In our article, published in the Journal of Management Studies, we study employees’ reactions to their company’s corporate social responsibility (CSR) practices by focusing on the value protection role, rather than the value creation role, of CSR. We conducted two studies to investigate whether moral reputational capital stemming from CSR can protect a company’s relational wealth and value generated from its relationships with employees in the face of psychological contract breach, or employees’ belief that their employer failed to uphold its obligations to them. Our findings show that a company’s CSR practices have a positive impact on its moral reputational capital, which tends to buffer the effect of psychological contract breach on employees’ negative assessment of the company (i.e., perceptions of corporate hypocrisy) and associated value-eroding responses (i.e., lower advocacy behavior and higher turnover intentions).

CSR: from incremental gains to defensive benefits

Prior CSR research has implicitly assumed that much of the value of CSR lies in its capacity to generate incremental gains. For example, CSR practices can create business value by enhancing a company’s reputation, thereby attracting and eliciting positive responses from various stakeholders (e.g., investors, regulators, customers, or employees). The business strategy literature suggests that CSR can also provide a company with defensive benefits by protecting (rather than creating) value derived from stakeholder relationships (e.g., legitimacy and support) in the event that its business activity adversely affects stakeholder interests.

The insurance-like effect of CSR

Stakeholders attribute greater moral value to companies that engage in discretionary CSR actions. This moral reputational capital can in turn buffer stakeholders’ deleterious reactions to a negative event linked to a company’s activity. For example, studies in business strategy have found that when a bad event occurs, companies with a stronger reputation or engagement in CSR suffer fewer negative consequences from stakeholders in terms of market reactions (e.g., stock and bond prices) and regulatory sanctions. To draw an analogy, investments in CSR are akin to an insurance premium that ultimately enables a company to preserve its relationship-based intangible assets (i.e., its relational wealth), which would otherwise be threatened by a negative event arising from its operations (e.g., product defections, plant closures, allegations of fraudulent accounting practices, accusations of poor employment rights and safety conditions).

CSR protects against consequences of psychological contract breach

In our recently published article , we investigate whether CSR has any meaningful insurance-like effect among employees in the event of psychological contract breach.  A breach of psychological contract is a demonstrably common situation in organizational life, which elicits negative employee reactions, such as reduced performance and higher turnover intentions. In this respect, our research shows through two studies that CSR-based moral capital renders employees less inclined to make strong negative assessments of the company’s ‘bad mind’ than they otherwise would, and more likely to attribute psychological contract breach to external and non-intentional factors, which ultimately reduces negative employee reactions (i.e., lower decrease in advocacy behavior as well as lower increase in turnover intentions).

Managerial implications

Understanding how to repair, or how to buffer negative reactions to psychological contract breach, is important for companies wishing to protect the value derived from their relationship with employees (e.g., loyalty and support). Our research highlights that CSR engagement can serve as an investment in moral reputational capital that insures the relational wealth a company builds with its employees. Specifically, our research attests that CSR-based moral capital mitigates employees’ assessment of corporate hypocrisy and thereby the potential harm employees might inflict on the company’s interests in response to psychological contract breach. This adds to the justification for investments in CSR as a means to preserve relationships not only with external stakeholders but with internal stakeholders—employees—too.