Advanced Accounting Social Responsibility Case

r Academy of Management Journal 2017, Vol. 60, No. 4, 1582–1606. https://doi.org/10.5465/amj.2014.0691

IDEOLOGY AND THE MICRO-FOUNDATIONS OF CSR: WHY EXECUTIVES BELIEVE IN THE BUSINESS CASE FOR CSR AND HOW THIS AFFECTS THEIR CSR ENGAGEMENTS

SEBASTIAN HAFENBRÄDL IESE Business School

Yale University University of Lausanne

DANIEL WAEGER Wilfrid Laurier University University of Amsterdam

Existing research on executives’ belief in the business case for corporate social re- sponsibility (CSR) is built on two premises. The first is that, in order to believe in the business case, executives need factual evidence that this business case indeed exists. The second premise is that those executives who do believe in the business case will readily invest in CSR-related activities. The results from our four studies tell a different story. We show that managers, rather than focusing on factual evidence, believe in the busi- ness case because they espouse a fair market ideology—the tendency to justify and idealize the market economy system. At the same time, even though managers espousing a fair market ideology believe in the business case for CSR, they are not more inclined to engage in CSR than managers who do not hold such an ideology, because they also experience weaker moral emotions when confronted with ethical problems. By drawing on system justification theory, we simultaneously explore antecedents and conse- quences of executives’ belief in the business case for CSR and of their moral emotions. In doing so, we help advance knowledge about the micro-foundations of CSR.

Why do executives invest in activities related to corporate social responsibility (CSR)? The literature provides a variety of explanations, ranging from ex- ternal factors such as pressures from activists (Briscoe, Gupta, & Anner, 2015; de Bakker, den Hond, King, & Weber, 2013; Delmas & Toffel, 2008; McDonnell, King, & Soule, 2015), to idiosyncratic characteristics of executives such as their beliefs, values, and emotions (Agle, Mitchell, & Sonnenfeld, 1999; Chin, Hambrick, & Treviño, 2013; Muller &

Kolk, 2010; Weaver, Reynolds, & Brown, 2014). A well-known proposition is that executives are more likely to invest in CSR activities when they believe in the business case for CSR or, in other words, in a positive relationship between corporate social performance (CSP) and corporate financial perfor- mance (CFP) (Bansal & Roth, 2000; Brønn & Vidaver- Cohen, 2009; Chin et al., 2013; Orlitzky, Schmidt, & Rynes, 2003). Yet, it has been asserted that many executives find it difficult to believe in such a posi- tive link (Porter & Kramer, 2002, 2006; Stahl & De Luque, 2014). This has spurred the emergence of a large academic literature attempting to find out whether or not CSP and CFP are indeed related (Eccles, Ioannou, & Serafeim, 2014; Flammer, 2015; Margolis, Elfenbein, & Walsh, 2009; Van Beurden & Gössling, 2008). It is often implied that finding evi- dence of a positive link would persuade executives to believe in the business case and to ultimately in- vest more in CSR activities (Kang, Germann, & Grewal, 2016; Orlitzky et al., 2003; Waddock & Graves, 1997). Not surprisingly, the quest for evi- dence of a positive link between CSP and CFP has

Both authors contributed equally. We would like to thank Associate Editor Heli Wang for her exceptional guidance and three anonymous reviewers for their helpful comments throughout the revision process. We are in- debted to Ulrich Hoffrage and Guido Palazzo for their un- wavering support for this project and to Klaus Weber for an invaluable suggestion. We further benefitted from en- lightening discussions with Nathan Betancourt, Grégoire Bollman, M.K. Chin, Joerg Dietz, Irina Feygina, Manuel Grieder, Don Hambrick, Florian Hoos, Nina Mažar, Sébastien Mena, Lamar Pierce, Leigh Plunkett Tost, Jan K. Woike, and Christian Zehnder. We gratefully acknowledge support by the Swiss National Science Foundation (SNSF).

