes of stakeholders’ anger at irresponsible corporations opens important avenues for future research that are presented in the paper.

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Notes

  1. It is possible that some consumers might have guessed the real brand involved in the case, although the Starbucks’ tax avoidance controversy involved mainly the UK division of the corporation. From the analysis of the answers to the initial open-ended question, we find no evidence that participants guessed the brand (or were interested in doing so).

  2. One participant did not complete the demographic questions included in the questionnaire but it is still retained in the main analysis.

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Authors and Affiliations

  1. Warwick Business School, Coventry, UK

    Paolo Antonetti

  2. Cranfield School of Management, Cranfield, UK

    Stan Maklan

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  1. Paolo Antonetti
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Correspondence to Paolo Antonetti.

Appendices

Appendix 1

Global health care giant GlaxoSmithKline LLC (GSK) agreed to plead guilty and to pay $3 billion to resolve its criminal liability arising from the company’s unlawful promotion of certain prescription drugs and its failure to report certain safety data. The resolution is the largest health care fraud settlement in U.S. history and the largest payment ever by a drug company. The case is related to the sale of many products. One example is reported below.

GSK unlawfully promoted a drug called Paxil for the treatment of depression in patients under age 18. The drug was never authorized for use in pediatric patients. GSK participated in preparing, publishing, and distributing a misleading medical journal article that misreported that a clinical trial of Paxil demonstrated efficacy in the treatment of depression in patients under age 18. The study failed to demonstrate efficacy. GSK sponsored dinner programs, lunch programs, spa programs, and similar activities to promote the use of Paxil in children and adolescents. GSK paid a speaker to talk to an audience of doctors and paid for the meal or spa treatment for the doctors who attended. Paxil, like other antidepressants, is a drug that can increase the risk of suicidal thinking and behavior in patients under age 18.

GSK plead guilty to misbranding Paxil and using misleading practices to promote this product.

Summary of a Department of Justice press release of Monday, July 2, 2012 (full press release available at: http://www.justice.gov/opa/pr/2012/July/12-civ-842.html).

Appendix 2

How the Breakfast Union Avoid Taxes in the US

By Jennifer Blake

The Breakfast Union Corp. is a global coffee company and coffeehouse chain with stores in more than sixty countries and thousands of employees. Despite the remarkable success of its operations, The Breakfast Union has been recently the target of criticism from several magazines and politicians. The accusation made to the company is that through a number of tax avoidance tactics, the firm has managed to ensure that it pays very little tax in the US. This is controversial because the US operations have been very successful, with sales of approximately $5bn in 2013. Companies, however, do not pay taxes on sales but on their profits and this means that The Breakfast Union has managed to pay only around $3 m in taxes thanks to the implementation of several accounting techniques that artificially lower the profitability of the organization. These accounting procedures transfer effectively the profits to jurisdictions that have lower taxes.

The Breakfast Union US decreases its profitability in order to avoid tax in three ways. The first one is the payment of royalties for the use of the brand name and other intellectual property (mostly related to its business processes and unique store design). The payment is usually around 6 % of sales and goes to another unit of the same company which is located in a country with lower corporation tax than the US. The second technique consists of inter-company loans. These loans can be a double benefit to multinationals in terms of saving on tax because the borrower will not pay taxes on the interest and the lender can be located in a country that doesn’t tax earnings from interest. The third way The Breakfast Union US saves on its tax bill is through a legal requirement to allocate some of its profits to the accounts of the subsidiaries where the product has been processed. For example, The Breakfast Union’s coffee is processed both in Switzerland and The Netherlands before being consumed in the US. This means that part of the profits generated in the US will be actually transferred to these other countries that both have lower corporation tax rates.

Critics argue that although these schemes are legal, they are explicitly designed in order to avoid tax and therefore are immoral because they allow multinationals to reduce their tax burden and give them an unfair advantage over national businesses and individuals. The Breakfast Union has replied to the accusations stating that it has done nothing wrong, that the company always respects the regulations of the countries where it operates and that it is willing to cooperate with the authorities to find solutions to any potential disputes that might emerge.

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Antonetti, P., Maklan, S. An Extended Model of Moral Outrage at Corporate Social Irresponsibility. J Bus Ethics 135, 429–444 (2016). https://doi.org/10.1007/s10551-014-2487-y

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