When Social Good Backfires: Oscar Wylee and Goodhart's Law
Oscar Wylee, the glasses retailer, was recently fined $3.5 million by Australia’s Federal Court for misleading consumers about the extent of its social giving.
The brand had claimed to follow in the footsteps of footwear manufacturer (excuse the pun), Toms, and that it donated a pair of glasses to someone in need for every pair purchased between January 2014 and December 2018. However, during this period of time it sold 328,010 pairs of glasses but donated just 3,181, or, less than one percent.
This raises an important question about social good and corporate social responsibility (CSR) more broadly - something that has made headlines recently with both Spotify and Coinbase taking positions that have been unpopular with the far left.
Corporate Social Responsibility in 2020
Today’s Fortune 500 spends about US$20 billion a year on CSR activities, and there are two buckets of reasons why organizations choose to commit such a large sum.
- Genuine intrinsic and altruistic motivations of senior leaders and/or founders
- The influence of employees
- Productivity: one study found a 13 percent increase in productivity in response to social incentives
- Brand: improving the perception of the company within the community and especially amongst progressive-minded target customers
- Employee acquisition and retention: increasing the pool and quality of talent that wants to work for and stay at a company
- Lower wage demands: one study found that prospective workers submitted 44% lower wage bids for the same job after learning about the employer’s social responsibility
- Signaling: signaling on the part of the founders of influencers within the company for their own individual benefit
- Profit: ultimately, if you combine all of the abovementioned factors, what you get is higher profit
Of course, these are only inauthentic reasons if companies are dishonest about their intentions. But no company is explicit about using social good to support the pursuit of profit.
Oscar Wylee, founded in 2012, the company was making an estimated $21.3 million by 2020. When you account for the high profit margins of eyewear of 61%, a conservative estimate pegs Oscar Wylee’s profit at about the $10 million mark.
With customers throwing their money at Oscar Wylee instead of competitors who may appear to be less socially conscious, the company had every incentive to continue with its prosocial positioning.
But hiding lies behind the veil of social good creates problems.
How CSR Programs Backfire and Goodhart’s Law
Stephan Meier and Lea Cassar - professors of business and economics - found in an admittedly limited study on the topic, “workers may reactive negatively to firms using social initiatives to increase productivity or profits…prosocial incentives whose main goal is to increase the firm’s profit can backfire”.
They were referring specifically to employee motivations and the productivity benefit, but the moment your social good goals are directly or indirectly linked to monetary incentives, those incentives can quickly turn bad.
Famed management thinker, Peter Drucker, once said that “what gets measured gets managed”. He’s right, but he neglected to mention that what gets measured gets manipulated.
This is the essence of Goodhart’s Law, which states that when a measure becomes a target, it ceases to be a good measure. Named after British economist Charles Goodhart, this law is particularly true of social good initiatives tied to profits.
Examples of Goodhart’s Law in Action
A classic example of this is Soviet factories and the production of nails in the 20th Century. When given a weight target, the factories produced few giant nails. When given a number target, they produced many tiny nails. In both cases, the utility of these nails was limited.
If Airbnb execs focus solely on improving nights booked with an aggressive marketing and advertising campaign, they might neglect the customer experience and find that nights returned falls to zero.
If I’m a digital marketer evaluated solely based on my ability to bring traffic to a website, then I might just wind up sending thousands of bots to a site instead. Will these bots buy products from said website? Of course not - but sales aren’t tied to the marketer’s performance.
If my company has set quotas to improve diversity, then I might just end up putting people into roles of influence that aren’t qualified or competent, send confusing messages to those that are, and ultimately compromise the performance of an organization.
The Pillars of Effective Social Good
In order for social good initiatives to work, there needs to be authenticity, accountability and supplementary metrics that serve to offset the risk of one metric being manipulated.
Independent oversight over a firm’s social good activities can help to keep a company’s social good efforts in check, and signal to the public that a company is doing what it says it’s doing in an otherwise skeptical market.
This is something that B-Corporation attempts to do by accrediting organizations that meet a set criteria, however it doesn’t extend to independently auditing specific activities (such as donating one pair of glasses to someone in need for each pair sold). Such work, however, could be performed by independent accountants and auditors.