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thus been dubbed the “‘Holy Grail’ of the business and society field of research” (Gond & Palazzo, 2008: 1).

This literature relies on the premise that because executives do not have factual evidence of a positive link, they also do not have a basis for believing in the business case for CSR. However, a long-standing stream of research in psychology has highlighted that individuals often form specific beliefs not so much on the basis of factual information and evi- dence, but rather on the basis of their more general belief systems, worldviews, and ideologies (Allport, 1954; Bobbio & Cameron, 1996; Converse, 1964; Knight, 2006). This psychological literature suggests that, in order to study executives’ beliefs about companies, we must account for executives’ more general views on the economic system in which these companies operate. Individuals’ general views on systemic arrangements—such as the economic system—are the focus of system justification theory (Jost, Banaji, & Nosek, 2004; Proudfoot & Kay, 2014). Therefore, we draw on system justification theory to explain the psychological origin of executives’ belief in the business case for CSR. Specifically, we hy- pothesize that the belief in the business case for CSR is grounded in executives’ fair market ideology—a positive ideological stance over the market economy system (Cichocka & Jost, 2014; Jost, Blount, Pfeffer, & Hunyady, 2003a). We find consistent support for this hypothesis in our four studies.

The finding that executives’ belief in the CSP–CFP link originates in fair market ideology reveals an important theoretical tension in our understanding of how the belief in the CSP–CFP link becomes ma- terialized in CSR activities at the firm level. On the one hand, it is logical to expect that executives who believe in the CSP–CFP link enhance their compa- nies’ CSR activities (Porter & Kramer, 2002, 2006; Vogel, 2005). On the other hand, prior research has shown that fair market ideology also affects people’s moral values and emotions. Specifically, it limits individuals’ potential to feel morally outraged by ethical problems stemming from corporate activities (Jost et al., 2003a; Wakslak, Jost, Tyler, & Chen, 2007). Such a lack of moral outrage should reduce execu- tives’ tendency to engage in CSR: if their moral emotions are not making them aware of a problem, then they are unlikely to take action against it. Thus, the theoretical tension arises because two contra- dictory elements (belief in the CSP–CFP link and lack of moral outrage) have their origin in the same underlying belief system (fair market ideology). We explore this theoretical tension by analyzing how the

belief in the CSP–CFP link and the lack of moral outrage concurrently impact executives’ tendency to engage in CSR activities. Our findings show that the negative impact of lacking moral outrage neutralizes the positive impact of the belief in the CSP–CFP link on executives’ CSR engagement.

The present paper makes several contributions. First, the existing literature argues that executives will engage in CSR if they believe in the business case (Chin et al., 2013; Kang et al., 2016; Orlitzky et al., 2003). Our findings lead us to caution against this assertion. We find that, even though they believe in the business case for CSR, managers who hold a fair market ideology will not readily engage in CSR be- cause they experience weaker emotional reactions to ethical problems than managers who do not hold a fair market ideology.

Second, our studies illustrate the complex and interdependent nature of how executives’ idiosyn- cratic lenses impact their strategic choices. Specifi- cally, our research underlines that it is not only executives’ beliefs and moral emotions that matter but also the psychological antecedents of these be- liefs and moral emotions. By showing how both the belief in the business case and moral emotions orig- inate in fair market ideology, we reveal the contra- dictory ways in which they are connected and impact managerial decisions. Uncovering these contradicting paths advances the literature, which has thus far conceptualized the belief in the business case and moral emotions or values as having either independent (Agle et al., 1999; Brønn & Vidaver- Cohen, 2009) or mutually reinforcing (Chin et al., 2013) effects on CSR engagement. Our results thereby illustrate how we can improve our un- derstanding of CSR by investigating its micro- foundations (Aguinis & Glavas, 2012; Christensen, Mackey, & Whetten, 2014; Kourula & Delalieux, 2016; Spiess, Mueller, & Lin-Hi, 2013) and also un- derscore the need for more research that heeds Hambrick’s (2007) call to investigate the psy- chological antecedents of executives’ idiosyncratic characteristics.

