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Journal of Business Ethics https://doi.org/10.1007/s10551-018-3789-2
ORIGINAL PAPER
Bolstering Managers’ Resistance to Temptation via the Firm’s Commitment to Corporate Social Responsibility
Cathy A. Beaudoin1 · Anna M. Cianci2 · Sean T. Hannah3 · George T. Tsakumis4
Received: 1 November 2016 / Accepted: 15 January 2018 © Springer Science+Business Media B.V., part of Springer Nature 2018
Abstract Behavioral ethics research has focused predominantly on how the attributes of individuals influence their ethicality. Rela- tively neglected has been how macro-level factors such as the behavior of firms influence members’ ethicality. Researchers have noted specifically that we know little about how a firm’s CSR influences members’ behaviors. We seek to better merge these literatures and gain a deeper understanding of the role macro-level influences have on manager’s ethicality. Based on agency theory and social identity theory, we hypothesize that a company’s commitment to CSR shifts managers’ focus away from self-interests toward the interests of the firm, bolstering resistance to temptation. We propose this occurs through self-categorization and collective identification processes. We conduct a 2 × 2 factorial experiment in which managers make expense decisions for a company with commitment to CSR either present or absent, and temptation either present or absent. Results indicate that under temptation, managers make decisions consistent with self-interest. More importantly, we find when commitment to CSR is present, managers are more likely to make ethical decisions in the presence of temptation. Overall, this research highlights the interactive role of two key contextual factors—temptation and firm CSR commitment—in influ- encing managers’ ethical decisions. While limited research has highlighted the positive effects that a firm’s CSR has on its employees’ attitudes, the current results demonstrate CSR’s effects on ethical behavior and imply that through conducting and communicating its CSR efforts internally, firms can in part limit the deleterious effects of temptation on managers’ decisions.
Keywords Corporate social responsibility · Temptation · Agency theory · Social identity theory
Introduction
With their control or influence over firms’ resources, man- agers’ unethical behavior can cause serious damage to organizations and potentially undermine the credibility of the financial system. The Association for Certified Fraud Examiners estimates that organizations lose approximately 5% of their annual revenues to various types of unethical behavior (e.g., asset misappropriation, corruption) (ACFE 2016). Several ethical failures involving international cor- porate scandals (e.g., Enron, VW, WorldCom) have resulted
in major organizational and societal harm. Numerous stud- ies on ethical judgment and decision-making have investi- gated the antecedent and mitigating factors underlying such unethical behavior in organizations (see Treviño et al. 2014 for review).
Yet, consistent with the common tendency to over-ascribe the cause of behavior to individual actors (i.e., the funda- mental attribution error, Jones 1990; Ross 1977), the extant canon of research has focused largely on how individual factors such as moral awareness, values, moral identity, ethi- cal ideology, cognitive moral development, etc. influence ethical decisions and behaviors (see Jennings et al. 2015; Tenbrunsel and Smith-Crowe 2008; Treviño et al. 2014 for reviews). Indeed, there seems to be a proclivity to ascribe self-interested motives as the cause of unethical actions, such as the scandals surrounding the 2008 financial crisis (Gino et al. 2011; McLean and Nocera 2010).
However, Treviño and Youngblood (1990) have high- lighted the need for the field to not only advance micro- level theory and research concerning “bad apples” but also
We gratefully acknowledge the research support provided by the Institute of Managment Accountants and the School of Business at Wake Forest University.
Cathy A. Beaudoin is retired.
* Anna M. Cianci cianciam@wfu.edu
Extended author information available on the last page of the article
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meso- and macro-level research on “bad barrels” to better understand the conditions promoting (un)ethical behaviors in organizations. Empirical research has in response begun to assess how meso-level factors such as ethical leadership and group processes (e.g., Brown et al. 2005; Schminke and Wells 1999), and macro-factors such as ethical culture or cli- mate (Arnaud and Schminke 2012; Schaubroeck et al. 2012) influence members’ ethicality in firms. Yet, beyond that con- cerning ethical culture and climate, there remains a dearth of theory and research on how firm-level macro-phenomenon, such as the behaviors of firms themselves, influence indi- vidual ethicality. This has left an incomplete understanding of the contextual forces causing deleterious unethical actions in firms, such as self-serving manager actions prompting the scandals mentioned above.
To begin to fill this gap in the macro-level behavioral ethics literature, emerging research has sought to investi- gate whether the behavior of firms reflected in their CSR activities positively influences the ethical attitudes and behaviors of their own members (e.g., El Akremi et al. 2015; Rupp et al. 2006; Rupp et al. 2013).1 This emerging research asks whether, how, and under what conditions, does a firm’s “doing good” promote members to also do good and restrain from unethical acts. This nascent research sets apart from the plethora of studies that have focused on how firms’ CSR affects outcomes at the organizational level of analysis (Aguinis and Glavas 2012; Barnett and Salomon 2012; Gregory et al. 2014; Harjoto and Jo 2015). Indeed, Aguinis and Glavas (2012) note that less than 4% of CSR research has focused on its effects on employees. Thus, as noted by Rupp et al. (2013), a gap continues to exist in the literature for research aimed at examining “how employees perceive and subsequently react to acts of CSR” (p. 896) (cf Morgeson et al. 2013).
