When Scandals Put Companies’ Social Engagement to the Test
 
Transcript generated by an AI tool and lightly edited for clarity. 

Hi, and welcome to this second Breakthroughs after our summer break. Today we welcome a heavyweight in the world of strategy. A research tackles ground societal challenges, especially in emerging markets like Brazil and India. Hi. So I am Aline Gatignon. I have just joined HSC as an associate professor in the business policy and strategy department here as of June. 
I am coming from, the Wharton School at the University of Pennsylvania. Previously done my PhD at Insead. So it's, back to home turf in a way. Yesterday was the 10 year anniversary of the worst environmental disaster in US history, the Deep water horizon oil spill that began yesterday. And over the past decade, scientists have been working to understand the impacts of that event and what lessons can be learned from it. 

As industry [00:01:00] drills and deeper places and places that are farther from the shore, these areas are much more risky. And so we could even be at greater risk of a spill like this from happening today. But do you think 2015, the world learned a shocking truth? The world's largest car maker had lied For years, Volkswagen had been cheating on emissions tests, not just a few cars, but over 11 million vehicles worldwide. 

This is the story of Dieselgate, the biggest scandal in automotive history. Some examples of the impact that BP's 2010 oil spill or Dieselgate in 2015 when big scandals hit such corporations, companies often turn to non-profits. They launch partnerships with environmental or social organizations presenting themselves as part of the solution. 

But are these collaborations genuine or just clever pr? To answer this question and more, I've come up a floor in the [00:02:00] W one building at HEC to the office 1 1 4. That's where Aline Gatignon of the strategy department is based. The associate professor has studied these questions for years now. In her recent article published by Academy of Management Journal, she and co-author Marina Gamma Show that crises can completely reshuffle the relationships between companies and nonprofits. 

The two academics check the instrumentalization of these partnerships by showing not only how firms try to use nonprofits for reputational repair, but also how nonprofits resist being used. In other words, it's not just corporations calling the shots. So, here we go. Aline. Yes. Hello.  
How are, how are you? Good. How about you? We sat at Helene's desk of a brand new office, which she has yet to settle in. Helene's still unpacking her boxes from the move from Wharton. After that, we plunged into her research paper whose [00:03:00] main title is Cross-Sector Relational Realignment after an Institutional Crisis. 

It's not an easy task. One slight twist is that there, there has been previous research that looks at, you know, what happens when a company's kind of responsible for a scandal, where there's clear case of wrongdoing from the company and then what happens to that company and potentially others in the industry, and how the relationships with NGOs might become fraught and there's more tension. 

What we're doing is a little bit different in that we're actually looking at the ripple effects of a scandal that involved. mostly government and then some private sector organizations as well. But that kind of shifted, social norms around the role of business and society and, acceptance of levels of corruption across, Brazil. 

And so after that, what we're showing is that even companies who, were only very tangentially. Affected or even potentially, not involved at all. we're really rethinking how they were gonna engage with government versus [00:04:00] NGOs, and how that was gonna be seen. And NGOs also were really, having a shift in how they were considering these relationships and being a lot more strategic and considering what the implications might be. 

Ali, you've mentioned a couple of times a major company in Brazil. So for our listeners, could you explain in simple terms what this scandal that you've brought up, which is called the Operation Car Wash, going back to 2014 in Brazil is about? Sure. So what happened was that in 2014 it was brought to light through, a police investigation into Money launderers. An incredible bribery scheme was exposed. And so what was happening was that a couple of state owned companies, especially the most iconic being Petro Brass, had schemes in place where government officials were getting kickbacks from a cartel. 

Of companies that were allowed to bid for government contracts, in exchange for those preferential conditions were then given kind of kickbacks or bribing public officials that were involved, and [00:05:00] as different parts of the investigation unfolded.  

The size of the scandal, really grew the media attention to it, and the publicization really grew. Now, the, the, the investigation itself eventually was admired in en meshed in its own scandal. and so we're very careful about kind of where we cut off the period for our analysis. What we're interested in is really not the effect of the investigation itself, but understanding how all of this information and mediatization changed social attitudes towards corporations and society. 

And, and how corporations suddenly leaned on non-profits, partnerships to, to manage, legitimacy. Yeah, absolutely. So not just legitimacy, right? Even beyond that saying, well, you know, if the government is invested in all of this, all these kinds of activities and we can't really count on them to doing their role, carrying out their, their responsibilities towards building a public institutional infrastructure, how do we work with NGOs instead to, maybe fix some of these issues? 

