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Does Corporate Social Responsibility Always Result in More Ethical Decision-Making? Evidence from Product Recall Remediation

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Abstract

Recent research suggests that committing to corporate social responsibility (CSR) can induce moral licensing among employees, resulting in unethical behaviors. We extend this line of research and develop a theoretical framework to study how CSR influences managerial decision-making in crisis management. We test this theory in the context of product recall remediation. We examine under what circumstances CSR induces morally consistent or morally dubious recall remedial decisions and factors moderating this effect. We focus on two product recall remedial decisions that differ in ambiguity—full versus partial compensation and proactive versus passive recall. We predict and show that a company’s strong prior CSR performance increases the likelihood of full compensation but decreases the likelihood of a proactive recall. This finding suggests that CSR can induce moral licensing behavior at the highest corporate level when a decision is morally difficult to diagnose. Further analysis reveals that consumer harm and institutional ownership moderate the relationship between CSR and these two remediation strategies. Together, our findings provide important insights into when CSR leads to moral licensing in crisis remediation and how the link can be mitigated, and thus shed light on when CSR yields consistent and meaningful ethical business decisions.

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Notes

  1. Prior product recall research suggests that responsiveness and recovery (or remedy) are crucial to the outcomes of the recall management process (e.g., Liu et al., 2017).

  2. The literature defines a behavior’s ambiguity based on how difficult it is to diagnose what the behavior reveals about the person performing it (Mullen & Monin, 2016). In our discussions, we also describe a more diagnosable behavior as less ambiguous. Strong prior CSR leads to moral licensing when the target action (i.e., remedial strategy in recalls in our setting) is ambiguous in terms of its moral attribution (how difficult to diagnose whether the action is a moral transgression or not), and leads to moral consistency when the target action is diagnosable. The relevance of action ambiguity is discussed by Mullen and Monin (2016) regarding why and when past good deeds can induce either moral licensing or moral consistency. We apply and test it regarding CSR in recalls based on whether a remedial strategy can be easily assessed or diagnosed by outsiders.

  3. Such benefits include improved corporate image (Fombrun & Shanley, 1990), enhanced purchase intentions (Sen & Bhattacharya, 2001), increased sales (Brown & Dacin, 1997), and heightened customer satisfaction (Luo & Bhattacharya, 2006). CSR can also improve a firm’s profitability and, therefore, shareholder value (Luo & Bhattacharya, 2006) while reducing idiosyncratic risk (Peloza, 2006). CSR has also been shown to improve employee morale (Turban & Greening, 1997) and to attract more and better job applicants (Hedblom et al., 2019). Superior CSR performance also enables firms to signal better product quality (Servaes & Tamayo, 2013), adopt an improved differentiation strategy (McWilliams & Siegel, 2001; Siegel & Vitaliano, 2007), and gain easier access to financial resources (Cheng et al., 2014). Given this line of research, it is not surprising to see companies with diverse backgrounds, including many Fortune 500 companies, engage in and promote CSR initiatives (Freeman, 1984; Jones, 1995; Peloza, 2006), often at highly strategic levels (e.g., improving labor practices, reducing carbon footprints).

  4. Our study differs from List & Momeni (2021) in terms of theoretical development (we model moral licensing and consistency simultaneously and incorporate the attributes of the target decisions/actions), research design (decision-making in our setting is not in an anonymized field experiment), and implications (decision makers in our setting are executives instead of workers). We show that CSR can induce either moral consistency or moral licensing, and posit and test the boundary condition that leads different outcomes.

  5. Because Cleeren et al. (2017) provide an excellent review of research on product-harm crises in the marketing literature, we refer interested readers to their paper for a detailed and comprehensive list. We focus our review on the recall literature most relevant to our research.