The study of the effects and experiences of CSR on indi- viduals is referred to as “micro-CSR” (Rupp and Mallory 2015, p. 216). Most of the micro-CSR work has focused on its effects on positive workplace attitudes. For exam- ple, prior studies focus on the effect of employees’ CSR perceptions on constructs such as organizational support (El Akremi et al. 2015), job pursuit intentions (Rupp et al. 2013), organizational commitment (Erdogan et al. 2015), organizational justice (Rupp et al. 2006), and job satisfac- tion (Dhanesh 2014), among others. Research on the effects of CSR activities on individuals’ behavioral outcomes is very limited, however, with recent studies highlighting a
positive influence of CSR on employee creativity (Spanjol et al. 2015), knowledge sharing (Farooq et al. 2014), and employee retention (Carnahan et al. 2016). We advance this line of research to investigate the effects of CSR on ethical behavior.
While much of the micro-CSR literature employs social identity theory, signaling theory, and social exchange theory to explain individuals’ reactions to CSR (see Gond et al. 2017 for a review), the current study seeks to advance this literature from a theoretical standpoint by employing agency theory and social identity theory (SIT) together to describe why managers would be more inclined to act as agents and conduct themselves in ways most advantageous to the firm. In this way, we respond to calls for a better understanding of how theoretical mechanisms interact to produce CSR-related outcomes (Gond et al. 2017) and to go beyond investigating self-interest as the focused driver of ethical decision-mak- ing (Kish-Gephart et al. 2014). Specifically, consistent with prior research utilizing agency theory (Cianci et al. 2014), we conceptualize temptation as incentives and opportunity to behave unethically to obtain rewards (i.e., maximize self- interest) rather than to act ethically as an agent of the prin- cipal/firm (i.e., maximize the principal or firm interest). We then rely on SIT to contend that firm CSR commitment will lead managers to make more ethical decisions when con- fronted with temptation by broadening managers’ focus from self-interested motives to those of the esteemed firm’s vari- ous stakeholder groups (Aguilera et al. 2007; Heal 2005). That is, according to SIT, individuals seek self-enhancement (Alicke and Govorun 2005; Sedikides et al. 2004) and thus tend to self-categorize with esteemed groups and organiza- tions, leading them to identify and align with these groups and their norms (Hogg and Terry 2000). Applying SIT to the current setting, we suggest that a company engaged in CSR activities is likely to be perceived as socially desir- able and esteemed, promoting its managers to eschew self- interest and instead act in accordance with, and experience self-enhancement from aligning with, firm interests. We thus report on our experimental examination of the mod- erating effect of a firm’s CSR commitment on the relation- ship between temptation and managers’ ethical decisions. A conceptual model is provided in Fig. 1.
Our secondary contribution is empirical. Critically needed at this early point of development in the emerging research area of the effect of CSR activities on individu- als’ behavioral outcomes are true experiments that begin to evidence causal relationships between firms’ CSR and members’ ethical actions, and that identify the boundary conditions under which such effects occur. To our knowl- edge, our study is the first to use a scenario-based experi- ment to identify how CSR influences managers’ “in-role performance”—i.e., managers’ responding to an experimen- tal formal role task similar to what they might encounter
1 The importance of CSR is illustrated by Corporate Responsibility (2016) and Forbes (2016) magazines’ annual global rankings of the world’s largest companies according to how well they serve stake- holder interests and conform to socially responsible business prac- tices.
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in their professional environments (Gond et al. 2017, p. 234). Additionally, Gond et al. (2017) note that previous research focuses on how CSR produces positive or attitu- dinal workplace outcomes, rather than the role of CSR in relation to potentially negative workplace behaviors such as the temptation-influenced expense reporting scenario faced by managers in our experimental setting. Further, we assess through a causally interpretable design whether a firm’s CSR affects individual, and in particular, managers’ ethical deci- sions. This is particularly important as studies of reactions to CSR have focused primarily on employees, and “relatively little is known as to whether managers and executives react distinctively to CSR” (Gond et al. 2017).
The current study thus responds to calls to examine how CSR influences individuals’ decisions (Aguinis and Glavas 2012) by providing empirical evidence that the tendency of managers to act in their self-interest is mitigated by their firm’s commitment to CSR. Specifically, while prior research has considered the influence of individual level fac- tors (e.g., moral reasoning, moral disengagement) as pos- sible moderators of temptation-related effects of individual behavior (e.g., Kish-Gephart et al. 2014), we demonstrate that a macro-level factor, firm commitment to CSR, serves as an important buffer of the effects of temptation on managers’ unethical behavior.