Third, we have developed an innovative method to measure the belief in the business case for CSR. No such measure existed previously and upper eche- lons theorists have so far relied on inferring this be- lief from rather distant biographical proxies (Chin et al., 2013), such as executives’ educational back- ground. Such biographical proxies are problematic because we cannot be sure that the proxies correlate with organizational outcomes for the reasons we hypothesize (Carpenter, Geletkanycz, & Sanders,

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2004; Hambrick, 2007; Lawrence, 1997). If we want to be able to make more grounded hypotheses, it is necessary to open the “black box” of executives’ id- iosyncratic characteristics (Hambrick, Geletkanycz, & Fredrickson, 1993), and thus to measure the belief in the business case more directly than via bio- graphical proxies. We do this in the present article by measuring this belief through an original prediction game.

The remainder of this article is structured as fol- lows. In the next section, we develop our hypotheses on the relationships between fair market ideology, the belief in the business case for CSR, moral outrage, executives’ biographical proxies, and CSR engage- ment. We then report the methods and results from our four studies. We conclude by discussing the implications of our studies and possible avenues for future research.

THEORY AND HYPOTHESES

Executive Characteristics and CSR Engagement

As firms’ activities in the area of corporate social responsibility have expanded over the past decade (Etzion & Ferraro, 2010; Scherer, Rasche, Palazzo, & Spicer, 2016), researchers have started examining the factors that lead companies to engage in CSR. Traditionally, the bulk of this research has empha- sized the importance of environmental factors, such as pressures stemming from activists (de Bakker et al., 2013; McDonnell et al., 2015; Mena & Waeger, 2014), the general institutional environment (Ioannou & Serafeim, 2012; Roulet & Touboul, 2015), a company’s industry (Barley, 2007; Weber, Rao, & Thomas, 2009), or its peers (Campbell, 2006). The relative dearth of individual-level investiga- tions into CSR has led to a call for increased ef- forts to understand the micro-foundations of CSR (Aguinis & Glavas, 2012; Christensen et al., 2014). Consequently, scholars have recently started to focus increasingly on firm-internal factors, such as individual-level managerial characteristics, that can explain why some executives are more likely to en- gage in CSR than others (Lewis, Walls, & Dowell, 2014; Maak, Pless, & Voegtlin, 2016; Petrenko, Aime, Ridge, & Hill, 2016). This is reflected in the emergence of the responsible and ethical leadership literature (Brown, Treviño, & Harrison, 2005; Waldman & Balven, 2014) and in the growing in- terest of upper echelons theorists in the topic of CSR (Deckop, Merriman, & Gupta, 2006; Slater & Dixon- Fowler, 2010).

At this individual level, the literature hints at two broad motives that drive executives’ CSR engage- ments. One part of the literature emphasizes execu- tives’ belief in the business case for CSR (Orlitzky et al., 2003; Porter & Kramer, 2002, 2006; Stahl & De Luque, 2014; Waddock & Graves, 1997). The other underlines their moral values and emotions (Agle et al., 1999; Weaver et al., 2014). These two broad motives have been mostly investigated as separate and independent drivers of CSR. The possibility that they may both be grounded in the same general worldview or ideology has not been considered thus far.

In the present article, we build on prior research in social psychology, which suggests that specific be- liefs and moral orientations are embedded in and shaped by more general, relatively coherent belief systems or ideologies. Such belief systems or ideol- ogies are the focus of system justification theory (Jost & Hunyady, 2005). Therefore, we draw on system justification theory to theorize how executives’ belief in the business case for CSR as well as their moral emotions are shaped. We start with executives’ belief in the business case for CSR to build our theoretical framework. Figure 1 provides an overview of the theoretical framework and the corresponding hypotheses.

