Remedial Actions After Corporate Social Irresponsibility

Abstract

We examine whether firms take remedial actions in response to major violations of (i) environmental law; (ii) labor laws associated with wage theft, workplace safety, and discrimination; and (iii) consumer safety rules. To empirically address this question, we construct a novel, hand-collected dataset of remedial actions taken by firms, based on hand-classification of 10,270 press releases, in the years preceding and subsequent to a major violation (e.g., an oil spill or a major labor lawsuit verdict). Regardless of whether the firm is exposed for environmental or social (labor and customer) violations, remedial actions seem to focus on customers and employees, especially women. Remedial actions in response to violations occur more frequently in more diverse workplaces. In terms of consequences, the effect of remedial actions on recidivism varies with the type of underlying violation: after an environmental violation, only direct environment-focused remedial actions (but not any type of action targeting investors, customers, or employees) are correlated with a reduction in future environmental violations. Conversely, after a social violation, indirect actions – especially those targeted at consumers – appear to be correlated with fewer future violations.

Keywords: reputation repair, corporate social responsibility, ESG, labor violation, environmental violation

JEL Classification: M14, G23, G34, M41