And then also some of them maybe from a more legitimacy building or reputational repair perspective. And that's where really we see the pushback happening. From the nonprofit perspective, hundreds of thousands of jobs lost and hundreds of executives, politicians and officials implicated the car wash, corruption scandal, explained by the Financial Times correspondence in Brazil. 

Brian Harris, Brazil's Operation Car Wash is one of the world's largest ever corruption scandals. The probe. Named after one of the businesses used to launder, the kickbacks shook Brazil to the core. Now, five years later, the effects continue to be felt with fresh arrests threatening to upset Brazil's political status quo. 

The probe implicated almost a third Brazil's 594 member Congress. The scandal brought Petrobas projects to a shuttering halt as its share price plummeted. Brazil wasn't the only country affected infrastructure projects across Latin America collapsed like dominoes. The slowdown contributed to a recession. 

How could you explain in simple terms of for breakthroughs listeners, what you mean by checking the instrumentalization of corporate nonprofit partnerships? Sure. So the title is a bit of a, a play on words because essentially what we're checking, what's going on, you know, happening and, and trying to verify that in fact, nonprofits are kind of playing their role in creating checks and balances and not being bought out by corporations in a way. 

But also that's very much what's happening, right? Because they're putting a check, on the capacity of companies to really buy reputational, repair, legitimacy and a better image, And so they have a lot more agency. and power than we typically give them credit for. 

We're at HEC and the student population here is a very international, cosmopolitan and aware body. So I asked a sample of students if they thought that these are genuine attempts to address these issues or just public relations and here are their thoughts of a small sample. So I think it's hard to answer this [00:08:00] question, black or white. 

I think it could be a bit of both, but generally I think It's hard to define because the goal of each organization is to make money, and of course if the strategy happens, they're thinking about survival as well. So it's quite important for them. But I think that there are genuinely good people who are caring about people's life, the impact that they make on the environment. 
I would guess it depends on the company, it depends on the corporate culture. Those companies who are trying to embrace the safety, the social impact, of course, they care about it. And I think they take these actions purely also from a perspective of becoming better, being better and building their future to become better. 

So, in regards to these organizations, I think it's more of a window racing because of the fair fact, we know Royal Dutch in Nigeria. It has been accused of [00:09:00] polluting, their entire region and given that it's the most dominant, petroleum company apart from Chevron others, and in fact, it has been accused of using political influences, to sort of curb the discontent, the environmentalists, et cetera. 

So, yeah, my stand is that it's more of a window dressing than a genuine, sort of responsibility to the environment. So I'm from India, and in India, like we've seen a lot of these candles play out, particularly when it comes to something like when Coke was polluting water in Carolina and they had a scam there where they, claim to, you know, not pollute the water, but the water content found pollutants above a permissible limit. 

So what these companies have often done is, essentially target. a certain notional goal of sustainable development, like, clean water by 2030. But we've also seen them play down their goals a lot. Coke has known to, you know, sort of dilute their goal or push that goal to 20 35, 20 40, whenever it's not achievable. 

Or partner with NGOs that then sort of give them a sense of credibility, whereas they're not actually [00:10:00] achieving something. The goals, they're not actionable. So in my opinion, a lot of these companies, what they're doing is just, notional. There's no real tangible impact that they're creating out of their, PR strategy. 

First of all, I would think this is more like a PR stunt. Especially because of all the bad, reputation that they get with all those issues. But then again, maybe it's some kind of reflection on the previous bad stuff they did. So therefore maybe there's like new thought that came up into the company and shift their interests to a more environmentally friendly, way of working into the company. 

The thoughts of Paulina, Arian, Manasi, and Thomas, who are, graduate students here and, from all different horizons. Eileen, your thoughts on, what they were saying. So, first of all, I hope that they will be maybe inspired to come and take my course, in the spring on stakeholder strategies for emerging markets. 

You know, the kinds of issues and really thorny questions that they've raised are really on the mark. You know, the reason that I'm fascinated about cross-sector partnerships is because they're very [00:11:00] promising, but also challenging to carry off. And so we're gonna have a range of different approaches that companies are going to take, and it's all gonna range all the way from companies who are. 

Really genuinely engaged and savvy and sophisticated in how they partner with nonprofits to make a real difference. We're gonna have companies that are maybe, genuine but not as competent or as sophisticated and might have something to learn from the first group. And then we're gonna have a range of companies who might be engaged more in greenwashing kind of PR approaches, are more interested in the image and the benefits to them than. 