Finally, the current research should also inform practice, by shedding light on factors that influence managers’ tenden- cies to act for or against their self (vs. their firm’s) interests. We inform firms of the boundary condition CSR may impose on the effects of incentives on managers’ (un)ethical deci- sions. These findings inform whether senior management in high-CSR firms can employ incentive contracts to positively motivate managers’ performance, while tempering the nega- tive effects of the resulting temptation (i.e., opportunity and incentive) on unethical behavior (Kish-Gephart et al. 2014; Moore and Lowenstein 2004). CSR may promote managers to seek performance outcomes without stepping over the line into unethical behavior.
The remainder of this paper is organized as follows. The next section discusses the background literature and develops hypotheses. This is followed by a description of the research method and a presentation of the results. The
final section offers conclusions and theoretical and practical implications.
Theory and Hypotheses Development
Temptation and (Un)Ethical Decision Making (Hypotheses 1a and 1b)
Self-interest is a powerful source of human motivation (Kish-Gephart et al. 2014; Moore and Lowenstein 2004). Temptation, a key driver of self-interested behavior, has been defined as an “enticement to do wrong by promise of pleasure or gain” (Tenbrunsel 1998, p. 332) and as incen- tives to make unethical decisions to obtain goals or rewards (e.g., Cianci et al. 2014; Fischbach and Shah 2006; Freitas et al. 2002). In the current study, we employ agency theory (Eisenhardt 1989; Jensen and Meckling 1976) to concep- tualize temptation as the presence of two conditions—i.e., incentive and opportunity to behave unethically to obtain rewards (e.g., Fischbach and Shah 2006; Freitas et al. 2002; Tenbrunsel 1998). Agency theory provides a framework to examine how the conflicting incentives arising between the principal (i.e., firm) and agent (i.e., manager) impacts whether the agent chooses to act unethically, in self-interest, or in the interest of the principal they are obliged through employment contract to serve (Eisenhardt 1989; Jensen and Meckling 1976). Consistent with prior research (Ari- ely 2012), we view self-interested decision making as less ethical than decisions made in the interest of the firm the manager is obliged to serve.
According to agency theory, when the goals of the prin- cipal-firm and agent-manager are aligned, the agent will tend to make decisions that maximize the goals of the firm, but when the principal and agent goals are misaligned, the agent-manager will be tempted to neglect the principal- firm’s interests in favor of his or her own (Eisenhardt 1989; Jensen and Meckling 1976). All else being equal, a man- ager in the presence of temptation (i.e., both incentive and opportunity to act for personal gain) is more likely to make decisions that are consistent with his/her self-interest even if counter to the profit-maximizing interests of the firm. For example, research has shown that when managers have both the incentive and opportunity to act in their self-interest, their project continuation and system implementation deci- sions reflect self-interest (e.g., reputation preservation and/ or enhancement) at the expense of the interests of the firm (e.g., Cianci et al. 2014; Harrison and Harrell 1993). These studies find that managers under temptation—i.e., with self- interested (i.e., promotion or reward prospects) incentives and with superiors who do not have enough information to properly determine whether the manager is acting unethi- cally or not (i.e., opportunity)—will be more likely to make
Temptation
CSR
Managers’ Ethical
Decisions
Fig. 1 Theoretical Model
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less ethical decisions. Based on agency theory and this prior research, we expect, all else being equal, that managers will make less (more) ethical decisions in the presence (absence) of temptation.
H1a When temptation is present, managers will make less ethical decisions/act in self-interest.
H1b When temptation is absent, managers will make more ethical decisions/act in service to the firm.
Corporate CSR Commitment
CSR is defined as a company’s strategic response to incon- sistencies that occur between profitability goals and social goals (Heal 2005). Being socially responsible at the organi- zational level involves actions such as allocating resources to the proper enforcement of laws (e.g., those that protect the environment, or the health, safety and equal treatment of workers) (Clarkson 1995; Harding 2005). However, it also involves voluntary actions that go beyond those required by law, such as involvement in community, and philanthropic initiatives (McWilliams and Siegel 2001; Special Report: Corporate Social Responsibility 2005). For example, Levi Strauss proactively ensures that working conditions and wages are reasonable throughout its supply chain rather than just meeting local country legal requirements (Heal 2005). There may also be ethical or humanitarian aspects of CSR (Clarkson 1995; Special Report: Corporate Social Respon- sibility 2005). For instance, when Merck did not get govern- mental support for the distribution of a drug that cured river blindness in tropical Africa, the company decided to incur all costs internally to supply and distribute the drug to some 30 million people (Heal 2005).
In addition to being a strategic response to the inconsist- encies that arise between profits and social goals, the degree of commitment to CSR is a reflection of an organization’s values and culture and its strategic focus and purpose (Agu- ilera et al. 2007; Schein 2004; Treviño 1986). Thus, when a company demonstrates a commitment to CSR, it signals to internal and external parties that the firm cares about its stakeholders and means to do well on their behalf (Agu- inis and Glavas 2012; Clarkson 1995). Rupp et al. (2006) suggested that once employees assess that their employer is socially responsible, their attitudes and behaviors will be positively impacted, which may lead employees’ to focus beyond self-interest to instead support stakeholder goals and the firm’s interests. Below we hypothesize the basis for this greater inclination to serve the firm, and therefore, why CSR will bolster managers’ ability to resist temptation and eschew self-interest to act with agency in the interest of the firm. As such, the moderating effects of CSR may create a
boundary condition, tempering the effects of temptation on managers’ unethical behavior.