System Justification Theory and the Belief in the Business Case for CSR

System justification theory (Jost & Banaji, 1994; Jost et al., 2004) explores how individuals justify and idealize systemic social arrangements. Examples of such social systems include the Indian caste system and the institution of slavery (Jost, Liviatan, van der Toorn, Ledgerwood, Mandisodza, & Nosek, 2010), but also the more recently developed systems such as the modern democratic political system (Feygina, Jost, & Goldsmith, 2010) or the market economy system (Jost et al., 2003a). In the present article, we focus on how individuals justify and idealize this latter market economy system and the activities of the principal actors operating in this system— private companies. While most people have been found to engage in system justification (Feygina et al., 2010; Jost & Hunyady, 2005), research has shown that some individuals have a stronger ten- dency to do so than others (Jost et al., 2003a; Jost & Thompson, 2000). These individual differences are captured in the concept of fair market ideology, which is defined as the extent to which individuals justify and idealize the market economy system (Cichocka & Jost, 2014; Jost et al., 2003a).

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The starting point for system justification theory is the commonplace assertion that powerful social systems exert great control over the lives of in- dividuals, whereas individuals have little or no control over the systems. According to system justi- fication theory, if individuals had to acknowledge that these powerful and hard-to-change systems are unstable, arbitrary, or flawed, they would experience psychological threat and anxiety (Jost & Hunyady, 2005; Proudfoot & Kay, 2014). Individuals strive to avoid such threat and anxiety in order to maintain a sense of psychological stability and safety—an ex- istential human need (Jost et al., 2010; Jost, Glaser, Kruglanski, & Sulloway, 2003b; Jost & Hunyady, 2005; Lerner, 1980). To maintain this sense of psy- chological stability and safety, individuals are mo- tivated to justify and idealize the status quo in the societal systems surrounding them. Conversely, they are motivated to oppose changes to the status quo, as such changes would be indicative of an unstable, arbitrary, or flawed system (Jost & Hunyady, 2005; Wakslak et al., 2007).

This motivation to psychologically bolster the status quo (Jost et al., 2004; Proudfoot & Kay, 2014), in turn, systematically affects people’s reasoning. Motivated reasoning means that an individual relies on a “biased set of cognitive processes” (Kunda, 1990: 480) to rea- soninawaythatallowshimorhertoconcludewhathe or she wanted to believe all along (Detert, Treviño, & Sweitzer, 2008; Paharia, Vohs, & Deshpandé, 2013). Hence, when engaging in motivated reasoning, people search for, pay more attention to, and put more em- phasis on information that supports what they want to believe. At the same time, they avoid, discount, and discredit information that does not support what they want to believe (Paharia et al., 2013).

Individuals with a high fair market ideology want to uphold the belief that companies’ activities in the market economy system are not random, arbitrary, or illegitimate, but instead serve the system’s purpose of generating economic value (Boltanski & Thévenot, 2006; Cichocka & Jost, 2014; Friedland & Alford, 1991; Jost et al., 2003a). To uphold this belief, these individuals idealize companies’ activities by using “information about how things are currently done to inform their beliefs about how things should be done” (Proudfoot & Kay, 2014: 176 emphasis added; see also Kay et al., 2009). In other words, fair market ideologists idealize the activities that companies do pursue as activities that companies should pursue as actors operating in the market economy system. Thus, they search for, pay more attention to, and put more emphasis on information indicating that the activities companies do engage in have economic value, and they avoid, discount, and discredit in- formation indicating that this is not the case (Elsbach & Kramer, 1996; Shepherd & Kay, 2012).

