Corporate Social Responsibility: Effects on Employee Retention, Motivation, and Recruitment

Introduction

Until recently, literature and research surrounding corporate social responsibility (CSR) concentrated on external benefits to a company’s reputation, marketability, and financial performance. However, the same mechanisms that drive stakeholder benefits, including positive consumer response, also apply to a company’s own workforce. Well executed CSR initiatives can help a company attract and retain talent, while motivating existing employees. These findings are especially pertinent to current societal conditions, with business leaders struggling to retain talent due to the global pandemic.

CSR: Effects on Employee Retention, Motivation, and Recruitment

Business leaders develop corporate social responsibility (CSR) initiatives for two primary reasons. First, CSR may be used to derive benefits such as reputation management and stronger financial performance.?Second, business leaders may feel a moral obligation to be a “good corporate citizen” because it is “the right thing to do” (Chaffee, 2017). There is a third reason business leaders should look to CSR — the positive impacts it has on a company’s key stakeholder: the employee.

It is well documented that strategic CSR initiatives can generate positive consumer response, helping a company to galvanize market positioning. A meta-analysis of 52 studies by Orlitzky et al. (2003) found that CSR positively correlates to both increased corporate financial performance (CFP) and reputation. A 2017 Cone Communications CSR study shows that consumers expect companies to improve business practices, invest in social issues, and be agents for change in society. Eighty-seven percent of consumers report they are willing to make purchases from companies that advocate issues they care about, while 79% of respondents expect businesses to continue to improve their CSR efforts going forward (2017 Cone Communications CSR Study, 2017). Favorable evaluations made by consumers regarding a corporation’s CSR activities also apply to employees (Jones, 2019).

The employee is widely regarded as a company’s most important resource. Blair (2011) describes human capital as the “most important factor in production and the most important source of economic wealth and engine of economic growth over time.” A company’s workforce is the critical input into production, and therefore a determinant of company success. The concept of ‘human capital investment’ includes resources spent on recruiting, education, training, and teambuilding. For a company to maximize a human capital investment, it is essential to reduce turnover by forming long-term relationships with employees (Blair, 2011, p. 49). This paper focuses on an often-overlooked benefit of CSR: the positive impact on employee retention, motivation, and recruitment.

CSR: Definition, Origins, and Evolution

Definition

There are many definitions of CSR. To understand how CSR may be most impactful for an employee, we look to a holistic definition which includes John Elkington’s concept of triple-bottom line: people, profit, planet. The United Nations Industrial Development Organization (UNIDO) defines CSR as a “management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.” UNIDO also describes CSR as how a business “achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line-Approach”), while at the same time addressing the expectations of shareholders and stakeholders” (What Is CSR? | UNIDO, n.d.). Kolter et. al (2012) offers a definition which includes the important distinction that CSR activities are “discretionary business practices” and are beyond a company’s legal obligations (Kotler, 2012, p. 5).

Origins

For the past several decades, there has been a growing view that capitalism is an erosive force to society, the environment, and the economy. Activist groups, media, governments, and society at large are holding corporations responsible for their actions (Porter & Kramer, 2006, 2011). CSR has become a tool for modern day business leaders to address these concerns.

There is evidence that businesses have shown concern for society for centuries. Chaffee (2017) views corporations as “collaborations among the state governments and the people who organize, operate, and own them” and that this collaboration makes corporations inherently socially responsible. Chaffee notes that the origins of corporate structure can be traced back to ancient Roman law wherein organizations were recognized by the state as having an identity separate from the individuals that comprised of them. These organizations were created for religious, charitable, political, and other social purposes including homes for the poor, hospitals, orphanages, etc. In fact, the term “corporation” is a derivative of the Latin term “corpus” meaning body of the people, although under Roman law, these organizations were known as "collegium" and "universitas" (Chaffee, 2017, p. 357).

Literature on CSR as we know it today primarily developed during the latter half of the 20th century, evolving alongside concerns of the time and society’s expectations for corporate behavior (Agudelo et al., 2019, p. 17). Our modern-day concept of CSR began to take shape in the 1950s and 1960s when social responsibility was more formally defined through literature, social movements, and governance. During these decades, social movements primarily focused on human and labor rights, with a secondary focus on the environment (Carroll, 1999).

Throughout the 1960s and early 1970s, the United States government began taking action to address corporate behavior with the creation of the Environmental Protection Agency (EPA), Consumer Product Safety Commission (CPSC), Equal Employment Opportunity Commission (EEOC), and the Occupational Safety and Health Administration (OSHA). ?

