Do Firms' Profit Motives for Doing Good Matter to Employees?
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Doing Well While Doing Good: Do Firms' Profit Motives for Doing Good Matter to Employees? FARAH M. ARSHAD The University of Manchester JOEL W. BERGE The Norwegian School of Economics Preliminary Version PLEASE DO NOT DISTRIBUTE WITHOUT PERMISSION We appreciate helpful comments from Ivar Kolstad, Alexandra Van den Abbeele, Marcus Arnold, Lars Ivar Oppedal Berge, Eddy Cardinaels, Bart Dierynck, Christoph Hörner, Wim van der Stede, and Lars Jacob Tynes Pedersen. We would also like to thank participants at the Doctoral Colloquium at the 2019 EAA conference in Paphos, Cyprus, and comments received during our Brown Bag seminars at Tilburg University and NHH. We also gratefully acknowledge the financial support from the Center of Ethics and Economics (CEE) and Internal Funds at NHH (MØST). Hypotheses are pre-registered with aspredicted.org and are available upon request. Doing Well While Doing Good: Do Firms' Profit Motives for Doing Good Matter to Employees? ABSTRACT Many firms are increasingly engaging in a win-win approach to corporate social responsibility (CSR), whereby their charitable efforts also reap business profits. In this paper, we use two experimental studies to investigate whether the win-win approach to CSR has consequences for employee opportunism in firms compared to a more traditional philanthropic approach to CSR with no profit motive. In Study 1, we find that people perceive employee opportunism to be more likely in firms that engage in win-win CSR compared to philanthropic CSR. In Study 2, we conduct a large-scale field experiment with 1,500 online employees to investigate the effect of CSR choices on actual employee opportunism. Despite finding significant changes in employees' perceptions of their employer, we find that neither win-win CSR nor philanthropic CSR affects employee opportunism compared to the baseline. Instead, we find that engaging in win-win CSR significantly increases employee turnover-rate compared to philanthropic CSR. Further analysis shows that engaging in CSR affects employees' perceptions of multiple aspects of the firm that together have offsetting effects on actual employee opportunism. Collectively, our results suggest that engaging in win-win CSR compared to philanthropic CSR undermines the positive perceptions of engaging in CSR and reduces the firm's attractiveness as an employer but does not seem to affect actual opportunistic employee behavior. Keywords: corporate social responsibility (CSR); profit motive; perceptions; employee opportunism JEL-Classifications: D01, C93, D82, M41, M59 1. INTRODUCTION There has been an extensive debate around what constitutes firms' social responsibility over the years (Friedman, Mackey, & Rodgers, 2005; Moser & Martin, 2012). One of the earliest arguments is by Friedman who famously proposed that the "firm's social responsibility is to increase its profits" (Friedman, 1970). Others have argued that firms have a broad set of stakeholders and therefore have a responsibility to sacrifice some of its profit to increase social welfare (Carroll, 1999). This philanthropic approach to corporate social responsibility (CSR) has been shown to affect employee behavior (Balakrishnan, Sprinkle, & Williamson, 2011; Burbano & Chiles, 2018; List & Momeni, 2017). More recently, researchers propose that firms can find ways in which their charitable efforts are also beneficial to the firm, such that they can "do well while doing good" (Porter & Kramer, 2011). This win-win approach to CSR has also been adopted by many firms such as Google, Nestlé, Pepsi, Unilever, and Walmart. Despite its popularity, however, there is little research on the consequences of engaging in win-win CSR compared to other approaches to CSR. Previous research suggests that people discount efforts that realize benefits for both charity and business (Benabou & Tirole, 2010), and might even perceive them worse than analogous behaviors that only produce charitable benefit (Newman & Cain, 2014), i.e., a "tainted altruism" effect. However, we do not know whether these unfavorable perceptions regarding a firm engaging in win-win CSR extend to people's perceptions about the extent to which employees of such a firm are also opportunistic. We, therefore, first conduct a survey experiment with 300 participants to investigate whether a hypothetical firm's choice of CSR affects people's perception of likelihood of employee opportunism in such a firm (Study 1). Results show that participants perceive that employees are more likely to misreport information to benefit themselves when the firm does win-win CSR compared philanthropic CSR. Employee misreporting when the firm does win-win CSR is perceived as equally likely to when the firm