This reasoning is relevant to the present article when applied to companies’ activities related to CSR. Indeed, as more and more companies do engage in CSR activities (Etzion & Ferraro, 2010; Marquis & Qian, 2013; McDonnell et al., 2015), individuals who score high on fair market ideology are motivated to idealize these CSR activities as having economic value. Accordingly, they search for, pay more at- tention to, and put more emphasis on information indicating that CSR does indeed have economic value, and they avoid, discount, and discredit in- formation indicating that CSR is not of economic value. As a result, individuals with high fair market ideology believe in the business case for CSR. By contrast, individuals who score low on fair market

FIGURE 1 Overview of the Theoretical Framework

H1: B (+) H2: A + B (+) H3: B + C (+) H4: D + E (–)

Educational background (Biographical proxy)

Belief in the CSP–CFP link

Fair market ideology

Tendency for CSR engagement

Moral outrage D (–)

C (+)(+)

A (+

) B ( +)

E ( +)

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ideology will be less likely to idealize companies’ CSR activities as having economic value and are therefore also less likely to believe in the business case for CSR. Stated formally:

Hypothesis 1. The higher individuals score on fair market ideology, the more strongly they be- lieve in the business case for CSR.

Recent scholarship has emphasized that the ten- dency to engage in system justification is stronger un- der specific circumstances (Day, Kay, Holmes, & Napier, 2011; Kay et al., 2009; Shepherd, Kay, Landau, & Keefer, 2011). In particular, it has been found that individuals’ system justification motive is strongerthemoretheyseethesysteminwhichtheyare living or operating as inescapable (Kay & Friesen, 2011). The intuition behind this finding is that the reasonindividualsengageinsystemjustificationinthe first place—a need for psychological stability and safety—is enhanced under conditions of system ines- capability. In other words, “when people find them- selves in a system they cannot escape, it is particularly psychologically threatening for them to acknowledge that system’s flaws” (Proudfoot & Kay, 2014: 178). Therefore, individuals who perceive their system as inescapable would engage more strongly in system justification. Prior research has found evidence for this argument. For instance, in an experiment, Kay et al. (2009) manipulated participants’ perceptions that it had become more difficult (respectively less difficult) to emigrate from their home country. After this ma- nipulation, participants were told that politicians in their home country were disproportionately wealthy. Participants in the inescapability condition were found to view this indication of inequality to be more justified than the other participants.

With regard to the market economy system, a nat- ural way to explore the degree to which individuals are exposed to a feeling of system inescapability is by looking at their educational background. Upper echelons theorists also often use educational back- ground as a proxy for underlying psychological ori- entations (Carpenter et al., 2004; Hambrick & Mason, 1984). More specifically, research in the upper ech- elons tradition has argued that individuals with an educational background in business, economics, or law hold similar attitudes when compared to in- dividuals with other educational backgrounds (Barker & Mueller, 2002; Wiersema & Bantel, 1992). These similarities among business, economics, and law students have been found to be particularly strong with respect to general worldviews on the market economy and the role of corporations therein

(Fiss & Zajac, 2004), which are the focal interest of the present article.

In all of these curricula, an important part of edu- cation is dedicated to teaching about firms as profit- seeking entities that operate within an economic systemgroundedinmarket-basedexchanges. Suchan emphasis on the market economy system is accom- panied by a de-emphasis on other systems—or “or- ders of worth” (Boltanski & Thévenot, 2006; Patriotta, Gond, & Schultz, 2011). Thus, the inner logic of sys- tems other than the market economy is less present and available to individuals with an educational background in business, economics, and law. This leads to a perception that the market economy system lacks alternatives. In turn, such a sense that there is a lack of alternatives enhances feelings of inescap- ability1 (Kay & Friesen, 2011). For upper echelons theorists, this is relevant because it indicates that ed- ucational background can be used as a biographical proxy for fair market ideology. And since we expect higher levels of fair market ideology to be associated with the belief in the business case for CSR (see Hy- pothesis 1 above), it follows that an educational background in business, economics, and law is asso- ciated with such a belief in the business case for CSR. In other words, there is a relationship between edu- cational background and the belief in the business case for CSR; the mechanism that explains this re- lationship is fair market ideology. Stated formally:

Hypothesis 2. There is a positive indirect effect of educational background in business, eco- nomics, and law on the belief in the business case for CSR. This indirect effect is mediated by fair market ideology.