The Moderating Effect of CSR Commitment on Temptation (Hypotheses 2a and 2b)
While our theorizing employs agency theory, we also apply social identity theory (SIT)—and more specifically, self- enhancement motives and self-categorization aspects of SIT—to describe why managers would be more inclined to act as agents and conduct themselves in ways most advanta- geous to the firm. A person’s decision to behave unethically typically requires consideration of two opposing goals—i.e., maximizing self-interest versus maintaining a positive moral self-image and public image (Ariely 2012). People are in general highly motivated to maintain a sense of self-worth and will therefore employ significant effort to promote a positive image (i.e., self-enhancement) and prevent a nega- tive image (i.e., self-protection) (Alicke and Govorun 2005; Sedikides et al. 2004). They do so not only to project a posi- tive image to others, but to also maintain a private approving opinion of oneself (Greenwald and Breckler 1985; Schlenker and Weigold 1992).
According to SIT, due to their desire for self-enhance- ment (Alicke and Govorun 2005; Sedikides et al. 2004), individuals tend to self-categorize themselves through their membership in esteemed groups and organizations. This promotes them to assimilate their identity and behaviors to align with those of the group and its norms so that they can bask in the positive regard and esteem of the group rela- tive to “lesser” out-groups (Hogg and Terry 2000). Thus, in this way, an organization with a positive reputation may become an important dimension of one’s identity (Ashford and Mael 1989; Dutton et al. 1994; Maignan and Ferrell 2001). According to SIT, this occurs because individuals can define themselves not only in terms of their own self-identity (the individual self), but also through interpersonal identi- ties they form with others such as friends, coworkers, or a leader (the relational self); and/or social identity they form with groups or organizations (the collective self) (Breckler and Greenwald 1986; Brewer and Gardner 1996; Greenwald and Breckler 1985). These levels of identity are malleable (Johnson et al. 2006) and when made salient, collective iden- tities promote decisions and behaviors in favor of the group (Hogg et al. 1995; Kreiner et al. 2006).
Importantly, while individuals may have a disposition toward one of the three levels of identity over others, a given level can be activated through contextual cues and primes (Johnson et al. 2006). Brewer and Gardner (1996) docu- ment that, by priming the collective identity, the individual defines himself/herself in terms of the broader social group and shifts focus away from self-interest (which is based on one’s individual identity) toward group-interest (which is
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based on social identity). Thus, when salient, collective identities focus on the shared norms and “we-ness” of the group (Albert et al. 2000; Alvesson 2002; Cerulo 1997; Wiesenfeld et al. 1999), and heighten sensitivity to group- related information, including organizational values and beliefs (Haslam et al. 2006; Turner et al. 1987). We propose that a firm’s CSR activities will be one important source of activating such collective identities and subsequent organi- zation-supporting behavior.
Self-enhancement thus stems not only from one’s own actions and accomplishments, but through the affiliations held with esteemed others or collectives that bolster a sense of self-worth (Tesser and Campbell 1982). This phenom- enon has been referred to as “basking in reflected glory,” whereby individuals feel self-enhanced through affiliated groups or organizations that achieve significant accomplish- ments or are highly socially esteemed (Cialdini et al. 1976). Individuals are thus drawn to and more highly identify with such esteemed groups, and they seek to support and repre- sent those groups in a positive manner so as to not tarnish the group’s, and thereby their own, image and esteem (Cial- dini and Richardson 1980; Snyder et al. 1986).
Applying SIT to the current setting, we suggest that a company engaged in CSR activities is likely to be perceived as socially desirable and esteemed, promoting managers to self-categorize with and experience self-enhancement from their affiliation. Indeed, firms that conduct high levels of CSR promote public accolades and external and inter- nal attributions of social worthiness (Aguinis and Glavas 2012; Orlitzky et al. 2003) and therefore CSR commitment should generally enhance an organization’s reputation and perceived status (e.g., Hess et al. 2002; Morsing and Roep- storff 2015; Wang and Berens 2015). This enhanced status associated with corporate CSR commitment should stimu- late managers’ self-enhancement and the self-categorization of their identity with that of the firm. As described in the logic above, this collective self-construal and “we-ness” ori- entation should promote managers to behave in ways that support the collective and its ideals because, through self- categorization with a group, a member “cognitively assimi- lates self to the in-group prototype and, thus, depersonalizes self-conception… [bringing]…self-perception and behavior in line with the contextually relevant in-group prototype” (Hogg and Terry 2000, p. 123).
