The Influence of Corporate Social Responsibility Disclosures and Assurance on Jurors’ Judgments Free

Godfrey (2005) asserts that corporate social responsibility (CSR) activities can provide insurance-like benefits during a corporate crisis by generating positive moral capital among stakeholders. Prior literature supports this argument, as CSR information reduces adverse reaction following a negative event (e.g., foodborne illness and product-harm crisis) among consumers (e.g., Klein and Dawar 2004) and investors (e.g., Christensen 2016; Godfrey, Merrill, and Hansen 2009; Stuart, Bedard, and Clark 2021; Zahller, Arnold, and Roberts 2015). Unexplored is whether the insurance-like protection from CSR extends to the litigation setting. Jurors play a pivotal role in society by listening to case evidence, reconciling conflicting arguments, and processing unfamiliar language, before deciding on an appropriate verdict (Winter and Greene 2007). Importantly, the juror decision-making context is distinct from other stakeholders since there is no economic transaction between jurors and the company, limiting the incentive for self-interested behavior.

CSR disclosure can communicate management’s CSR motives based on the type of CSR activities implemented. Management can focus on altruistic activities (i.e., benefit society without the expectation of financial returns) or self-serving activities (i.e., benefit society with the expectation of financial returns).¹ This distinction is important when examining stakeholder reactions to CSR information since perceptions of corporate CSR motives are an important predictor of response (e.g., Du, Bhattacharya, and Sen 2010; Ellen, Webb, and Mohr 2006; Groza, Pronschinske, and Walker 2011; Klein and Dawar 2004). Accordingly, this study examines whether the insurance-like protection from CSR disclosures extends to the litigation setting and considers management’s motives in analyzing the effects of CSR disclosure on jurors’ negligence and punitive damages assessments. It also investigates the impact of assurance on these relationships.

In considering how jurors process blame, the Culpable Control Model (CCM) (Alicke 2000) suggests that jurors’ evaluations of negligence are influenced by their direct spontaneous reaction not only to the case details but also to the perceived personal control the defendant had over the negative event. Furthermore, the CCM theorizes that jurors’ affective response to the defendant can influence perceived personal control.² Jurors with a favorable affective response to the defendant decrease perceptions of control by prioritizing exculpatory details of the case (Alicke 2000). In summary, the CCM suggests that jurors’ affective reaction to the defendant will indirectly influence negligence assessments through perceived personal control.

In this study, the CSR disclosure is unrelated to the negative event and is therefore unlikely to influence perceptions of control. Therefore, I rely on an affect-as-information theory that suggests that people use affective reactions as information when making subsequent decisions (Schwarz and Clore 1983). CSR information has been found to evoke affective reactions in investors (e.g., Elliott, Jackson, Peecher, and White 2014), and I expect the disclosure of altruistic CSR motives will have a similar influence in the litigation setting and generate favorable affective reactions toward the defendant. Consistent with affect-as-information theory, I expect jurors will use the positive affective reactions toward the defendant as relevant information when assessing blameworthiness of the defendant (Kadous 2001), which will reduce jurors’ negligence assessments.

Damages assessments are influenced by factors distinct from the determinants of negligence (e.g., Greene, Johns, and Smith 2001; Kadous 2000; Lowe, Reckers, and Whitecotton 2002; Reffett 2010). Punitive damages are assessed to punish the defendant’s actions and to deter the behavior from happening again (Greene and Bornstein 2000).³ Therefore, jurors are likely to search for signals about the company’s behavior before the negative event when determining punitive damages (Cass, Levett, and Kovera 2010; Cather, Greene, and Durham 1996). Perceptions of good company behavior should decrease the level of punitive damages since jurors will desire to punish the defendant less. This is consistent with the legal principle of mens rea, or the state of mind behind the company’s behavior (i.e., “bad” actors are punished more severely for bad deeds than “good” actors) (Christensen 2016; Godfrey et al. 2009).

In this study, the disclosure of long-standing CSR activities is expected to provide jurors with information about company behavior. CSR can create a halo effect among stakeholders even when CSR activities are unrelated to the negative event (e.g., Godfrey et al. 2009; Klein and Dawar 2004; Stuart et al. 2021).⁴ Similarly, I expect altruistic CSR motives will increase perceptions of the company’s behavior (i.e., they are a “good” actor) prior to the negative event and in turn reduce punitive damages.

