Does social responsibility protect the company name?

Negative information about businesses is omnipresent. Even much-admired businesses, such as Apple Inc., must deal with negative information, as Apple discovered when consumer complaints surfaced in 2010 about the antenna design of its iPhone 4. Negative information tends to spread faster than positive and, because of increased usage of social media and the Internet, businesses are likely to be confronted with more — not less — negative information about their companies in the future. While a business may not always be able to control the spread of negative information, it can try to mitigate the potential damage from negative information in different ways.

An increasing number of companies invest money in corporate social responsibility initiatives, in part to build general goodwill for their organizations. However, it's not clear how effective corporate social responsibility initiatives are in strengthening customer resistance to negative information, compared to other tactics that can enhance a company's reputation, such as investing in product or service quality or customer care. Does doing good help protect a business's reputation against negative information it may be confronted with in the future?

Not completely, suggests some recent research, conducted by researchers at MIT, Michigan State University, and IE Business School in Madrid. The survey asked 854 customers of a commercial bank about their opinions of the company and how they would react to negative information about it. The results of the survey showed that the company's reputation for corporate social responsibility had a greater effect on consumers' willingness to overlook negative information about the company than did the company's reputation for being customer-oriented (defined as the extent to which a business is viewed as being caring and attentive to customer needs) or for being oriented toward service quality. These results suggest that a dollar invested in corporate social responsibility initiatives would buy greater insurance against negative information than a dollar invested in either service-quality orientation or customer orientation.

Despite the positive impact of corporate social responsibility on customer resilience to negative information, further results tells a cautionary tale. In a second experiment involving 133 participants, researchers exposed customers to negative information of specific types, relating to a company's corporate social responsibility, service quality orientation or customer orientation. In this second experiment, a reputation for corporate social responsibility did not protect a service business against negative information related to service quality or concern for customers; what it did was help protect a company's reputation more narrowly against negative information related to corporate social responsibility. Something similar held true for service quality and customer orientation as well. Customers who began with a high opinion of an organization's customer care, for example, were less likely to be influenced by new negative information about the organization's customer care.

In light of this research, businesses should not expect investments in corporate social responsibility to provide blanket insurance against any negative information they may be faced with in the future. Corporate social responsibility is more effective in strengthening customer resistance to negative information when the majority of customers have low levels of service-related or product-related expertise. In the case of expert customers, however, a company's reputation for good quality has a stronger influence on customers' resistance to negative information than corporate social responsibility does.

© Massachusetts Institute of Technology, 2011