Freakonomics Radio - 335. Does Doing Good Give You License to Be Bad?

Episode Date: May 17, 2018

Corporate Social Responsibility programs can attract better job applicants who'll work for less money. But they also encourage employees to misbehave. Don't laugh — you too probably engage in “moral licensing,” even if you don't know it.

There's a big trend in business that you may not be aware of. It is the practice of what's called corporate social responsibility, or CSR. You have 90% of G250 companies, global Fortune 250 companies, 90% of them are now publishing annual CSR reports. So you say they're publishing annual CSR reports. Am I to infer then that they're actually doing CSR or they're just publishing reports about it? Yeah, I can't vouch for what each particular company is doing. But I would say by and large, firms are trying to do the right thing. And I think also some people think that that's a way to enhance the bottom line. That's our friend John List. And I'm an economist at the University of Chicago.

So let's just give me a quick basket, I guess, of either activities or declarations that constitute modern CSR. In other words, firms do what? What does it include? I would think about it as, you know, every dollar we earn, we give a nickel to charity or we use items that aren't produced by child workers. We're trying to make the world a better place and we're willing to even give up profits

to make the world a better place. Is that really why so many firms practice CSR? Many businesses, large and small, surely are populated by people with good intentions and pure hearts. But you can also imagine some less than pure reasons for a company to embrace CSR, maybe to make itself more appealing to customers or to shore up a fragile or damaged reputation, maybe even to balance out some questionable business practices. One of John List's predecessor economists at the University of Chicago was skeptical about CSR on an almost existential level. Milton Friedman argued CSR is a fundamentally subversive doctrine and declared that the business of business is business.

Today on Freakonomics Radio, even if the business of business is business, could it be that CSR is also good for business? Are people more likely to work for a CSR firm, or do they work harder? Or do they pay more attention to quality? We'll hear about a potential downside to all that upstanding behavior. Doing good can license people to do bad. And we'll hear your stories about balancing good behavior with bad. It's driving me up the wall, and I just don't know how to make myself stop.

From WNYC Studios, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner. John, why are you, as what I think of as a pretty free-ranging experimental economist, why are you interested in something like corporate social responsibility? It actually has really interesting roots that take you all the way back to the 19th century in Great Britain, when there was some social unrest around issues like poverty, working conditions, and child labor. And soon after that, businesses responded with what I would call an industrial welfare movement. And it's still hotly debated whether those actions were profit motivated, socially motivated, or both. And as a field experimenter, I like to go out and say,

okay, why are people doing what they're doing? And does it make the world a better place? So let's took a look at the existing CSR literature. When I entered the literature, what I read was essentially a basket of studies that focused on what I would call the demand side or how CSR affects consumers. Which means what? And what I mean by that is how consumers view our product. So people kind of think that this is firms engaging in product differentiation or perhaps it's kind of a cheap form of marketing. So how effective is CSR on those dimensions?

By and large, the literature is really mixed and there are really no real effects on the demand side. In other words, customers don't seem to care all that much. So if the goal of CSR is to, say, expand market share, it doesn't seem to be working. So I started to think, well, let's step back and ask the question, if there's no demand side effects, then why are all these firms doing it? So List came up with some questions about the supply side, meaning the companies that practice CSR and the people who work there. Yes. So that's kind of where I started my focus, you know, asking questions like, are people more likely to work for a CSR firm, or do they work harder, or do they pay more attention to quality? And when you ask those questions, then you step back and say, well, where are the firms I can partner with to try to explore

these questions about the effects of CSR on the supply side. And then it's very difficult to find research partners. So... Yeah. Let me make sure I understand this. You're saying you have these, what strike me as really interesting and good questions about the effects of CSR. And I guess what you'd want to do then is come in to, you know, let's say 10 firms and randomize them and then do a bunch of stuff, but you couldn't get firms to let you do that. Is that what you're saying? Exactly. Exactly. So, you know, you have an idea and then you say, well, how are we going to carry this out? I really don't want to do it in the lab because I don't really think that students

act like firms, but I want to do it. You can either partner with a firm or you can take matters into your own hands and create your own firm and hire real people and see exactly if people do respond to CSR incentives. So I'm confused. You actually started a firm to carry out this research? Absolutely. So our firm is called HHL Solutions. And what that means is I have two co-authors named Daniel Hedblom and Brent Hickman, and that's where the HHL comes from. So we're actually a licensed LLC to provide data collection services. Nice. And also the bonus of that is you can get the new pass-through income deduction from the new federal tax law. So bonus there. Absolutely. Something I didn't think about, but of course, something you would think about, Steve. There you go. Okay, nice. All right. So you've got this new LLC, and what is the product or good or service that you're going to provide? Yeah, so essentially what we're going to do is we're going to hire people to look at snapshots from Google Street View,