We thus contend that a company’s CSR commitment will serve to broaden managers’ focus from self-interested motives to better align with those of the firm and its stake- holder groups (Aguilera et al. 2007; Heal 2005). This better alignment would lead managers to make more ethical deci- sions when confronted with temptation. Consistent with this notion, firms high in CSR are known to have higher levels of employee engagement, retention, and commitment, among other desirable outcomes (Aguinis and Glavas 2012).2 Also
consistent with our logic, Viswesvaran et al. (1998) docu- ment the negative link between CSR and employees’ coun- terproductive behaviors; and Maignan et al. (1999) show that market-oriented and humanistic cultures lead to proactive corporate citizenship, which is in turn associated with higher levels of employee commitment, customer loyalty, and busi- ness performance.
To summarize, we argue that firm CSR commitment and actions will provide social identification influences that prompt managers (agents) to align their behavior with that of the collective (principal). This would temper the otherwise negative effects of temptation on unethical behavior that we specified in Hypothesis 1, creating a boundary condition. However, when no temptation is present, agency theory suggests that managers will typically naturally align their actions in benefit of the principal, as they have little reason to risk doing otherwise (Eisenhardt 1989). Absent a poten- tial self-interested reward, there is no reason for managers to risk acting counter to the principal’s interest and desires. Thus, when not faced with temptation, a company’s level of commitment to CSR should not significantly influence managers’ ethical decision-making. Thus, we propose the following hypotheses:
H2a When temptation is present, managers will be more likely to make ethical decisions/act in service to the firm when firm commitment to CSR is present as opposed to absent.
H2b When temptation is absent, a firm’s commitment to CSR (whether present or absent) will not influence manag- ers’ ethical decisions.
Research Method
Participants
Participants were 112 managers with significant profes- sional experience enrolled in executive MBA programs at four large urban universities in the U.S. Managers with cur- rent or prior experience at publicly traded companies and extensive familiarity with recording expenses were chosen to serve as participants because our study’s scenario involves a hypothetical firm about to execute an initial public offering (IPO) of stock and, in their corporate environments, man- agers are often relied upon to make judgments relating to
2 The opposite also appears to occur. While not specific to CSR, research does show that unethical environments in general contribute to members’ illegal and unethical activity (e.g., Arbogast 2008; Lewis 2009).
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operating activities, including the reporting of expenses.3 Further, in addition to consulting extensively with Fortune 500 managers during the instrument development phase, we also interviewed these Fortune 500 managers, who noted that they regularly rely on operating managers to make expense estimates.
Participants had a mean 11.03 years (SD 4.97) of profes- sional work experience (“How many years of professional work experience do you have?”), and indicated substantial familiarity with the task of recording expenses (mean 8.09, SD 1.42; “Indicate your familiarity with the concept of recording expenses for services provided to a company but not yet billed:”) and experience in budgeting (mean 7.48, SD 2.32; “Indicate how experienced you are with meeting a pre-determined expense budget or combined revenue and expense budget:”) (both items were rated on a ten-point scale in which 1 represents “not at all familiar” and 10 represents “very familiar”).
Procedure and Task
Participants were provided with a case that placed them in the role of plant manager for a manufacturing firm. Case materials contained company background information (“Appendix 1”, Panel A), a schedule of unbilled consult- ing and advisory projects that are in process (“Appendix 1”, Panel B), the task objective, and a post-experimental questionnaire. The background and task objective sections provided information on the company and the experimental task. Specifically, the participants were told to assume they were the plant manager for a manufacturing company and that the company planned to execute an initial public offer- ing (IPO) of its stock within the next 3 months. Participants were told that, because of the pending IPO, the company was committed to controlling costs in order to help with the company’s attractiveness in the IPO market. Incorporat- ing an IPO scenario into the case materials helps establish incentives for aggressive reporting other than those driven by meeting financial targets for bonus purposes. Participants were informed that they did not own any company stock, nor would they be issued any shares when the IPO was executed. This ensured that there was no alignment of interest between the operating manager and the company due to equity com- pensation as a result of individual bonus incentives.
Participants were asked to consider a year-end expense decision relating to consulting that is in process, but for which no billing has yet occurred. Each participant was given the same schedule of services provided by vendors,
along with project status information and estimated contract amounts (see “Appendix 1”, Panel B). The project status for each vendor was described as in the “early stages,” with estimated completion dates that indicate the projects are expected to be finished within 1 year of their start dates. The uncertainty surrounding the project completion date is typical of situations in which managers utilize discretion when making expense reporting decisions. The total esti- mated contractual value for these services is $3.0 million. Participants then indicated their expense recommendation regarding consulting and advisory services that have not yet been billed.
Dependent and Independent Variables
Our primary dependent variable is the dollar amount of man- agers’ consulting and advisory services expense estimate. Specifically, participants were asked: “How much do you recommend be recorded for consulting and advisory services for which you have not yet been billed?” Participants had the option of recommending that no expenses be recorded in the current reporting period for these services (i.e., $0 recom- mendation) up to the total $3.0 Million. Two independent variables (temptation and corporate social responsibility) were manipulated, based on random assignment, between participants, creating a 2 × 2 complete factorial design.