Evolution

The following decades have seen increased global action towards CSR. The United Nations encouraged CSR with the United Nations Millennium Declaration, United Nations Development Program, and the climate change focused Conference of Parties (Agudelo et al., 2019). The concept of shared value was introduced and expanded in the last decade with Porter and Kramer’s (2011) seminal work declaring that “the purpose of a corporation must be redefined as creating shared value.” In this same decade, the historic 2015 Paris Climate Agreement was signed at the COP21 in Paris, France. The agreement was signed by 196 nations with a universal commitment to limit global warming (The Paris Agreement | UNFCCC, n.d.).

Today, corporate CSR is typically grouped into environmental sustainability and human sustainability initiatives. Environmental sustainability activities involve a corporation’s use of resources and impact on the environment. Human sustainability focuses on stakeholders to include employees, shareholders, customers, and community members — specifically those that may be impacted by a corporation’s operations. Internal human sustainability initiatives involve creating an equitable workplace, educational programs and job growth opportunities, and employee health and wellbeing. External human sustainability initiatives focus on community development (Heslin & Ochoa, 2008, p. 126).

One of today’s most pressing societal issues is the global SARS-CoV-2 pandemic and its aftermath. Business leaders are juggling workplace health and safety, supply chain disruptions, remote workforce transition, and the loss of an invaluable resource — employees.?“The Great Resignation” is the informal name given to the unprecedented number of Americans leaving the workforce or changing jobs due to the pandemic. The Department of Labor reported that 4.4 million workers quit their jobs voluntarily in September 2021 (Job Openings and Labor Turnover Summary - 2021 M09 Results, n.d.), an increase from August when 4.3 million Americans left the workforce.?This is the largest exodus the United States workforce has seen in two decades (Casselman, 2021). This reinforces the current need for business leaders to use every tool possible to attract, retain and motivate a workforce.

CSR and the Employee

There has been a shift in focus in recent research on CSR from the organizational level to the impacts on individual stakeholder psychology. Termed micro-CSR, this type of research is informed by subfields and topics of the fifty-four divisions of the American Psychological Association (Jones, 2019). Findings consistently show that CSR has a positive impact on the ability to attract new hires and prevent turnover while enhancing motivation, satisfaction, loyalty and commitment (Aguilera et al., 2007; Heslin & Ochoa, 2008; Skudiene & Auruskeviciene, 2012). These findings also suggest that business leaders can use CSR initiatives as a tool to build a more resilient workforce.

Evaluations

Before a CSR initiative can positively impact job seekers or motivate employees or improve retention rates, an evaluation must first be formed. CSR evaluations are “the cognitive and affective processes by which people gather and organize information related to organizations’ CSR initiatives to form judgments about the initiatives, experience emotions resulting from their perceptions, and also attribute reasons to their origin” (Gond et al., 2017, p. 231).?

Jones (2019) elaborates on this process as awareness, knowledge, perceptions, and appraisals, observing that employees or job seekers “do not directly respond to the CSR practices that objectively exist; they respond to their perceptions and appraisals of CSR practices, all of which depend on having some degree of CSR awareness” (Jones, 2019, p. 3). Awareness is the understanding of a corporation’s CSR practices at any level of specificity and knowledge obtained regarding CSR initiatives. Social perceptions are “formed through a combination of bottom-up processing of sensory inputs as the ‘raw data’ enter the brain, and the top-down processing in which one imposes meaning on those inputs” (Jones, 2019, p.4). Appraisals are the “evaluative judgements” job seekers and formulate around the CSR practices. To better understand how CSR may impact a job seeker or motivate and retain an employee, we will consider self-determination theory, social identity theory, and signaling theory.

CSR and Employee Motivation

Maintaining a motivated workforce is critical to business performance. Pinder (2008) defines work motivation as “a set of energetic forces that originates both within as well as beyond an individual’s being, to initiate work-related behavior, and to determine its form, direction, intensity, and duration.” Employees that are unmotivated often have poor work performance, higher absenteeism, and are more likely to exit the organization. By contrast, employees with high motivation tend to be more productive, creative, persistent, produce higher quality work, and stay with an organization longer (Amabile, 1993).

The impact of CSR on employee motivation can be understood through self-determination theory (SDT), specifically, the concepts of intrinsic and extrinsic motivation. Extrinsic motivators are derived from the ability satisfy one’s needs indirectly through monetary compensation which include salaries, benefits, incentives, and bonuses. Intrinsic motivators are actions performed for their own sake rather than an exchange of rewards. Internal workplace motivators relate to satisfaction, task enjoyment, ability to challenge oneself, feeling accomplishment, and positive evaluation (Gagné & Deci, 2005; Minbaeva, 2008; Pinder, 2008; Skudiene & Auruskeviciene, 2012).