and they're going to enter the characteristics of those blocks. Okay. So we're going to do this for Uber and do this for Chicago Heights Elementary Schools as well. So there's actually real clients, and we need to hire real people to get the Google Street View into some text formats. Now, the next step, of course, is, you know, how are you going to hire people and run this as a field experiment? And what we did was we placed online job ads on Craigslist in 12 cities around the states. And to explore exactly what are the effects of CSR, what we did is across those different job ads, we varied the wages from $11 to $15 per hour. And we also varied whether the firm was a CSR firm or not. And talk to me about how

the firm's CSR was communicated and whether there was any variance in that as well. Exactly. That's key. So our CSR language was as follows. We simply stated in the ads, some of our projects are aimed at improving access to education for underprivileged children. We believe that these organizations are making the world a better place and we want to help them. OK, so what exactly is the research question you're trying to answer now in this hiring experiment? So the first question is, when we put CSR ads out there, do different types of people respond to those ads? And then secondly, after we hire them, do they work harder on the job when we give them real work for real pay? The first step in this study was to advertise the jobs without the CSR component, with the sole variable being the hourly wage.

This would help List and his colleagues determine the relationship between what the job paid and the demand for the job. Some ads, remember, offered $11 and some offered $15. And in fact, when you go from $11 to $15, you actually raise application rates by about 33%. To an economist, this was not surprising. That's exactly how supply and demand are supposed to work. But now that's important because once you see what the wage effect is, you can compare

that effect to the CSR effect. In other words, List could now offer two jobs with identical wages, with the only variable being that one ad says the company practices CSR. Some of our projects are aimed at improving access to education for underprivileged children. While the other ad says nothing about CSR. And when you compare the application rates to those two different jobs, what you find is the CSR job attracts about 33 and pay them $11, and I'm going to get the same, at least the same volume of recruits, correct? That's correct. You can use CSR to increase a pool of applicants by roughly the same magnitude is a 27% wage increase. But then I gather what you really care about in the end is the quality and the characteristics

of those employees. Was your firm real enough to measure that? Absolutely. Absolutely. And I think the real gem here is that we also attract a very different type of worker who responds to the CSR ad. People who apply for the CSR firm actually are more productive per hour for us, and they enter more data accurately. So companies that promote their CSR programs attract better job applicants. What List uncovered here was a mechanism, a very useful mechanism, that allows firms to sort potential employees. explaining exactly what kind of job it is, what kind of firm it is, is an extremely important moment for the organization to send a signal that we are this type of employer. And that is by far the most important card when it comes to attracting and keeping really good workers. it's the sorting stage. If you were a big firm CEO or head of HR, and you could sort along one of just two metrics, one is, let's call it IQ, and number two is,

let's say, sensitivity to CSR, corporate social responsibility, which do you sort along? You know, I think there's a mixture, what economists would call a convex combination. But I would say that if I had to choose one or the other, I would opt for the CSR variant, in part because if a CSR worker believes in the cause that they're working for, they will work day and night. These workers, it turned out, were 10 to 25 percent more productive than the average employee. List and his team also looked at the demographics of their employees to see what kind of person was most sensitive to the CSR appeal. The actual CSR effect itself is primarily driven by women in terms of productivity.

So what I mean by that is it's female workers who are selecting into CSR firms. They are much more productive than other workers selecting into other types of firms. So our CSR effect is entirely driven by women. Is there any reason to think that the type of CSR that your firm was promising, helping kids, may have been the driver in why it was women who seemed to respond more? Yeah, that's a great question. And I think that might be part of the explanation. But when you look at the literature, you know, a few decades worth of experiments,

what you typically find is that women are much more sensitive to cues around altruism or social pressure or doing the right thing. So I think it is much more than just wording. It's pretty remarkable if you think about it and probably goes a long way toward explaining why, as John List told us earlier, so many companies not only practice corporate social responsibility, but promote their practice of it. 90% of G250 companies, global Fortune 250 companies, 90% of them are now publishing annual CSR reports. CSR, it turns out, is a great sorting mechanism to attract not only more potential employees,

but a better class of employees who will work harder for less money. What's not to like? Well, John List, being an economist, looks at the world in terms of costs and benefits. Is it really possible for something with so many benefits to have no costs? Exactly. So he and some colleagues ran a second experiment with the following question in mind.