Perhaps the, impact even negative on society and their nonprofit partners. And so, you know, I see my role and some of the knowledge that I'm hoping to generate and disseminate and share with our students is to just help create a group of managers and citizens and societies as a whole that is more savvy in terms of how we assess these things and can move them forward. 
Aline Gatignon, what do these companies hope to achieve by, collaborating with non-profits? So we have nonprofits [00:12:00] and we have companies who are collaborating with each other to achieve a set of, mutually consistent or congruent goals. 

And so, very often. Companies and nonprofits are going to have shared issues related to societal or, planetary issues. You know, if we have a lack of healthy labor force, or a sufficiently educated labor force, or there's a large swath of the population that is marginalized from traditional forms of employment, that's a problem for a range of organizations, but it's also one which we can solve better together. 

So, so that's, that's one angle and it's. The one that, you know, I would say that first group of organizations is, is really in, and then there's also potential reputational pr kind of benefits. There's even potentially political influence, that you can indirectly hope to gain from working with nonprofits. 

So there's a range of other aspects. There's also regulatory compliance, right? So increasingly around the world, and India is a really great example with a pioneering law in 2014 that actually, obligates firms above a certain size [00:13:00] to spend 2% of net profits on CSR every year and report what they do. 

You know, we're seeing a range of different motives from the more instrumental compliance oriented, maybe image based and all the way to the more kind of shared value creation approach. and so really understanding those different approaches and how you implement them and what the implications are for the firms and for society is really important. 
Your conclusion of your paper, shows that, this isn't the case just for Brazil, despite the fact that, your study is focused on and your data comes from Brazil. those realities in terms of corporate non-profit ties, does actually relate to a lot of crises, worldwide. You mentioned India. 

It's not just that Brazil focused. Yeah, absolutely. So I think around the world we see growing shifts in how, societies are considering the role of government, the role of businesses, the roles of nonprofits, what are the kinds of issues and challenges we need to be tackling for the future. what we consider as, corruption, what we consider is acceptable behavior [00:14:00] versus not. 

And you know, because we're studying a crisis, we can see a real shift in this ripple effect and we can analyze it empirically. some of these shifts. Happen in different places across the world and they could be caused by a lot of different scandals or other kinds of events. And it could also just be a gradual shift over time. 
but I think around the world we're seeing kind of coming to terms. With the role of business in society, and these are things that fluctuate also, and there are pendulums as well. But I think understanding that these are not the kinds of strategies you make and then you check the box and you're done. 
You really have to be aware of what's happening around you and, what expectations are and how you can meet them and maybe even advance them. Eileen are these partnerships genuine attempts to repair society or just cynical maneuvers, to buy legitimacy or I imagine it's more nuanced and complicated than either or? 

Well, I think what we're seeing in this paper is really that there are firms that are gonna fall on either side of that, but NGOs are actually quite savvy at making those distinctions. Where they have concerns that either firms will attempt to leverage them for corporate political influence or reputational repairs, or they think that there's just a high risk because of the nature of what those NGOs do and who they are, that society might just scrutinize them more for it and maybe levy those kinds of accusations founded or not. 

Then they're really gonna push back. And, have they become more savvy over time? Is there a real, development on the nonprofits organization side? Yeah, certainly in, in our article, you know, in the Brazilian context, we leverage a lot of qualitative data. the patterns that we observe certainly are consistent with that idea. 

That there's a real kind of rethinking about the ethics of who you're accepting donations from, and who you're partnering with. And I think moreover, as the phenomenon of cross-sector partnerships develops, then we're getting, you know, managers on both sides that are just a lot more sophisticated and experienced. 

And so I think there's, you know, a lot more that can be done there. Mm-hmm. What risks do nonprofits, run. When they collaborate, with these, corporations in a moment of [00:16:00] crisis. So they risk losing their social license to operate their legitimacy, the trust of the public, their members. They also risked, you know, being put in situations where they're being asked to compromise their mission, in ways that might serve the, the corporate interests, but not necessarily the ones of their beneficiaries. 

They might even face, something like Mission Drift, right? Where they have a certain set of vision, objectives, milestones, et cetera, and they're being pushed to take a different direction or engage in different kinds of activities or expand. The kinds of things that they do in order to attract, say, donor funding, or to meet the expectations or pressures of their corporate partners and end up straying from their mission. 

So these are all things that, you know, nonprofits are very aware of, but you do have examples where they are, empowered by these partnerships. the partnership really makes them grow in some ways. And, there's been positive outcomes. Oh yeah, absolutely. I mean, that's what I'm most interested, in kind of identifying in my work and trying to figure out how those best practices can be [00:17:00] disseminated and shared. 

