27
JUN
2015

Corporate Social Responsibility and the Halo Effect

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Credit: Branding Strategy Insider

Credit: Branding Strategy Insider

In a recent study by Harrison Hong of Princeton University and Inessa Liskovich of the University of Texas and reported by the Economist, a company’s corporate social responsibility efforts can reduce its liability when it is prosecuted for corruption. The study found that, “among prosecuted firms, those with the most comprehensive CSR programmes (as measured by MSCI ESG, a provider of corporate indices) tended to get more lenient penalties.” In the context of business and human rights, does this “halo effect,” as the authors characterize the phenomena, have implications for how companies address human rights in the context of their business activities? The authors note that “either eliminating a substantial labour-rights concern, such as child labour, or increasing corporate giving by about 20% results in fines that generally are 40% lower than the typical punishment for bribing foreign officials.”

The findings of this study align with how companies are subjectively perceived when human rights problems arise out of their business activities. For example, would U.S. retailer Costco get a break if it were prosecuted for health and safety violations at one of its stores in comparison to Wal-Mart, a company whose reputation vis-à-vis its workers is less than stellar? While Hong and Liskovich’s study looked at the relationship between a company’s corporate social responsibility practices and the severity of its punishment arising from the Foreign Corrupt Practices Act, extrapolating to those circumstances to where a company was found complicit in a serious human rights violation and was subsequently prosecuted or more likely, become the subject of a social media firestorm, raises interesting questions.

As companies endorse the UN Guiding Principles on Business and Human Rights, the due diligence processes they undertake may have the unintended consequence of minimizing sanctions arising out of corporate misconduct. Though some legal experts have suggested that adopting CSR practices or signing on to the UN Guiding Principles puts a company at greater risk of legal liability should the company fail to adhere to its stated policies, one could conclude that if undertaken in a meaningful way, adoption of human rights policies and the follow on due diligence practices could mitigate the degree of civil or criminal liability if it could be shown that the company earnestly sought to address the possibility of human rights harms.

Further study is necessary to better understand the relationship between voluntary compliance with the UN Guiding Principles and subsequent litigation arising from human rights misconduct, but quantifying the follow on effects of systematic human rights mitigation strategies within a corporate enterprise may lead to a more rapid adoption of these emerging human rights norms.

 

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