So I'm going to ask, can this type of approach actually backfire in some way? Did you begin with a theory or with the data? You know, we did begin with an idea that it's possible that this could work. And what I mean by working is that CSR could make people work harder for us, kind of like in our first piece of research. But we also wrote down a theory where there's this more nefarious channel where people will actually use that CSR as a license to do a bad thing. Coming up after the break, we name this phenomenon.

Yeah, that falls under the terminology of moral licensing. And we explore real-world examples, both high... By endorsing Obama, they've credentialed themselves in their eyes as a non-prejudiced individual. And low. So I use that to make my own moral equation and convince myself that it was okay to steal cheese. Why do the vast majority of companies who are in the business of making money also put so much emphasis on giving money away and being good corporate citizens. There are probably a lot of reasons. For one, maybe they just are good citizens. We don't have to be cynical about every behavior, do we? But the economist John List, using a field experiment with a real company

that he set up, found that CSR, or corporate social responsibility, also attracts more and better employees. But he also wondered if, perhaps, there's a downside to CSR. To find out, he set up a second experiment. So what we did here, and this is a field experiment with one of my postdocs, Fatima Momeni, we hired more than 1,500 workers to do a really short-term job for us. They recruited these workers using Amazon Mechanical Turk, the labor crowdsourcing marketplace. And it's really sort of a dismal job. How dismal? What we have them do is we have them transcribe images. Those images are composed of about 30 words each. The images came from German books.

So, you know, these are non-German speakers or non-German readers or writers. So we have them sit in their own home and do the job for us. The ads that recruited these workers said nothing about the employer practicing CSR. So in essence, I'm trying to shut down the channel of sorting. The CSR message would come later, once they were hired. And to make the experiment an experiment, the CSR message was randomized between two groups. So we have two identical pools of workers. One group is told, you are doing this chore and you're not only going

to be paid for it, but we're actually going to donate some of our cash to UNICEF. In another group, they're just told, please do this task and you're going to be paid for the task. And were you actually giving real money to that UNICEF project? Absolutely. Absolutely. Absolutely. All of this work here is without deception, and all the cash is donated to UNICEF. Because that would be some irony if, you know, you're trying to see if working for a good guy company makes you do bad stuff, and then you lie about giving the money to UNICEF.

And then I lie about it. Exactly. No, no. Everything's a buff board. Each worker was given 10 images of German text they were supposed to translate into English. Most of them are actually using Google Translate. If, however, they found an image to be illegible,

they could skip it. And, importantly... Importantly, regardless of whether the images that they turn in are correct or not, you receive the same payment. So if workers are getting paid the same whether or not they translate all 10 images, and if the workers are the ones to determine

whether an image is legible, well, that presents a fine opportunity to cheat, in essence, to steal from their employers. This is a topic that economists consider quite important. Yes, when you look at employee theft of either money or goods and services, it is actually enormous. It's in the billions of dollars every year. Employees steal much more money than bank robbers from banks.

A lot of times we talk about bank robbers are bad. If you really want to save your money in a bank, you should be watching out for employees, not bank robbers. When you look at data from hospitals, you just have a tremendous, tremendous amount of employee theft out there in our modern economies. So before you tell us the results, what results were you expecting? My expectations were really very simple, that CSR is going to work. And when you introduce workers to CSR, they'll work harder for you and they'll cheat much less. That was my straight-out expectation, that CSR is going to work in this setting. And then we're going to walk away and say CSR is great. And from the tone of your voice, I gather that's not the story that emerged.

Unfortunately for my firm here and for humanity, that's certainly not what emerged. What emerges is that many more people end up doing this fundamental misbehavior in the workplace of saying that the images are unreadable when they really are readable. And so this cheating is evidence to you of what exactly? What this cheating suggests is that there's something else going on within the CSR incentive that is much deeper than what my initial inclinations had me believing. My initial inclinations were that firm does a good thing, worker reciprocates to firm by working harder, and the world is a better place. Everyone's better off. But what this suggests is that there's something deeper on the psychological side that it's not just triggering

this reciprocity from workers. CSR is also triggering something deeper, which the researchers in this area call moral licensing. So people have surprisingly low standards for what counts as a moral license. That's Daniel Efren. I'm an associate professor of organizational behavior here at London Business School. Efren's definition of moral licensing is pretty simple. Doing good can license people to do bad. And when he says that people have surprisingly low standards, here's what he means.