  6. This line of research examines the impact of recall on consumer demand (e.g., Cleeren et al., 2013; Liu & Shankar, 2015; Marsh et al., 2004; Rubel et al., 2011; Van Heerde et al., 2007; Zhao et al., 2011), consumer perception (e.g., Cleeren et al., 2008; Dawar & Pillutla, 2000; Germann et al., 2014; Klein & Dawar, 2004; Whelan & Dawar, 2016), future product reliability (e.g., Haunschild & Rhee, 2004; Kalaignanam et al., 2013), firm financial value (e.g., Chen & Nguyen, 2013; Jarrell & Peltzman, 1985; Liu et al., 2017; Pruitt & Peterson, 1986; Thirumalai & Sinha, 2011), and competitor performance (Liu & Varki 2021).

  7. For example, Cleeren et al. (2008) show that consumer characteristics and brand advertising both influence consumers’ purchase decisions following a product-harm crisis. Liu et al. (2016) find that, besides financial cost and product hazard, the CEO’s personal interests play an important role in determining what type of remedy a recall firm will provide to consumers as compensation for defective products.

  8. Welbourne Eleazar (2022) examines how characteristics of moral issues such as consumer harm affect ethical decision-making. Our positioning of consumer harm is different in that we focus on how, in response to such moral issues, characteristics of moral decisions/actions like ambiguity affect ethical decision-making and how the effect varies conditional on characteristics of moral issues such as consumer harm.

  9. We started to collect the data in 2015, so the data ends in 2014. We also want to use recalls in the 2000s to reflect more recent trends and to avoid any complication that might resulted from using older data.

  10. The CPSC regulates the manufacture and sale of a wide variety of consumer products (more than 15,000 products), which is similar to the jurisdiction of other federal agencies such as food and drugs by the Food and Drug Administration (FDA), automobile products by the National Highway Traffic Safety Administration (NHTSA), and firearms by the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATFE).

  11. In general, there are four types of financial remedies for the CPSC recalls, besides full remedy which includes both a full refund or a free replacement for the recalled product, there are free repair, free repair kit, and discount on a future purchase (See Liu et al., 2016 for details). The difference between full and partial remedy is fundamental and conceptually important, whereas the differences among the different partial remedies are “more of varying degree” (Liu et al., 2016). Full refund or replacement is the most responsive remedy actions and are also the most expensive ones. In contrast, “partial” remedies such as free repair, consumer self-repair, and discounts for future purchase are less costly to the company and compensate consumers to a lesser extent.

  12. The most admired survey from Fortune asks executives, directors, and security analysts to rate the largest companies in their own industry. Then an overall reputation score is assigned to each company. We use the standardized reputation score of the corresponding industry for each firm (Chen et al., 2009; Fombrun and Shanley 1990; Liu et al., 2016) and use the industry average for companies that were not included in the survey.

  13. We examine the additional diagnostics to further address the concern about multicollinearity. We check the variance inflation factor (VIF) in regressions. The VIF values for all variables, including main effects and interaction effects, are well below the conventional cutoff value of 10, suggesting that our results are unlikely subject to multicollinearity.

  14. We strictly follow Kotchen and Moon (2012) and Kang et al. (2016) and use seven dimensions to generate these CSR strength and weakness indexes. We also construct CSR strength and weakness indexes using the five dimensions as in our main CSR measure. The results are quite consistent.

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Authors and Affiliations

  1. Accounting & Financial Management Services, McMaster University, Hamilton, ON, L8S 4E8, Canada

    Alfred Z. Liu

  2. Marketing Department, UNC Charlotte, 9201 University City Blvd., Charlotte, NC, 28223, USA

    Angela Xia Liu & Sangkil Moon

  3. Public Policy and Management, School of Public Affairs, Arizona State University, 411 North Central Avenue, Suite 450, Phoenix, AZ, 85004, USA

    Donald Siegel

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  3. Sangkil Moon
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Correspondence to Angela Xia Liu.

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Liu, A.Z., Liu, A.X., Moon, S. et al. Does Corporate Social Responsibility Always Result in More Ethical Decision-Making? Evidence from Product Recall Remediation. J Bus Ethics 191, 443–463 (2024). https://doi.org/10.1007/s10551-023-05467-0

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