One of my other articles, in the strategic management journal looks at, with Vin, how Brazilian Cosmetics Company Naura developed its supply chain, including. Developing cosmetics products from the biodiversity, from the Amazon rainforest, et cetera, in collaboration with partners, across a range of, nonprofit organizations, local communities, governments, et cetera. 
and also downstream, right? Working with. Often women who are marginalized from the traditional labor force and actually helping them become micro entrepreneurs and new opportunities in terms of education, access to credit, et cetera. And so these are very successful attempts and you know, we show it qualitatively in our paper and Leo Pon Loop, my former colleague at Wharton and Anita McKay, and have a paper in Management science where they actually can demonstrate empirically that Naura is collaboration with communities in the Brazilian Amazon. 

Brazil's largest cosmetics manufacturer has committed to reaching carbon neutrality throughout its entire value chain, Natura cosmetics, [00:18:00] carbon neutral program. As described by the UN Climate Change team, Natura has switched their packaging to be from renewable and recycled sources while significantly reducing their emissions. 

If you look at current or future. Crises, around climate scandals or tech privacy violations and so on. Do you expect the same kind of, nonprofit realignment? I think the more relevant comparison is not in kinds of company specific scandals, but rather in terms of events that come to light that really undermine public trust in the government and business. 
Right? And so in that case, we're going to see often a shift towards more emphasis on, What can the nonprofit sector, civil society, the third sector, bring to the table in order to help us fix this? And how can we turn towards them? and so there are all kinds of situations you can imagine where that can happen, right? 

So, corruption scandals are certainly rife all over the world. You know, concerns about due process and even, you know, backsliding in democracies or takeovers, by media or. Technology, [00:19:00] et cetera, all of these things. If these new developments cause us to lose trust in government and business, then we would likely see these kinds of shifts in light of that. 
So do you see an important role for international bodies like the United Nations? To try and find a common policy to monitor and perhaps encourage, more responsible partnerships between corporation and nonprofits or there outside of the picture completely. So I think if we're thinking about how can we develop a body of knowledge about what are best practices for partnering and how can we disseminate that and how can we ensure that. 

Partnerships that are developing are really kind of following those best practices. I think there's a role for international organizations, there's a role for education institutions like this one, there's a role for, managers in ongoing development opportunities. so I think there's a role for everyone, I guess from somebody who studies partnerships that's, that's probably not surprising, but I think we, this is a big undertaking and I think that the more we can work together on it, the better. 

Well, here are some ideas that the same students put forward to try and perhaps resolve or address these challenges. And maybe the CEOs out there, I can listen out to some of them. Think about sustainability instead of having notional goals, Unilever actually sets tangible goals like living wages for everyone in their supply chain by 2026. 

And living wages is then defined through global standards. So it's not something that they define and it's not a pledge or it's not a sign. When you create actionable or tangible goals like this, I think it's a lot more achievable. The second thing that Unilever also does is, let's say plastic free packaging. 

So they have different goals for rigids and flexibles. So for rigid plastic packaging, they have a different goal, and for a flexible packaging, they have a different goal. So what this does is also makes it realistic and achievable. Let's say I say plastic free, but I don't achieve that by 2030. That's worse than having, let's say a later goal for flexibles, which is much harder to eradicate. 

So I think balancing out your goals in a way that it's phased in, in timelines is a much better approach to managing pr. so first of all, I would just [00:21:00] acknowledge the fault that you did. And then just completely shift your interest to really redesign your research to come up with more eco-friendly solutions and just be genuine to it. 
And I think you can't do less than just be genuine and. Put in the effort to make the shift, and then you just have to convince the audience that you are genuine. but yeah, I think it's very difficult. So PR. It's a very big part of that, but just come across genuine and acknowledge your fault is, I think, the way to go. 

the push has to come from the policy makers. Sadly speaking is not the case in, at least in US and its other countries. So I think a political push is what is needed to complement the existing operations processes towards sustainable and safer future. I think they're becoming better so far as they've seen Volkswagen is doing a lot of ESG campaigns to become more sustainable. 

I think they're doing better. This time it was, Manasi starting, the exchange. Then Thomas, and we heard from Arian. And finally, Paulina, Eileen, Tino, your thoughts on such approaches? Yeah, I think there's not one magic bullet, right? so we heard about, for instance, the importance of setting goals. 

A lot of what I study are a step back, right? So a kind of intermediate step is saying, well, what are the shared problems that we have and how, what are the different sets of competencies, resources, networks, expertise, et cetera, that different organizations from different sectors and at different scales can actually bring to the table. 

