Can Mandating Corporate Social Responsibility Backfire?

Corporations have enormous influence on society. Progressive policymakers and scholars increasingly advocate for corporations to be required to consider those influences on society—a corporate social responsibility (CSR) mandate. The now‐predominant view is that merely allowing directors to consider society (a permissive regime) is ineffective. This article suggests that a CSR mandate could backfire by reducing the reputational rewards to pro‐social corporate acts. If stakeholders (customers, employees, investors) believe that corporations are legally required to do good, they might reward corporate good behavior less (“they had to do it anyway”). In contrast, if firms are merely allowed to act pro‐socially, stakeholders might provide greater rewards (“they chose to do it”). These reputational rewards matter because the business judgment rule precludes formal enforcement of a CSR mandate. Reputational and moral considerations alone must motivate pro‐social corporate acts. Using two preregistered laboratory studies with more than 500 participants, the article finds empirical support for the backfiring hypothesis: rewards for pro‐social action were greater under a permissive regime than under a mandatory one. In a third incentive‐compatible and preregistered experiment with more than 400 participants, the article further finds that the moral force of the mandate does not compensate for these reduced reputational rewards. Once participants know the mandate is unenforceable, they do not act more pro‐socially under the mandate than under the permissive regime. These results suggest a previously unrecognized benefit to the permissive regime. But the studies also suggest an unrecognized benefit to the mandate: reputational penalties for misbehavior can be greater under the mandate than under the permissive regime. Further study is necessary to determine which regime better motivates pro‐social corporate behavior. In weighing the options, this article illustrates the importance of considering reputational benefits and costs and explores how proposed statutory regimes can influence both. Changes in societal expectations and norms will determine our path forward and legal reform is but one avenue for such change.