The first independent variable, temptation, relates to man- agers’ incentive (i.e., bonus structure) and opportunity (i.e., information availability). In our setting, temptation occurs when the manager has both the incentive and the opportunity to act in his/her self-interest (increase bonus) at the expense of achieving the company’s objectives (i.e., maximizing the IPO issue price). While certain bonus structures may provide incentive for a manager to make decisions that do not maxi- mize the company’s goals, the manager must also have the opportunity to engage in such behavior. This opportunity is dependent, in part, on whether the company’s senior execu- tives have access to the same information as the manager when he/she makes decisions. When all information used by the manager in the decision-making process is also available to the senior executives, the company is able to accurately monitor the manager’s actions and determine whether they are eschewing agency and acting in self-interest. However, when the manager has access to information that is not avail- able to senior executives, the manager can use this private information for personal gain.
Therefore, consistent with prior experimental research (e.g., Cianci et al. 2014), incentive and opportunity are manipulated concurrently. As shown in “Appendix 2”, Panel A, participants in the temptation-absent condition are told they receive a guaranteed bonus of 25% of a $200,000 base salary in both Year 1 and Year 2 (the current and following fiscal years, respectively) and that the CFO is aware of the
3 During the instrument development phase, we interviewed financial managers of Fortune 500 companies who noted that they regularly rely on operating managers to make expense estimates.
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current projection of Year 1 expenses prior to the manager’s recommendation (i.e., the CFO has the same information that the manager has when the manager makes his/her deci- sion).4 When bonus targets are guaranteed as a fixed per- centage of salary and senior executives are fully aware that current year expenses are below budget, the manager has little incentive or opportunity to make decisions misaligned with the goals set by senior executives. In such a case, as proposed in agency theory, managers (agent) would tend to record lower expense amounts in line with the firm’s (prin- cipal) objectives.
In the temptation-present condition, participants’ bonuses vary based on achieving targets for minimizing plant expenses (see “Appendix 2”, Panel B). In addition, they are told that the CFO is unaware of the current projection of Year 1 expenses prior to the expense decision. Bonuses vary as a percentage of base salary ($200,000). In the scenario, projected plant expenses for Year 1 ($77.1 million) are $3.0 million below the maximum 40% bonus target for expenses (i.e., the participant currently qualifies for the largest bonus in Year 1). This $3.0 million cushion gives the manager the opportunity to book expenses for an amount up to the full value of all contract services not yet billed without jeopard- izing any portion of the maximum 40% bonus for Year 1, if he or she chooses to make such a recommendation.
Bonus targets for Year 2 are structured so that pro- jected plant expenses of $83.05 million are $50,000 above the bonus target expense threshold of $83.00 million that would qualify the manager for the minimum 20% bonus (i.e., the participant currently does not qualify for any bonus in Year 2, based on projected expenses). Thus, if the manager decides to book an expense amount in Year 1, bonus targets become easier to achieve in Year 2. For example, an expense recommendation of $3.0 million in Year 1 will not only pre- serve the maximum 40% bonus in Year 1 but will also help qualify the manager for a 40% bonus in Year 2 if actual Year 2 results are consistent with the current projections. Therefore, the manager knows actual expenses for the cur- rent year are favorable relative to bonus targets (i.e., below bonus targets) but senior executives (principals) do not—i.e., temptation is present. In this condition, managers would be tempted to recommend additional current year expenses, thereby making it easier to minimize expenses recorded in the subsequent year and, thus, “game the system” to maxi- mize his/her combined 2-year bonus payout.
The second independent variable, corporate social responsibility, is operationalized by manipulating whether or not the company expresses a commitment to being socially
responsible (see “Appendix 3”). In the commitment to cor- porate social responsibility-present condition, participants are informed that the company is well known throughout its industry and the business world as being socially responsi- ble. It purchases its raw materials only from environmen- tally friendly suppliers and conducts social responsibility audits of its facilities to ensure the protection of workers’ civil rights and to oversee the ecological well-being of the organization. In the commitment to corporate social respon- sibility-absent condition, no specific mention of any socially responsible values or activities (whether positive or negative valence) is made.
Covariates
We asked managers to indicate their personal sensitivity to social responsibility (i.e., “How concerned are you, person- ally, about issues of social responsibility:” where 1 = Not At All Concerned to 10 = Very Concerned). We included this covariate in our analysis as socially oriented employ- ees tend to be attracted to and more attentive to firms that practice CSR (Aguinis and Glavas 2012). More importantly, this covariate can account in part for individual differences, such as social consciousness, that may influence their per- sonal sensitivity to CSR and thereby influence the pattern of results. It is important to include individuals’ CSR proclivity as a control variable, as it is ‘individual actors… who actu- ally strategize, make decisions and execute CSR initiatives’ (Aguinis and Glavas 2012, p. 953).