does no CSR. Moreover, our results show that people's perceptions of the firm that engages in win-win CSR mediate perceptions of the likelihood of employee misreporting in such a firm. Interestingly, while we do find that, in line with Newman and Cain (2014), participants' perception of the firm is more favorable in the philanthropic CSR condition compared to both win-win CSR condition and control condition with no CSR, we do not find support for the "tainted altruism" effect. In fact, we find that 1 participants perceive the firm as slightly more moral if it engages in win-win CSR compared to no CSR but equally opportunistic. Based on the findings of Study 1, it seems that win-win CSR affects perceptions of employee opportunism. However, it is not clear whether actual behavior would match these perceptions such that win-win CSR also impacts actual employee opportunism compared to other approaches to CSR. We, therefore, next conducted a large-scale field experiment to further investigate the effect of win-win CSR on actual employee opportunistic behavior (Study 2). We used Amazon Mechanical Turk (MTurk) to hire 1,500 online employees to work for a real firm and paid the employees to work on a set of tasks relevant to the firm. Employees who accepted the job offer were provided with information about three different initiatives recently undertaken by the employer. Depending on the experimental condition, employees read about either (1) a marketing campaign in a local newspaper (NO_CSR), (2) a philanthropic donation to a non-profit organization (CSR), or (3) a win-win CSR initiative together with the same non-profit organization (WIN_CSR). In contrast to the hypothetical setting in Study 1, these descriptions portrayed actual initiatives undertaken by the employer. While working for the firm, we measured four types of employee behavior: misreporting, shirking, volunteering, and turnover. We pre-registered a set of hypotheses that draw on the experimental research suggesting that the extent to which individuals' feel bad about acting selfishly towards other individuals depends on their perceptions about these individuals (Tella, Perez-Truglia, Babino, & Sigman, 2015). For instance, an employee would likely feel worse about misreporting to an employer she/he perceives as highly moral and unselfish compared to an employer she/he perceives as immoral and selfish. We posited that employees would feel worse about acting opportunistically towards their employer if the employer engages in philanthropic CSR compared to win-win CSR or no CSR conditions. We hypothesized that employees would be more prone to a form of "tainted altruism" effect whereby they behave more opportunistically in win-win CSR than in no CSR condition because they might use the presence of a profit motive in CSR to self-justify opportunistic behavior. Results show that engaging in either philanthropic CSR or win-win CSR does not affect the extent to which employees misreport, shirk on tasks, or volunteer to work on unpaid tasks for the employer. We do, however, find that employee turnover is significantly higher in the win-win CSR condition compared to the philanthropic CSR condition but not compared to the no CSR condition. Suggesting 2 that, compared to doing philanthropic CSR, engaging in win-win CSR reduces the firm's attractiveness as an employer. To shed light on our lack of treatment effects on other employee behaviors, we perform a set of additional analyses. We analyze whether employees simply did not pay enough attention to the manipulations by examining their open-ended text response to the attention-check questions. We find evidence that most employees paid attention to the information about the initiatives, which makes a lack of manipulation an unlikely explanation for our null results. Furthermore, we investigate whether MTurker-employees seem to be careless and display behaviors different from other studies. However, the level of dishonesty observed among the employees is comparable to the general level of dishonesty found in previous literature, with approximately 30 percent of participants decide to misreport (Abeler, Nosenzo, & Raymond, 2019). We also study the link between employees' perceptions of the employer and their opportunistic behavior towards the employer. We find that employees' perceptions of the employer are significantly associated with their level of opportunistic behavior. Furthermore, we find that employees perceive the employer significantly less favorably across multiple aspects in the win-win CSR compared to philanthropic CSR condition. A path analysis reveals that the various changes in employees' perceptions of the employer have offsetting effects on actual employee opportunism. Different from our conjectures, we find that employees tend to misreport more –rather than