The pitfalls of corporate social irresponsibility: Hypocrisy of family firms in South Korea

Abstract

Corporate hypocrisy poses a significant risk to businesses striving for sustainable management. Stakeholders' increasing interest in ESG (environmental, social, and governance) activities and easy access to information makes maintaining authenticity essential. Any firm caught in hypocrisy risks losing stakeholder trust and damaging its legitimacy. Family firms willing to preserve socioemotional wealth are more susceptible to hypocrisy than general firms due to the family's significant influence on decision-making, including CEO (chief executive officer) turnover and legitimacy crises. This study examined the impact of CSIR (corporate social irresponsibility) on sustainability in two South Korean companies and assessed how internal factors (e.g., CEO turnover and succession) and external factors (e.g., market competition and environmental dynamism) influenced them. To this end, we employed a case study as the central methodology and conducted text mining, interviews, and financial analysis through content analysis. Our first finding is that CSIR negatively affects financial and non-financial performance in family firms. Second, family firms must make genuine efforts to restore their legitimacy. As per the moderation effect of CEO succession, the pivotal consideration is appointing an external CEO rather than whether the subsequent CEO is a family member. Beta chose an external CEO who was a family member, while Alpha selected a long-time company insider who was not a family member as the succeeding CEO. Alpha, which designated an internal nonfamily CEO after the CEO succession, demonstrated a financial performance resilience inferior to Beta. Third, firms must communicate promptly with stakeholders in external conditions. With internationalization and digitalization, stakeholders enjoy a greater array of choices, and the evolution of public media has heightened the prominence of CSIR. The diminishing reliance of stakeholders on a particular company, the active articulation of opinions, and enhanced knowledge magnify the impact of a company's CSIR on the sustainability of family firms.