It's not just actively doing things that feel like good deeds. People feel like they have a license when they reflect on the bad things they could have done but didn't do. For instance. So there's a study showing that when people express a hypothetical preference for purchasing environmentally friendly products over conventional products, they're more likely to lie, cheat, and steal in a subsequent laboratory task. We asked you, our Freakonomics Radio listeners, for firsthand examples of moral licensing. Hi, my name's Emily from Australia. Hi, my name's Dylan, and I'm a physical therapist in Petaluma, California.

Hi, this is Elizabeth Tilly. I'm calling from Blantyre, Malawi. I used to do some pretty spectacular moral licensing when I worked at a local supermarket as a checkout girl. And I was pretty known for kind of delivering exceptional customer service. I would you know be a personal concierge to little old ladies doing their shopping and you know the stacking was always absolutely perfectly in line and color-coded but I also imposed my own little tax on people who came through my checkout and were rude to me which was quite often I would shortchange them by a couple of dollars and keep a little tally at my till until the end of my shift when I would usually have an extra $20 to $50 and up my sleeve that note would go while I was doing my count.

So, yeah, that's some pretty naughty moral licensing. I've always felt like the profession of physical therapy is a little undervalued in the medical community, and we're a little underpaid as well. So I thought it was okay. I used that to make my own moral equation and convinced myself that it was okay to steal cheese. I used to go to the fancy grocery stores and pay for everything except for the fancy cheese that I would stuff in my pockets. And in fact, I once dated a girl who broke up with me for two reasons.

One was that she thought that I was just a little too quick to want to make a family and have babies. And number two, she couldn't handle the fact that I stole cheese. So, of course, I've grown up a little bit and stopped stealing cheese, but I still feel a little disenfranchised every now and then. The moral licensing that goes on among white people working in developing countries is astounding. Malawi is one of the poorest countries on earth, and yet people who work in development, who are ostensibly trying to improve the situation in their day-to-day lives,

have no problem haggling over vegetables for example and have no problem engaging in corruption when it comes to obtaining permits or licenses but when it comes to actually making sure that their staff or the people they interact with are paid a fair salary. They take a fairly hefty slice of moral licensing, I guess because they assume that they're doing good in their job, so it doesn't matter if they take a bribe or pay a bribe or pay 35 cents rather than 40 cents for carrots. Doing good can license people to do bad. Daniel Efron, again, from London Business School. He is a social psychologist by training. So people are torn.

On the one hand, we want to feel like reasonably ethical human beings. And on the other hand, we face a lot of temptations that would take us away from our ethical values, or at least temptations to act in ways that could call our morality into question. And so people need to kind of do this dance to balance those competing forces. They act in morally inconsistent ways. Moral licensing is one way that people balance those forces and enable themselves to not always act perfectly virtuously. Efren's contribution to the moral licensing literature dates back to 2008. So I'm a new grad student. I'm talking with a colleague of mine named Jessica Cameron about the election.

And we observed that very soon millions of Americans are going to go to the ballot box and express their support for the first African American presidential candidate nominated by a major party. And we wondered, what's the psychological effect of this going to be? Could there be any ironic consequences? Efren knew about a paper written by two of his advisors called Moral Credentials and the Expression of Prejudice, showing that when people express a non-prejudiced view, they subsequently feel more comfortable expressing other views that could seem prejudiced. And we wondered, could expressing support for

Obama have a similar effect? So we ran some studies on the Stanford campus. Here's how it worked. We collected data from Stanford undergraduates. All of them were Obama supporters. And half of them, we gave them an opportunity to identify themselves as Obama supporters. And the other half, we gave them no such opportunity. Then we asked them a difficult question. We asked them to imagine that they were the chief of police in a small town where racist attitudes against black people are common. And we said, it's time to hire a new officer.

