Remedial Actions After Corporate Social Irresponsibility

Abstract

We examine whether firms take remedial actions in response to 461 major violations between 2000 and 2020 of (i) environmental law; (ii) labor laws associated with wage theft, workplace safety, and discrimination based on race, gender, age, or disability; 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. Even after an environmental violation, firms are less likely to invest in direct environment related remedial actions but more likely to take investor focused actions such as stock buybacks or employee targeted actions. 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 more effective in reducing future violations. In summary, this study uses granular data to shed light on the nuanced ways in which firms respond to corporate social irresponsibility.