We also included gender as a control variable in our anal- ysis because research suggests that women tend to exhibit higher moral development, behave more ethically, and act less aggressively than men in business and organizational contexts (e.g., Bolino and Turnley 2003; Ritter 2006). Pre- vious research also suggests that greater work experience can enhance manager competences in business knowl- edge, insightfulness, and decision making (McEnrue 1988; Dragoni et al. 2009). Therefore, we also included both pro- fessional work experience and experience in budgeting as covariates to ensure the results are not simply reflecting or are tainted by business/budget expertise, given the experi- mental materials. Conducting our analysis with and without these variables, as well as supplemental tests using other possible demographic variables (e.g., participant university affiliation), does not change any of the inferences drawn.
Results
Manipulation Checks
Manipulation checks for both independent variables indicate that participants generally understood the manipulations.
4 The managing director of an executive search firm recommended the bonus percentages used in the no temptation and temptation con- ditions based on their understanding of firm averages.
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Specifically, manipulation checks for the temptation manipulation—which concurrently manipulated incentive and opportunity—reveal that, out of 112 participants, one hundred four correctly identified their bonus structure (i.e., 93% passed the incentive portion of the temptation manipu- lation check) while one hundred responded correctly to a question regarding whether or not the CFO had the same information as the manager (i.e., 89% passed the opportunity portion of the temptation manipulation check). A supple- mental test removing these participants from the analysis does not change any of the inferences drawn, and thus all were included in primary analyses. A manipulation check for CSR suggests that this manipulation was also success- ful. On a ten-point scale, participants were asked to indi- cate how socially responsible the company in the case was (i.e., “Based on the information provided in this case, how socially responsible is the company (HCP) in this scenario:” where 1 = “not at all socially responsible” and 10 = “very socially responsible”). Untabulated ANCOVA results indi- cate that means for the present and absent CSR commitment conditions were significantly different and directionally con- sistent with the manipulation (7.14 and 5.35, respectively; F = 25.626, p = 0.0001, two-tailed). In addition, it is impor- tant to note that the main effect of temptation (F = 0.815, p = 0.369, two-tailed) and the interaction between tempta- tion and commitment to CSR (F = 0.907, p = 0.343, two- tailed) on the dependent variable were not significant.
Hypotheses Testing
Our hypotheses are tested using an ANCOVA with tempta- tion (present vs. absent) and commitment to CSR (present vs. absent) as the independent variables and managers’ per- ceptions of their personal concern for issues related to social responsibility, experience in budgeting, gender, and years of professional work experience as covariates. The dependent variable is a rank transformation of managers’ expense rec- ommendations.5 As reported in Table 1, the overall model is significant (F = 3.447, p = 0.002, two-tailed).
Temptation and (Un)Ethical Decision‑Making
Taken together, Hypotheses 1a and 1b predicted that when temptation is present (absent), managers will make less (more) ethical decisions. Specifically, we expect larger (smaller) expense recommendations for the temptation-pre- sent (absent) conditions, respectively. As shown in Table 1, the main effect of temptation is significant (F = 15.793, p < 0.001, two-tailed). Consistent with H1 predictions, managers in the temptation-present condition recommended
significantly higher expenses than those in the temptation- absent condition ($1,559,983 vs. $695,085, respectively; Table 1). These results suggest that in our setting, managers tend to override corporate concerns in favor of their own interests (i.e., book larger expense amounts to maximize bonus potential) when there is temptation to do so, and tend to make decisions that help achieve corporate goals (i.e., book smaller expense numbers to improve the IPO stock price) when temptation is absent.
The Moderating Effect of CSR Commitment on Temptation
Taken together, Hypotheses 2a and 2b proposed that firms’ commitment to CSR should buffer managers’ unethi- cal behavior in the face of temptation. Specifically, in the presence of temptation, when a firm’s commitment to CSR is present (absent) managers will be more (less) likely to make ethical decisions; while we expected no significant effect of CSR commitment in the absence of temptation. As expected, ANCOVA results indicate a significant interactive effect on managers’ ethical deci- sions (F = 3.894, p = 0.05, two-tailed; Table 1). Figure 2 graphically depicts the means for the dependent variable by condition and demonstrates that a commitment to CSR has the anticipated moderating effect on managers’ expense recommendations. Specifically, there is a greater difference in managers’ mean expense recommendations between CSR commitment conditions when temptation is present ($367,610) than when it is absent ($227,240), providing directional support for H2. Further, least sig- nificant difference pairwise comparisons show that as hypothesized, a commitment to CSR significantly buffers the effect of temptation, resulting in lower expense recom- mendations when temptation is present ($1,407,390 [Cell 2] vs. $1,775,000 [Cell 1], p < 0.03, one-tailed; Table 1) and no statistically significant moderating effect of CSR
5 Prior to hypothesis testing we assessed the distribution of the dependent variable. The Shapiro–Wilk test for normality indicates that the reported expense amounts for each of the four conditions are not normally distributed (all p < 0.008). In addition, as shown in Table 1, the standard deviations of the reported expense amounts are quite high. Thus, consistent with prior research (e.g., Boylan and Sprinkle 2001; Hutton et al. 2013), we conducted our analyses using the ranks of managers’ expense recommendations as the dependent variable instead of the reported expense amounts. This is because since the reported expense amounts are not normally distributed, it would violate a key ANOVA assumption. Accordingly, an ANCOVA using a rank transformation of the reported expense amounts is likely to be more efficient, powerful, and more theoretically appropriate than an ANCOVA conducted using the non-ranked reported expense amounts (Conover and Iman 1982). Analyses conducted using the non-ranked reported expense amounts yield results that are qualita- tively similar to those reported in the paper.