Do you think this job is better suited for a white person, for a black person, or do you think this job is better suited for a white person, for a black person, or do you think race shouldn't be an issue in this decision? The question was designed to allow an implicit declaration of prejudice. So what we found is when people had no opportunity to express their support for Obama, the vast majority of them went with the safe answer. They said, I don't think race should be a factor in this hiring decision at all. But when people had an opportunity to express their support for Obama, they subsequently were more likely to say that they would rather hire a white person than a black person for the job. They were more likely to express this ambiguous view that could seem

prejudiced. By endorsing Obama, they've credentialed themselves in their eyes as a non-prejudiced individual, so they can express this ambiguous view without fear of feeling or appearing prejudiced. So think about charitable giving. That's John List again with another example of moral licensing. If you've just given money to a charity, you're now more likely to cheat a bit on your taxes. So in this way, when you think about what the federal government does, they sort of play right into our hands when on our tax forms, they have us list our charitable gifts. Now, what the literature suggests is that merely being reminded of a good deed

can actually induce you to misbehave on other dimensions. So, if you're rewriting the tax forms, what do you do? I definitely remove the listing of charitable gifts alongside list your income from other sources. And you have to disconnect these two things if you want to mitigate cheating. Yeah, yeah. Do you have it come last? I think I have it come all together in a different set of forms. Let me ask you this. You know, when you describe moral licensing, it resonates at least with me, but just as easily the opposite could resonate for me. In other words, if you had told me, you know, when I do a positive or a pro-social behavior, then I kind of give myself permission to do something a little bit antisocial or selfish,

right? But I could also imagine you saying that when I do a pro-social behavior, habit formation being what it is, and there's a ton of psychology on that, it should lead to more. I'm just curious if that strikes you as at all contradictory or potentially contradictory. I think potentially, absolutely. Do a good deed here. You're more likely to do a good deed tomorrow. Now, the data, by and large, don't suggest that that's true. Now, that's not to say that there aren't good types and bad types. I think we need to differentiate this argument. So one case is you have people who tend to do good things and you have other people who tend to do bad things. That's certainly true. What this is saying is that let's take a good person and remind them that, you know what, you've just done these three really good behaviors versus taking an identical good person and saying nothing. It's more likely that tomorrow the person who you reminded that they were doing good will actually do something bad versus not reminding them. That's the important thing to recognize what this literature suggests. So how does John List think

on balance that companies should think about the effects of their CSR agenda? It can importantly influence the types of workers who want to come and work for your firm. But there is a bit of caution in saying you need to put up safeguards when you use CSR because there might be this bad guy lurking around the corner who might end up causing CSR not to be as effective as what it otherwise could be. There's one more potential consequence to all the CSR that firms are practicing, a really big one, political influence. A recent working paper by four economists looked at corporate philanthropy as a form of what they call tax-exempt lobbying. They found that firms increase their charitable donations in congressional districts when those districts' representatives get seats on committees that are relevant to the firm's business. How much money are we talking about here? The economists write, quote, our estimates imply that 7.1% of total U.S. corporate charitable giving is

politically motivated, an amount that is 280% larger than annual PAC contributions and about 40% of total federal lobbying expenditures. So that's not nothing. And it feels like we should talk about this topic some more. But maybe rather than from the economist's perspective, it should be from the perspective of the companies themselves. Wouldn't it be nice to hear about corporate social responsibility from a company that takes CSR really seriously? We think of corporate responsibility very simply as the how of how we do business.

From a company that is by some measures the most charitable company in America? Sure. Well, I know that those numbers are big. Just how much is this one company giving away? In 2017, it was about $4.6 billion in in-kind product donations, around $210 million in cash grants. What industry is this company in? Interestingly, it's one that's been getting hammered by politicians of every stripe. Big Pharma manipulates the system to keep prices high. And a lot of that money that is spent lobbying Congress is to keep drug prices high.

Drug companies, frankly, are getting away with murder. I have been fighting the greed of the prescription drug industry for decades. And as far as I can tell, the pharmaceutical industry always wins. I will confess, we don't have a lot of wind at our back. A conversation with Caroline Roan, vice president of corporate responsibility for Pfizer and president of the Pfizer Foundation. That's next time on Freakonomics Radio. Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Greg Rosalski. Our staff also includes Allison Hockenberry, Merritt Jacobs, Stephanie Tam, Max Miller, Harry Huggins,

and Andy Meisenheimer. We had help this week from Louis Mitchell. The music you hear throughout the episode was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts. You should also check out our archive at Freakonomics.com, where you can stream or download every episode we've ever made. You can also read the transcripts and find links to the underlying academic research. We can be found on Twitter, Facebook, LinkedIn, or via email at radio at Freakonomics.com. Thank you.