Year in Review: New Research on the Good, the Bad and the Ugly in Corporate Ethics and Social Responsibility.

Are women more ethical in business than men? Does corporate social responsibility boost shareholder value? What pushes otherwise honest public officials toward corruption?
These were just some of the questions that Berkeley-Haas scholars explored in 2013 through detailed empirical studies. Before closing the books on the year, we wanted to revisit a sampling of work that shed new light on the interplay between business, economics, ethics and social impact.

I. Men are more willing than women to sacrifice ethical values for money and social status. An eye-opening study by researchers at Berkeley-Haas found that women are more outraged than men about ethical compromises, less likely to take jobs that entail such compromises, and more likely to turn away from business careers because of moral concerns. The study came from Laura Kray of Berkeley-Haas and Jessica A. Kennedy, a doctoral candidate at Berkeley-Haas who is now at the University of Pennsylvania. The researchers posed a raft of questions to undergraduate students about specific ethical breaches in job situations. The students’ answers indicated both a significant gender gap on ethical issues and that women’s ethical concerns are one reason that women remain underrepresented in business schools. The paper attracted widespread media interest – see here, here and here. Harvard Business Review called the study a “disturbing experiment.”

II. Corporate fraud is much more extensive than it appears. For every case of corporate fraud that gets detected, another three go unnoticed, according to a study by Adair Morse of Berkeley-Haas, I.J. Alexander Dyck at the University of Toronto and Luigi Zingales at the University of Chicago. The researchers examined companies that were forced to change auditors after the collapse of Arthur Anderson in 2002. The switch in auditors produced a huge increase in fraud detection. All told, the researchers estimate that about 14.5 percent of publicly-traded U.S. companies engage in fraud that would attract shareholder lawsuits if it were detected.

III. Corruption and Low Self-Esteem Feed Each Other. Ernesto Dal Bó, professor of political economy at Berkeley-Haas, has spent much of his career studying the interplay between economic forces, political failure and corruption. In his latest contribution, he teamed up with Marko Terviö at Aalto University in Finland to shed light on how corruption and low self-esteem can trigger a downward spiral. A person who succumbs to the temptation of wrong-doing, they contend, loses the pride and “moral capital’’ that comes with integrity. That lower self-image makes a person more likely to succumb again. An economic shock can aggravate the spiral. “Bad actions destroy moral capital and lock in further wrongdoing,” Dal Bó and Terviö conclude. “Economic shocks that result in higher temptations have long-lasting effects on wrong-doing.” The researchers then outline conditions that help people shore up their “introspective reputations” and their dispositions to do good.

IV. More than half of fast-food workers are so poorly paid that their families rely on public assistance. The cost of those benefits, from food stamps to Medicaid, is about $7 billion. Those were the stunning findings of a study led by researchers at UC Berkeley’s Center for Labor Research and Education. Coming amid a widespread debate about raising the minimum wage, the study attracted a storm of attention. Even Forbes, a staunchly pro-business publication, cited the study to argue for that a higher minimum wage is good for shareholders as well as taxpayers.

V. The United States has the least generous or progressive income-transfer system of any nation in the developed world. Laura Tyson, director of the Institute for Business and Social Impact, argued in Project Syndicate that U.S. economic policies over the past 30 years have aggravated that inequality. Writing in the New York Times, Tyson also outlined the compelling evidence that a higher minimum wage would NOT raise unemployment and would be good for the economy.

VI. Shareholders reward companies that adopt corporate social responsibility programs. Caroline Flammer at the University of Western Ontario’s Ivey Business School found that the financial performance of companies increases sharply right after shareholders approve proposals on corporate social responsibility programs by a narrow margin of votes. Flammer won the 2013 Moskowitz Prize for Socially Responsible Investing, awarded by the Berkeley-Haas Center for Responsible Business.

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