The American economy is in the doldrums, although still, apparently, not in a recession. And, according to a new survey from the Better Business Bureau, the result is that Americans consumers have lost trust in 13 of 15 business industries. Simply put, the love is gone.
How can industries including the auto industry, car dealers, gas stations, banks and financial institutions raise their numbers and get the love back of the American Consumer?
Well Dr. Paul is here for you. And Dr. Paul wants to help you feel the love again. The good news is, it’s a simple 2-step program. But the first one’s a doozy.
Not to be flip, but if you’re a mortgage company and a big part of your business plan was to fudge the numbers and get people into mortgages they couldn’t afford… assuming you’re still in business…you need start by learning how not to screw your customers!
Now that that’s out of the way, let’s move on to step two. You need some insurance.
Among the industries whose negative numbers have risen substantially are pharmacies and department stores. Those industries aren’t guilty of gouging people or engaging in underhanded business practices, per se. They’re guilty of selling stuff to consumers during a bad economy.
What kind of insurance can you get against a bad economy?
Well in an ingenious theoretical underpinning, developed by a professor at Brigham Young University (but like yours truly, an alumnus of The University of Utah) addresses the issue of whether companies can use philanthropy to bank goodwill and, in effect, draw on it when the mine caves in or the economy tanks.
Professor Paul Godfrey, associate professor of strategy at the Marriott School of Business, looked at the issue of whether corporate philanthropy would serve that purpose in his paper published October 2005 in the Academy of Management Review. In the study, Professor Godfrey teases out a new theoretical answer to the question, “can good deeds earn chits” or IOUs?
Proposition 1a: The greater the level of consistency between philanthropic activity and a community’s ethical values, the greater the positive moral evaluation among that community.
His use of word ‘communities’ is mostly synonymous with the word ‘stakeholders.’
What he’s saying is: the more closely a company’s philanthropic activities line up with values of the company’s stakeholders the more highly that stakeholder group holds your company in esteem. If you don’t line up, then that stakeholder holds you in lower esteem.
For instance, a ‘green’ stakeholder at ExxonMobil probably doesn’t care how much money the company spends sponsoring opera.
Proposition 1b: The greater the level of opposition between philanthropic activity and a community’s ethical values, the greater the negative moral evaluation among that community.
Proposition 1c: Philanthropic activity that is neutral toward (neither consistent with nor opposed to) a community’s ethical values will generate a neutral moral evaluation among that community.
Proposition 2a: The greater the extent to which philanthropic activity is viewed by a community as a genuine manifestation of the firm’s intentions, motivations, and character, the greater the positive moral evaluation among that community.
Proposition 2b: The greater the extent to which philanthropic activity is viewed by a community as an ingratiating attempt to win favor, the greater the negative moral evaluation among that community.
Here Professor Godfrey uses ‘ingratiating’ as a pejorative. If communities think your company is cynically trying to curry their favor with certain kinds of philanthropic efforts, it can backfire on you.
Proposition 3: The greater the act-based positive moral evaluation and the greater the actor-based positive moral evaluation by a target community, the greater the positive moral capital generated by the philanthropic activity.
Proposition 4: Positive moral capital will mitigate the degradation in value firm’s relational wealth when bad acts occur.
Proposition 5: Positive moral capital will mitigate stakeholder propensities negative sanctions against the firm when bad acts occur. Specifically, levels of positive moral capital will result in fewer or less severe remedial, compensatory, or punitive sanctions against a firm by stakeholders.
The example Godfrey cites in this case is AT&T, which quit funding Planned Parenthood under pressure from pro-lifers. But the move was doubly insulting to pro-choice advocates because it looked like AT&T was never really sincere in its support.
Moreover, the change appeared to be insincere to pro-lifers, too.
Relational wealth is things like employees, brand, the trust of suppliers and partners, the legitimacy that communities and regulators ascribe to your company, etc.
Proposition 6a: Philanthropic moral capital will have the lowest Mens Rea value when it contradicts moral capital and assessments based on the firm’s behavior in other activities.
Mens Rea means “criminal intent: prior intention to commit a criminal act, without necessarily knowing that the act is a crime. For all but some minor statutory offenses, mens rea is basic to establishing the actual guilt of somebody alleged to have committed a crime.” In U.S. legal tradition a company can be found to have mens rea when a series of criteria are met.
So when Professor Godfrey refers to ‘mens rea value’ in this paper, he’s talking about the way stakeholders or communities make a judgment about a corporate misdeed. If they think mens rea exists, than their judgment about the misdeed is different than if they think it doesn’t exist.
Positive moral value created by corporate philanthropy, then, serves as a kind of “character evidence” on behalf of the company.
Proposition 6b: Philanthropic moral capital will have moderate Mens Rea value when it reinforces moral capital and assessments based on the firm’s behavior in other activities.
Proposition 6c: Philanthropic moral capital will have the highest Mens Rea value when moral capital, assessments, or evaluations of the firm’s behavior in other areas are ambiguous or unclear.
Proposition 7: The optimal level of philanthropic activity will be higher for firms with higher levels of relational wealth (in absolute or relative terms) than for firms with lower levels of relational wealth.
At Children’s Miracle Network we always knew this to be the case. It’s why when we looked for sponsors, we approached consumer-oriented companies with only a few exceptions; they were the companies with the most to gain.
Proposition 8: The optimal level of philanthropic activity will be higher for firms with higher firm-specific risk profiles than for firms with lower firm-specific risk profiles.
Proposition 9: The optimal level of philanthropic activity will be higher for firms with higher industry-specific risk profiles than for firms with lower industry-specific risk profiles.
These propositions are both intuitive as well. As Godfrey points out, when the California AGs office went after fraud in the car repair business they targeted Sears, even though there are tens of thousands of smaller operators in California, many of which employed the same practices.
Labels: ATandT, Better Business Bureau, ExxonMobil, Paul Godfrey, Paul Jones, University of Utah