A literature review performed by Skudiene and Auruskeviciene (2012) found that a company’s CSR behavior has a positive effect on intrinsic motivators. ?Employees of companies with well executed CSR strategies tend to exhibit higher commitment levels, satisfaction, trust, and loyalty. Additionally, CSR has been shown to strengthen employees’ self-image, fulfill the need for belonging, inspire employees to accept lower salaries, facilitate teamwork, and boost morale (Skudiene & Auruskeviciene, 2012, p. 54). Based on these findings, business leaders can use well defined CSR strategies to cultivate intrinsic motivation in employees. An engaged workforce may help a company remain resilient in challenging times.

CSR Impacts on Employee Retention

A company’s ability to attract and retain talented employees is a driver of financial performance. Organizational identification affects “both the satisfaction of the individual and the effectiveness of the organization” (Ashforth & Mael, 1989). When employees identify with the values and culture of an organization, they show stronger job satisfaction and are less likely to leave.

According to Gond et al. (2017), “to develop and maintain a favorable sense of self-worth, people seek to join and remain with high-status organizations, because such group membership is rewarding and creates a sense of pride.” Many CSR researchers explain the effect of employee retention through social identity theory wherein an employee “defines him or herself partly in terms of salient group memberships.”?Identification is typically formed with groups that are distinctive, prestigious, and competitive with other groups (Ashforth & Mael, 1989; Lee & Chen, 2018; Vinerean et al., 2013).?

A study conducted by Vinerean et al. (2013) followed the responses of employees at ten multinational companies to CSR initiatives. Facebook, Google, Procter & Gamble, Unilever, General Electric, Amazon.com, Best Buy, The Coca – Cola Corporation, Microsoft, and Starbucks were included in the study. Researchers used Likert statements around reducing carbon emissions, a genuine perceived commitment to CSR, contributing to the communities, and others to evaluate employee responses.?The relationship between CSR activities and employee satisfaction was highly significant demonstrating that CSR enhances job satisfaction for current employees. “Employee satisfaction for these respondents was enhanced when the focus is on value co-creation of social and sustainable practices, because a lot of the CSR initiatives explored in this research implied their direct involvement and co-creation” (Vinerean et al., 2013).

This study and others such as those conducted by Gond et al. (2017) and Lee & Chen (2018) represent a growing body of evidence legitimizing the idea that a company’s CSR initiatives will help create a resilient and engaged workforce with improved retention rates.

CSR Impacts on Recruitment

?Having a skilled, creative, and driven workforce is a component of competitive advantage. Employee recruitment is becoming ever more challenging as the values and needs of society and job seekers evolve. Since 2020, the global pandemic has created additional work-related pressures, including mass resignations, which have ratcheted up competition for employers. Companies with CSR initiatives are perceived as attractive workplaces for potential employees. Signaling theory provides a framework for understanding how CSR can influence a job seekers’ evaluation and attraction to a company (Backhaus et al., 2002; Bauman & Skitka, 2012; Greening & Turban, 2000; Jones et al., 2016; Kim et al., 2020; Vinerean et al., 2013).

Signaling is developed through a company’s motives, actions, intentions, or goals. Signals are formed when an individual’s perception of a company is influenced by the understanding of the company’s behavior (Hetze, 2016; Porter, 1980). “Job seekers frequently lack specific details about important employment characteristics, such as the working conditions and the quality of relationships within the organization” and in order to form an evaluation for a potential employer, “they look for signals that allow them to anticipate what it would be like to work for a given company” (Bauman & Skitka, 2012, p. 70).

Companies with CSR initiatives provide signals to a job seeker that the company has certain workplace values and norms. A study by Jones et al. (2016) hypothesized that an employer’s community involvement (CI) and environmental sustainability (ES) practices would signal to job seekers about organizational values which would infer a perceived value fit for the job seeker. This hypnosis was reinforced with 50% of CI and 61% of ES participants making “explicit references pertaining to the perceived value fit mechanism.” The concluding recommendation was “the net effect of leveraging CSR practices in employee recruitment is clearly a positive one from the perspective of a hiring organization” (Jones et al., 2016, p. 14).

However, having a CSR program is not enough to attract a workforce or constitute a competitive advantage in human capital. CSR must be integrated into company-wide communication strategies, and a company must “be able to take advantage of such talent and develop it into skills that are valuable, rare, nonsubstitutable, and unable to be easily imitated by competitors” (Greening & Turban, 2000, p. 255).

Conclusion

In our current society, CSR is nearly ubiquitous for large and multinational companies. CSR is used as a strategic tool to improve brand image, market position, and the bottom line. This strategy can be leveraged to improve key stakeholder relations. There are several psychological theories and principles explaining the mechanisms of how CSR enhances one of a company’s most critical resources — employees. Understanding the effects of CSR on employees represents a new opportunity for businesses leaders. Evidence supports the theory that CSR works to improve a corporation’s recruitment, motivation, and retention capabilities. At a time when societal pressures are causing high volumes of churn in the workforce, these abilities are critical to a company’s resiliency and well-being.

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