If we find evidence to support our first two hy- potheses, then fair market ideology can explain why individuals believe in the business case for CSR. Such a finding, in turn, would enable us to draw in- ferences about how fair market ideology impacts individuals’ tendency to engage in CSR activities. Researchers looking into the determinants of com- panies’ CSR engagement have for a long time focused

1 Note that our point does not depend on whether in- dividuals who had stronger feelings of inescapability (or a higher fair market ideology) self-selected into studying business, economics, or law, or whether individuals who study these academic disciplines develop stronger feelings of inescapability (or a higher fair market ideology). Our point is that the consequence is always the same: an edu- cational background in business, economics, and law is associated with higher levels of fair market ideology.

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on macro-level factors, such as pressure from activ- ists or industry affiliations (Durand & Vergne, 2015; Weber et al., 2009). However, recent scholarly in- terest has started exploring the more micro-level as- pects or company-internal drivers of CSR (Bridoux, Stofberg, & Den Hartog, 2016; Crilly, Zollo, & Hansen, 2012; Maak et al., 2016; Muller & Kolk, 2010). Of particular relevance for our purposes in the present article is that researchers have proposed, but never tested, the intuition that managers would be more likely to lead their firms toward increased CSR engagements if they believed in a positive relation- ship between CSP and CFP (Chin et al., 2013; Orlitzky et al., 2003). Underlying this intuition is the acknowledgment that the managers of private com- panies feel pressured by various powerful stake- holders, such as investors and regulators, and by the notion of fiduciary responsibility, to focus squarely on financial performance (Margolis & Walsh, 2003; Porter & Kramer, 2006). Therefore, if managers per- ceive CSR activities as an opportunity to increase their firms’ financial performance—in other words, if they believe in the business case for CSR—they should be motivated to lead their firms toward en- gaging in CSR (Orlitzky et al., 2003).

Conversely, if managers see CSR engagements merely as a cost, and thus as potentially reducing fi- nancial performance, they will refrain from pursuing CSR activities. In line with this argument, academics have long viewed the presumed difficulty that exec- utiveshaveinbelievinginthebusinesscaseforCSRas an important obstacle to increased engagement of their firms in CSR (Porter & Kramer, 2002; Stahl & De Luque,2014;Waddock&Graves,1997).However,this obstacle is lifted for executives who believe in the business case, which means they should have a com- paratively stronger tendency to engage in CSR activi- ties (Chin et al., 2013). As we proposed in our first two hypotheses, we expect fair market ideology to be predictive of executives’ belief in the business case for CSR. This implies an indirect relationship between fair market ideology and executives’ tendency to en- gage in CSR. If fair market ideology is predictive of the beliefinthebusinesscaseforCSRandthisbeliefinthe business case for CSR is predictive of executives’ tendency to engage in CSR activities, then fair market ideology should have a positive indirect effect on the tendency to engage in CSR. Stated formally:

Hypothesis 3. There is a positive indirect effect of fair market ideology on tendency to engage in CSR activities. This indirect effect is mediated by the belief in the business case for CSR.

Existing research has—seemingly in contrast to Hypothesis 3—found evidence that system justifica- tion in general and fair market ideology in particular are associated with attitudes and actions that ought to run counter to an increased tendency for CSR en- gagements. For instance, Feygina et al. (2010) found that individuals who engage more in system justifi- cation are also more likely to deny the existence of globalwarmingand, asa consequencethereof,areless likely to engage in pro-environmental behavior. More specifically, with respect to the context of corpora- tions operating ina marketeconomy, Jostetal. (2003a) investigated the attitudes of MBA students toward corporate scandals. They found that MBA students who scored higher on fair market ideology were less concerned about ethical violations and dubious ac- counting practices at companies in the United States.

