Study: Evaluators tend to favor financial performance over contributions to corporate ethics

A study co-authored by a researcher at Johns Hopkins University's Carey Business School suggests that during employee reviews, evaluators prioritize financial performance over corporate social responsibility, even when evaluators are asked to value corporate social responsibility more highly.

In the study, evaluators used a balanced scorecard, a popular evaluation tool for appraising and reviewing employee performances. Evaluators tended to award high ratings and bonuses to employees who performed well financially—with high "bottom lines"—rather than to those who scored well in corporate social responsibility, which includes sustainable business practices, the attraction and promotion of women and ethnic minorities, fair and responsible lending and pricing, and community service.

Not only were these measures deemed less relevant, they also were considered dispensable parts of the evaluation.

Associate Professor Lasse Mertins of the Carey Business School and two colleagues from the University of Baltimore—Regina Bento and Lourdes White—say their study in the Journal of Business Ethics is among the first to examine how ideology and corporate social responsibility, or CSR, considerations in the balanced scorecard affect employee evaluations and bonuses. Further research, they say, should address "how ideology influences the degree to which evaluators use their own mental models or see themselves as agents of shareholders, responsible for representing where shareholders stand in regard to CSR."

For the study, the team conducted two experiments. First, performance evaluators were told the CEO of the company requested a strong emphasis on CSR initiatives. Despite this preference by the CEO, the researchers write, the participants "perceived CSR performance measures as less relevant for performance evaluation. Furthermore, they considered CSR performance data [as] 'information overload' and were willing to drop this information from the evaluation form."

The authors note that including CSR measures in a performance review "does not necessarily mean that evaluators will care about them."

In the second experiment, the participants themselves were found to favor either a "stakeholder view," which stresses ethics and social responsibility, or a "stockholder view," which assigns a lesser ranking to CSR principles and instead emphasizes financial performance. They were given a case showing performance measures for two bank managers—"Madison," who showed a superior financial performance but an inferior CSR performance, and "Brown," whose results were opposite from Madison's in those two categories.

Still, the researchers concluded, evaluators did not tend to be particularly generous in their appraisals or awarding of bonuses, even when their own ideologies—stockholder or stakeholder—correlated with the performance of either Madison or Brown. Instead, they were likely to penalize the bank managers for falling short in the area, financial or CSR, that was of greater importance to the evaluators.

The study authors suggest that business education programs could play a major role in making ethics and CSR considerations a regular facet of corporate decision making. Particularly, the authors state, such training could help business students become more aware of their own views and bias regarding corporate social responsibility and gain an understanding of how these attitudes might affect their perceptions of CSR's relevance in the workplace.

Posted in Politics+Society

Tagged business, ethics