The credibility of information presented to jurors is important during litigation (Grenier, Lowe, Reffett, and Warne 2015a). Prior literature suggests that CSR initiatives and disclosures are pursued out of self-interest in an attempt to manage organizational legitimacy (e.g., Campbell, Craven, and Shrives 2003; Cho and Patten 2007). Therefore, jurors could judge the disclosure of altruistic CSR motives as less credible if perceived only as an attempt to improve the company’s image rather than a genuine commitment to CSR. In this case, assurance could improve the credibility of the disclosure (e.g., Brown-Liburd and Zamora 2015; Cheng, Green, and Ko 2015; Pflugrath, Roebuck, and Simnett 2011). However, in the negative event setting, CSR assurance can also signal altruistic motives and improve perceptions of the company’s underlying ethical culture (Stuart et al. 2021). In this case, assurance could allow the disclosure of self-serving CSR activities to offer the same insurance-like protection as altruistic activities. Together, I expect CSR assurance to moderate the mediating relationships predicted in H1 and H2 by improving jurors’ affective reaction to the defendant and perceptions of company behavior when disclosure contains self-serving motives.

In total, 182 participants were solicited from Amazon Mechanical Turk (MTurk) after passing screening criteria, consistent with juror eligibility and appropriate representation of a cross-section of the population.⁵ Participants are 55 percent male and 74 percent between the ages of 25 and 44. Eighty-one percent have never served on a jury, 38 percent have a high school diploma, 17 (35) percent have associate’s (bachelor’s) degree, and 10 percent hold graduate degrees.⁶

The experimental task involves a foodborne illness lawsuit brought against XYZ, Inc. after a nationwide recall of its products. Participants receive background information about the company before random assignment to treatment groups. Next, participants read a transcript of the lawsuit where consumers are suing XYZ, Inc. after allegedly suffering sickness from using XYZ’s product. The plaintiffs claim XYZ, Inc. was negligent by not following food safety protocols. The transcript provides participants with opening and closing statements, expert testimony, and juror instructions. As part of XYZ’s closing statements, participants are given excerpts from the XYZ’s most recent CSR report, where the manipulations are included. Participants are then asked to make negligence assessments and answer additional questions to capture factors influencing juror decision-making. Participants who deem XYZ negligent continue on to make damages assessments.

Participants are provided with an excerpt of the company’s CSR report detailing the company’s investments in sustainable energy upgrades and reduction of pollution and waste in its production process. In the altruistic setting, the case explicitly states that the activities are undertaken by the company without anticipation of any financial benefit. In the self-serving setting, the case explicitly states that the activities are expected to contribute to positive future financial performance.⁷

The assurance-present treatment includes a statement that XYZ, Inc. engaged an independent assurer who concluded all information was fairly reported, while in the assurance-absent treatment participants are informed that XYZ Inc. did not engage an independent assurer.⁸

Consistent with prior research (e.g., Backof 2015; Brasel, Doxey, Grenier, and Reffett 2016; Maksymov and Nelson 2017), I measure jurors’ assessments of negligence by asking participants to estimate the likelihood that XYZ, Inc. was negligent using a 101-point scale (0 = not at all likely, 100 = extremely likely) and to provide a dichotomous measure (0 = not negligent, 1 = negligent). I measure the affective reaction to the defendant by asking participants to rate their impression of the company (0 = very unfavorable, 10 = very favorable) (Backof 2015).

Compensatory damages are measured between $0 and $10 million. Punitive damages are captured using an 11-point scale (0 = no punitive damages, 10 = ten times the compensatory damages) (Lee and Sweeney 2015). Also, participants rate their perceptions of the company’s behavior leading up to the negative event on an 11-point scale (0 = very bad, 10 = very good).

I test the study’s predictions using conditional process analysis (Hayes 2018; Preacher and Hayes 2004). Table 1 displays summary statistics for the dependent and mediating variables, and Table 2 displays the means of the mediating variables by treatment group.

