The Moral Disillusionment Model of Organizational Transgressions Ethical Transgressions Trigger More Negative Reactions from Consumers When Committed by Nonprofits

We tested whether the impact of an organizational transgression on consumer sentiment differs depending on whether the organization is a nonprofit. Competing hypotheses were tested: (1) that people expect higher ethical standards from a nonprofit than a commercial organization, and so having this expectation violated generates a harsher response (the moral disillusionment hypothesis) and (2) that a nonprofit's reputation as a moral entity buffers it against the negative consequences of transgressions (the moral insurance hypothesis). In three experiments (collective N = 1372) participants were told that an organization had engaged in fraud (Study 1), exploitation of women (Study 2), or unethical labor practices (Study 3). Consistent with the moral disillusionment hypothesis, decreases in consumer trust post-transgression were greater when the organization was described as nonprofit (compared to a commercial entity), an effect that was mediated by expectancy violations. This drop in trust then flowed through to consumer intentions (Study 1) and consumer word of mouth intentions (Studies 2 and 3). No support was found for the moral insurance hypothesis. Results confirm that nonprofits are penalized more harshly than commercial organizations when they breach consumer trust.

Automated summary

Through three experiments, it was found that consumer trust decreases more significantly when an organization is described as a nonprofit, possibly due to higher ethical expectations people have for nonprofits. This drop in trust affects consumer intentions and word of mouth intentions. No evidence was found to support the idea that a nonprofit's moral reputation can protect it from negative consequences of transgressions.