Bolstering Managers’ Resistance to Temptation via the Firm’s Commitment to Corporate Social…
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commitment when temptation is absent ($818,333 [Cell 4] vs. $591,094 [Cell 3], p = 0.189, one-tailed; Table 1). These results reinforce our hypothesis that a commitment to CSR significantly influences managers’ ethical choices only under conditions of temptation.
Supplemental Analysis
The logic supporting H2 is based largely on the notion that a firm’s commitment to CSR makes salient a favorable and esteemed organizational context, which provides self- enhancement and collective-focused social identity to man- agers, leading to actions aligned with the interest of the firm. The current experimental design did not allow for measuring participants’ views or interpretations of the organizational context after reading the scenarios, prior to measuring the dependent variable, as it would have influenced participants’ responses and contaminated the findings. After measuring
Table 1 Hypotheses 1 and 2 tests
a The ANCOVA was conducted using the rank of managers’ expense recommendations as the dependent variable rather than the actual reported expense amounts because the actual reported expense amounts are not normally distributed b All reported p values are two-tailed
Panel A: ANCOVAa
F statistic p valueb
Overall Model 3.447 0.002 Covariates Personal concern for CSR issues 1.110 0.295 Gender 0.182 0.671 Work experience 1.728 0.192 Budget experience 1.569 0.213 Independent variables Temptation (H1a and H1b) 15.793 0.0001 CSR commitment 0.560 0.456 Interaction Temptation × CSR (H2a and H2b) 3.894 0.051
Panel B: Cell means (SD) for manager expense recommendations
Temptation CSR Commitment Overall
Absent Present
Cell 1 Cell 2 Present Mean 1,775,000 1,407,390 1,559,983
(SD) (1,060,408) (1,283,878) (1,199,382) n = 22 n = 31 n = 53 Cell 3 Cell 4
Absent Mean 591,094 818,333 695,095 (SD) (653,469) (767,850) (711,038)
n = 32 n = 27 n = 59 Overall Mean 1,073,426 1,133,174 1,104,367
(SD) (1,019,846) (1,106,497) (1,199,382) n = 54 n = 58 n = 112
Fig. 2 Mean expense amounts for temptation (present, absent) × CSR commitment (absent, present)
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the dependent variable, however, we explored the extent that the organizational context factored into participants’ deci- sion-making. Specifically, we asked participants the follow- ing two item stems, “Given the environment at HCP, I feel that the corporate culture…” and “Given the environment at HCP, I feel that the values of the company…”, and asked them to record their responses on a ten-point scale, where 1 = “Did Not Factor Into My Decision-Making Process” and 10 = “Factored Heavily Into My Decision-Making Process.” Participants in the CSR commitment-present condition reported that both corporate culture and corporate values factored more heavily into their decision-making processes than those in the CSR commitment-absent condition (non- tabulated mean responses 4.57 versus 3.57, respectively) (p = 0.041, two-tailed). For corporate values, means are 5.19 and 4.19 (non-tabulated) for the CSR commitment- present and CSR commitment-absent groups, respectively (p = 0.038, two-tailed).
Discussion
The current study sought to advance the CSR and behavioral ethics literatures by investigating the moderating effect of a firm’s CSR commitment on the relationship between tempta- tion and managers’ ethical decisions. We did so in a 2 × 2 experimental design in which we manipulated two inde- pendent variables between participants: a company’s com- mitment to CSR (present, absent) and temptation (present, absent), operationalized by the presence of both incentive and opportunity to behave unethically. In our setting, expe- rienced managers familiar with expense recording assumed the role of a plant manager in a hypothetical company and made a year-end expense decision. This expense decision is ethically charged in that it involves a choice between a self- focused decision (i.e., maximizing the likelihood of receiv- ing bonuses over a 2-year period) and a company-focused decision (i.e., making a decision that is in the financial inter- est of the firm).
Consistent with agency theory, results indicate that when temptation is present, managers tend to override corporate aims and concerns and make less ethical decisions. In con- trast, when temptation is absent, managers tend to make more ethical decisions (i.e., decisions aligned with the firm/ agent’s interests. Also consistent with expectations, we find that a company’s commitment to CSR moderates the effect of temptation on managers’ decisions. Specifically, when a commitment to CSR is present, managers are more likely to make ethical decisions in the presence of temptation. However, when temptation is absent, managers are equally likely to make ethical decisions, regardless of their firm’s CSR commitments. These findings have both theoretical and practical implications.