Table 3, Panel A provides treatment means and Panel B reports the ANCOVA model that suggests CSR motives and assurance do not directly influence negligence assessments. Rather, jurors’ perception of the company’s control (p = 0.000) and positive affective reaction to the defendant (p = 0.001) significantly influence negligence judgments.⁹Table 4, Panel A reports the conditional process analysis regression results. Results show that the disclosure of altruistic CSR leads to a more positive affective reaction toward the defendant (β = 1.285; p = 0.003) and that the increased positive affective reaction toward the defendant decreases negligence assessments (β = −7.551; p < 0.001).¹⁰ Consistent with H1, the disclosure of altruistic (versus self-serving) CSR activities generates a more favorable affective response to the defendant, which reduces jurors’ negligence assessments.

Table 5, Panel A provides treatment means and Panel B reports the ANCOVA model that suggests that CSR motives and assurance do not directly influence punitive damages. Rather, jurors’ compensatory damages assessments (p = 0.007) and perceptions of the company’s behavior prior to the negative event (p = 0.004) significantly influence punitive damages. Table 4, Panel B reports the conditional process analysis regression results. Results show that the disclosure of altruistic CSR activities increases jurors’ perceptions of the defendant’s behavior before the negative event (β = 1.222; p = 0.034) and that increased perceptions of behavior reduces punitive damages (β = −0.344; p = 0.002).¹¹ Consistent with H2, CSR disclosure of altruistic (versus self-serving) activities indirectly reduces punitive damages by increasing perceptions of the defendant’s behavior.¹²

Figure 1 shows that the disclosure of altruistic (versus self-serving) CSR activities leads to a more positive affective reaction to the defendant when assurance is absent (β = 1.285; 90 percent confidence interval [CI90%], 0.534 to 2.036), but there is no difference in affective reactions to the defendant when assurance is present (β = 0.057; CI90%, −0.681 to 0.795). Conditional indirect effects show that the disclosure of altruistic CSR activities has a negative and significant influence on negligence when assurance is absent (CI90%, −19.703 to −1.248). However, when assurance is present, the benefit of altruistic (versus self-serving) activities is removed since the indirect effects are not significant (CI90%, −6.076 to 5.311). Together, results support H3a.

Figure 2 shows that the disclosure of altruistic (versus self-serving) CSR activities leads to marginally greater perceptions of the defendant’s behavior before the negative event when assurance is absent (β = 1.222; CI90%, 0.126 to 2.319), but there is no difference when assurance is present (β = −0.960; CI90%, −2.083 to 0.163). Conditional indirect effects show that the disclosure of altruistic CSR has a negative and significant influence on punitive assessments when assurance is absent (CI90%, −0.900 to −0.060). However, when assurance is present, the benefit of altruistic (versus self-serving) activities is removed since the indirect effects are not significant (CI90%, −0.076 to 0.870). Together, results support H3b.

The prediction for H3 is based upon assurance improving the credibility of the CSR disclosure and providing an additional altruistic signal about company management. Results from ANOVA analysis (not tabulated) suggest that assurance does both in the litigation setting. First, the independent variables interact to influence jurors’ perceptions of the believability of the disclosures (F = 3.83; p = 0.052).¹³ Follow-up simple effects show that jurors find the CSR disclosure more believable when assurance is present for both altruistic (7.06 versus 6.20; p = 0.097) and self-serving (7.67 versus 5.40; p < 0.001) disclosures, but the increase for self-serving is greater. Second, jurors appear to view assurance as an additional signal of altruistic motives when receiving self-serving disclosures (5.30 versus 4.20; p = 0.038) but not when receiving altruistic disclosures (6.10 versus 5.85; p = 0.646).¹⁴ Together, results suggest that assurance increases disclosure credibility but can also improve perceptions of company management by sending an altruistic signal when disclosing self-serving CSR motives.

Findings suggest that jurors reduce negligence and punitive damages assessments if they perceive altruistic CSR motives. However, CSR assurance also plays an important role during litigation by sending its own altruistic signal, providing companies the opportunity to pursue self-serving CSR activities and to receive similar insurance-like protection available from altruistic CSR activities.¹⁵ Currently, voluntary assurance rates are lower than disclosure rates (Blasco and King 2017), suggesting managers think the costs of assurance outweigh its benefits. However, audit firms building CSR lines of service and audit committees making the CSR assurance decision should consider the additional value of assurance in the litigation setting.