And by combining them. Through, strong coordination and governance. How can we actually come up with something better than we would've been able to come up with on our own and then scale up that solution? A lot of what I focus on in my research is what are the governance, the design principles that we can derive from successful partnerships that can actually be useful across a range of different settings. 

What other advice would you give, to, NGOs especially to build resilience and legitimacy without falling into this trap of, instrumentalization? So I think part of it is finding the right partner and identifying the common problems that you have that you can actually genuinely engage with them to solve. 

And then designing governance processes that don't leave all the power in the hands of the corporate partner. Creating, task interdependence so that joint teams are really putting their heads together. Combining their different approaches and contrasting them and coming up with new solutions, making sure that, the reporting requirements for instance, aren't all being directed by the corporate partner. 

That these are things that are set up and understood exe. And then that you have, you know, a good relationship and participatory processes going forward that are gonna build trust. And I think another thing that's really important that comes out of our study with Marina is to consider as a nonprofit. 

You know, what are the characteristics or the resources that you have that might be put at risk or that might be instrumentalized by a nonprofit partner who might not be as genuine in terms of their engagement with the problems that, that you're trying to tackle? Un, your paper are saying [00:24:00] that there's still much work to be done on these issues. 

You've mentioned a few of those, I mean, where does your research go from here in this field? one follow-up project that Marina and I are currently working on is trying to understand, the flip side of the coin is what happens when, autocratic governments, start attacking NGOs, right? 
And then do we actually get a reversal of these kinds of effects? Do corporations step back or do they actually step up and ally With nonprofits and try to mitigate a democratic backslide. that's one thing that we're looking at.

I'm not sure, but obviously it fits that, question. Yeah, it could definitely be in a lot of different places, different parts of the world. Right now, this is a follow-up study looking at Brazil, and so we're looking at attacks by, former president, Jay Bolsonaro. Against the nonprofit sector in kind of a subsequent period following the period that we're analyzing in this paper. 

Very topical. do you have other current research projects, that you'd like to share with us? sure. So I have a whole series of projects that are looking at this CSR law in [00:25:00] India that I was mentioning. I have a first paper that was published in the Strategic Management Journal with Christiana Bode looking at, you know, after this law. 

What did companies actually do with these funds that they had to spend? What are the choices that they made? Why might they have made those? And what are the potential implications both for, you know, the firm's kind of strategic distinctiveness, but also from a kind of societal perspective? And a lot of the choices that we found many firms were making are suboptimal, unfortunately, both from the perspective of, the firm and society. 

And so we have two follow up projects that we're really looking at. what can actually move the needle? what is actually changing the way that firms are engaging in CSR in this setting? one of them is looking at, when your headquarters location is hit by a natural disaster, do you actually rethink the type of CSR that you're doing or the kinds of partners that you might be engaging with? 

is that an opportunity to kind of step up again? And actually become more sophisticated in how you're doing your CSR and how you're thinking about this. Or is it actually a time when companies tend to retrench and step away from, these kind of more messy strategic problems? We're also looking in a different paper at what is the interaction between kind of political or electoral campaigns and dynamics and CSR. 

So when again, there's an election, in your headquarter state, do you start redirecting. More CSR towards that area in an effort to actually carry political influence. And I think this is where there's a nice kind of connection with, the work on Brazil. and trying to understand, does that actually change the nature of your CSR in ways that might potentially be problematic in terms of either helping to gain political favor in ways that might, create a competitive disadvantage for others. 

Or, you know, also if you start a bunch of new projects because there's an election. Well, if those stop right after the election, then that leaves a lot of nonprofits or beneficiaries in the lurch. So what does that mean and what does it look like? Fascinating topics, and we're very much looking forward to their publications and coming back for you to explain behind the scenes exactly what the outcomes of your work has brought you.

Thank you, very much Aline. thank you. Breakthroughs on knowledge at HC Podcast. Alene ga, the newly appointed associate professor in the business Policy and Strategy departments here at HEC Paris. Her research continues to be in the context of cosmetics and banking in Brazil, as well as healthcare partnerships in Africa, Latin America, and Asia Fields, which we hope to explore with her in the near future. 

Well that wraps it up for this month's breakthroughs. The HEC podcast team is always happy for your feedback, so keep sending it to Brown D in one word at hec.fr. That's brown D at hec.fr. For the most entertaining letters, we'll send you an HEC gift and dimension in our next program. Goodbye.