The risk of one metric being manipulated can be offset by having a host of metrics - a ‘balanced scorecard’ if you will (that takes me back to my EY days). For example, in the case of Airbnb, measuring nights booked alone is fraught with folly. But when you add nights returned, customer promoter score, and number of new referred customers, you get a fuller picture that is less susceptible to manipulation, and also gives decision makers a truer view of customer satisfaction and company performance.
First, organizations have a better chance of effectively delivering on social good initiatives if leaders and its employees are authentically aligned to the mission. This has a lot to do with the cultural DNA of an organization as well as its hiring practices. There will be less proclivity to get away with murder, as was the case at Oscar Wylee.
This is one of the reasons why I commended Coinbase’s recent stance against social justice activism. The company’s CEO, Brain Armstrong, made an off-narrative but courageous decision to take a different approach, and say that “while I think these efforts [social activism] are well intentioned, they have the potential to destroy a lot of value at most companies, both by being a distraction, and by creating internal division...even if we all agree that something is a problem, we may not agree on how to actually go solve it”.
Whatever your view on Armstrong’s decision, it was an authentic one, and I for one would rather support an authentic company that chooses to avoid signaling for the sake of it, than one that is inauthentic behind the signaling.
Social Good...Only When It’s Good for Business
We saw this play out in the NBA last year, when Houston Rockets GM, Daryl Morey, tweeted “Fight for Freedom. Stand with Hong Kong’, forcing sever backlash in China, which just so happens to be worth hundreds of millions of dollars to the NBA. Despite signaling how virtuous it has been with respect to social justice causes in the United States, the NBA quickly distanced themselves from Morey’s comments, expressing their disappointment in his remarks, despite his essentially supporting a liberal and free Hong Kong.
This ultimately raised questions about how authentic the NBA’s stance on social justice is, and whether they take a stand...only when it is safe and makes economic sense to do so.
Hong Kong protestors also voiced their disappointment in superstar LeBron James, an outspoken critic of racial injustice - “he supports totalitarianism?”, they asked, after LBJ posted an uneducated or ignorant tweet.
Inauthentic Signaling in Society
And this all speaks to broader societal goings on, today.
Virtue signaling has become par for the course for not just companies, but also individuals. Gender pronouns litter social media profiles. #BlackLivesMatter hashtags and blackout posts appear on many a white person’s Instagram feed.
And every now and again, a heterosexual person uses a rainbow filter to signal their wokeness via their Facebook profile pic.
All of these acts are good and noble if they are sincere, but more often than not, they amount to signaling for the purpose of self-promotion - “look at how virtuous I am” - at the expense of truly understanding said underlying challenges or causes, or truly doing something that will contribute to making the world a better place. It’s a case of attempting to fast track one’s sense of moral righteousness. This is no better than the inauthentic CEO that signals social good, but doesn’t deliver, in a big to boost the company’s bottom line.
Ultimately, this is not an indictment on social good initiatives. As Toms demonstrated before it discontinued its one-for-one program, it donated 100 million pairs of shoes to people in need.
If you’re going to do social good, do it for the right reasons, and...do it right.
Otherwise, like Oscar Wylee, you risk your reputation, brand, talent pipeline and profit being shattered like glass.
How I Might Be Wrong
- The studies referenced under Inauthentic Reasons are individual studies, and there is cannot be relied on as conclusive proof that social good boosts productivity or decreases wage demands.
- Even if organizations aren’t authentically on board with causes, you might argue that contributing to causes is the price they must pay to earn their social license to operate and extract value to society
- People who virtue signal are doing their bit to show solidarity with causes that they identify with, and some may do it for honest and sincere reasons and help raise awareness, despite not being able to truly contribute to the cause beyond their social media posts
- There is room for both authentic and inauthentic reasons - they are not mutually exclusive and it is likely that many companies engage in social good with one eye on both, but this is still a case of authentic social good.
Steve Glaveski is the co-founder of Collective Campus, author of Time Rich, Employee to Entrepreneur and host of the Future Squared podcast. He’s a chronic autodidact, and he’s into everything from 80s metal and high-intensity workouts to attempting to surf and do standup comedy