Article in the Harvard Business Review by Professor Rosa Chun

Recently, I spoke with senior leaders at a Fortune 500 firm. It’s a leader in philanthropy, but the executives feel all their corporate giving goes unappreciated. “We do all the right things, but the public always criticizes us,” they told me. “What’s wrong?”

That’s something I hear more and more. The public has grown increasingly skeptical about the motivations behind corporate social responsibility (CSR) efforts. I don’t blame them. I believe that this is due to the discrepancy in the two dominant approaches in rationalizing why corporations should be ethical. To understand this, it’s helpful to examine some important philosophical history. Basically, corporations are acting the way the philosophical teachings of Jeremy Bentham or those of Immanuel Kant would tell them. I believe – and my research shows – they would be wise to learn some Aristotelian lessons and better incorporate the role of emotion in their CSR efforts.

A Philosophical Tour of CSR

So how is it that companies approach CSR from the duty-based philosophy of Immanuel Kant? The German philosopher argued people should act out of moral obligations. Say you see someone begging for money on the street and you don’t feel compassion for that person. You will help anyway, because you feel you have a duty to, or that it is the right thing to do. That’s coming from public pressure, but not from your true respect or empathy for that person. Corporate social responsibility efforts have this disconnect, too.

Another corporate approach which is more dominant is Jeremy Bentham’s utilitarian way. The English philosopher argued a unit-based approach; as long as the outcome is bigger than the input, the action is justified. Profit-driven organizations see CSR from the utilitarian perspective as a way of gaining a business advantage or to recover from a reputation loss.

The problem with most corporate social responsibility efforts is that these duty-based and utilitarian approaches are essentially based on rationality, albeit with contrasting motivations. The company is there to make money, but it also tries to appear to meet the public expectation of acting ethically. To customers and employees, that can simply come across as calculating and superficial. That’s why the CSR activities often don’t ring true.

There is a significant gap here. And the missing link is emotion. Companies forget emotion in CSR, and that’s why they fail.

The Aristotelian Alternative

This is where the teachings of Aristotle come in. He advocated for developing a character of virtuousness that leads to happiness for one’s self and others. He said these traits of the ideal character derive from natural internal tendencies. If they’re nurtured over time, eventually they become established.

Aristotle was writing about people. While individual philosophy has been studied and applied to corporate organizations, I wanted to explore the newer concept of organizational virtue and how to adapt it to corporate strategy.

To help understand its potential, I conducted a survey of 2,500 employees and customers of seven British services firms. It shows that organizational virtue, represented by integrity, empathy, zeal, conscientiousness, warmth, and courage, is linked to employee and customer satisfaction via identification. Think of identification as a perceived oneness or emotional attachment to the company. My findings suggest two organizational virtues are key for this. For employees, identification with a firm is driven most significantly by integrity (such as being honest, trustworthy). For customers, identification with the company is driven chiefly by empathy (such as being concerned, reassuring).

In other words, when employees perceive an organization to hold high integrity, this leads to employee identification. This emotional attachment then leads to satisfaction, and eventually differentiation (unique attributes that employees perceive as better than competing employers). Similarly, when customers perceive an organization to show strong empathy, it enhances their emotional attachment to the company. This leads to satisfaction and eventually differentiation. The emotional attachment is the important mediator of CSR success.

A key strategic implication of the research findings is that companies would be better off changing their CSR strategy from differentiation to identification. This consideration of stakeholder emotion is what makes virtue ethics distinctive from the other CSR approaches. Developing strategic virtues in the minds of stakeholders has the potential to turn positive emotion into a real competitive advantage.

When CSR Is Only Skin Deep

Let’s look at what happened in the past to a pioneering company that successfully differentiated its brand as being socially responsible. It turns out, differentiation is hard to sustain. Mergers and acquisitions are often the time when differentiation by CSR falls short. Mergers might succeed for financial reasons, but they can just as easily fail for emotional ones.

The cosmetics and skin care company, The Body Shop, long promoted its business through social and environmental campaigns. It counted opposition to animal testing on cosmetics as a core value. Then it agreed to be acquired by L’Oréal, mainly to gain financial synergies.

At the time of the acquisition, many consumers and observers questioned whether the company could maintain its ethical stance. The Body Shop received criticism for L’Oréal’s poor reputation associated with animal-tested cosmetic products. It seemed to be in polar opposite position to the brand identity of The Body Shop. The company’s reputation with customers suffered, as we’ll explore below.

This merger is a good example of how companies often try to differentiate their brand based on corporate social responsibility, believing the differentiated image will lead to a competitive advantage. However, my research applying Aristotle’s teaching on “virtue ethics” shows that the CSR-based differentiation strategy will not last if stakeholder identification with the brand is weak.

Three Steps to Change CSR Philosophy

The Fortune 500 company that doesn’t get enough return on CSR will need to change its approach. So how might companies leverage virtues to build stakeholder identification? How can they build emotional attachment with their customers and employees by being more responsible and ethical? The following steps may be useful in translating organizational integrity and empathy into consumer and employee identification.

• Renew the CSR function. Many global firms put this function under the responsibility of departments of corporate affairs or corporate social contribution. This departmentalization sends the wrong signal. Analogous to Maslow’s hierarchy of needs, ethical responsibility needs to reside at the lower level of the CSR pyramid. This needs to be fulfilled before philanthropic activities can be appreciated. When the CEO is being investigated for corruption, donations and CSR projects will not be effective. CSR strategies must be integrated into the overall corporate strategy.

• Redefine the CSR vision, but don’t oversell it. A founder’s vision is often crucial in defining a CSR-led brand but it needs to reflect reality over time. The founder of The Body Shop, Anita Roddick claimed that common values have “given it a campaigning and commercial strength and continues to set it apart from mainstream business.” This stated formula linking shared ethical value with differentiation and commercial success lost its validity and appeal with the takeover by L’Oréal. Loyal customers accused The Body Shop of not standing by its own principles.

• Promote empathy during a crisis. When Steve Jobs announced his plan to step down as CEO and appoint Tim Cook as his successor, he sent a personal letter to the Apple community through the company website. In the acquisition of The Body Shop, loyal consumers should have been reassured that the company’s core values would be left unchanged after the takeover. In contrast, bad press and falling ratings show that longtime customers were left feeling betrayed, their loyalty penalized rather than rewarded. The two situations were similar: in each, consumers and employees felt insecure about what the future would bring. Apple tried to engage the loyal customer about the bad news, and the crisis was a bonding moment for the company. During a crisis, the empathy virtue can turn a negative emotion to a positive one, altering betrayal to sympathy, anger to forgiveness, and dis-identification to identification.

The Alarm Bell for CSR Campaigns

Companies are increasingly turning to innovative CSR campaigns, community projects, and hefty charitable donations. However, my research sounds an alarm bell for those efforts to create a differentiated image that is unfortunately based on weak customer and employee identification. A global firm that won multiple CSR industry awards but has poorly perceived integrity and empathy by stakeholders should not be surprised when consumers decide to dis-identify themselves by buying less, or worse, boycotting the brand altogether.

In Aristotelian thought, virtue ethics are supposed to lead to a good outcome: happiness. A good CSR strategy should aim for happiness too. I believe corporate virtues, once nurtured and established, can lead to happy stakeholders and, ultimately, better performance. But it will take a rethinking by companies around the globe.