How can these findings be explained? As reviewed above, foundational to system justification theory is the contention that system-justifying individuals are motivated to psychologically bolster the status quo in societal systems (Jost et al., 2004; Proudfoot & Kay, 2014). In response to their fundamental need for psychological stability and safety, individuals want to perceive such systems as stable, flawless, and legiti- mate (Jost & Banaji, 1994; Jost et al., 2004). This mo- tivation affects their reasoning: individuals high on system justification search for, pay more attention to, and put more emphasis on information that supports their belief in the stability, flawlessness, and legiti- macyof thesystems (Nam, Jost, & VanBavel, 2013). At the same time, they avoid, discount, and discredit information that could point to problems in that sys- tem (Proudfoot & Kay, 2014; Shepherd & Kay, 2012, 2014). For instance, Shepherd and Kay (2012, 2014) provided evidence that individuals who score higher on system justification tryharder to avoid information about economic issues during a recession or about companies involved in environmental scandals. When individuals high on system justification cannot avoid information about problems in the system, they instead discount and discredit such information and refuse to see the status quo as problematic (Jost et al., 2003a). As we already alluded to when developing Hypothesis 1, these individuals tend to idealize “the current status quo as the most desirable and reason- able state of affairs” (Kay et al., 2009: 421) by using “information about how things are currently done to inform their beliefs about how things should be done” (Proudfoot & Kay, 2014: 176 emphasis added). Kay et al. (2009) conducted an experiment to illustrate this phenomenon. After reading factual information stat- ing that women were underrepresented in high-level

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business positions (information about how things currently are), individuals in the high system justifi- cation condition were found to be more favorable to- ward gender inequality (how things should be) than individuals in the control condition.

When determining what is normatively justified on the basis of what they observe in the status quo, system justifiers guard themselves from using more intrinsic yardsticks of what should be, such as their moral values, intuitions, or emotions. That does not mean, of course, that high system justifiers cannot possess these moral values and emotions that prior research associated with higher CSR engagements (Brown & Treviño, 2006; Shao, Aquino, & Freeman, 2008). Rather, it means that high system justifiers refrain from relying on their moral values and emo- tions when assessing problems that occur in the current status quo of doing business, as if they were ethically blind (Palazzo, Krings, & Hoffrage, 2012). Specifically, Wakslak et al. (2007) showed that sys- tem justification leads to a significant reduction in both inward-focused moral emotions like guilt or frustration and in the outward-focused moral emo- tion known as moral outrage (Montada, Schmitt, & Dalbert, 1986). Moral outrage is especially relevant for the present article because it has been shown to predict behavioral intentions (Wakslak et al., 2007) and has already been studied in the context of CSR (Antonetti & Maklan, 2014). Moral outrage is de- termined primarily by the “perception that a moral standard or principle has been violated” (Batson, Chao, & Givens, 2009: 155). Hence, when individuals who are high in system justification guard them- selves from feeling moral outrage, they limit their potential to perceive and detect moral problems in that system. For instance, using both correlational and experimental designs, Tan, Liu, Huang, Zhao, and Zheng (2016) found that lower levels of moral outrage predicted lower awareness of corruption. Such insensitivity to problems, in turn, leads in- dividuals to be less supportive of activities and practices that aim to address these problems. Ac- cordingly, Wakslak et al. (2007) showed that in- dividuals who lack moral outrage are less supportive of helping disadvantaged segments of the pop- ulation. CSR activities of companies are often con- ceived of as addressing social, environmental, or other moral problems in the market economy system (Carroll, 1999; Garriga & Melé, 2004). As individuals experiencing lower levels of moral outrage are less likely to acknowledge the existence of such prob- lems, we expect these individuals to be less sup- portive of CSR engagements.

In sum, research has shown that system justifica- tion limits individuals’ potential to feel outrage to- ward moral problems (Wakslak et al., 2007). On this basis, we argue that individuals with higher levels of fair market ideology will experience less outrage to- ward social, environmental, or other moral problems in the market economy system. In turn, lower levels of moral outrage imply that individuals are less sensitive to these problems and are therefore also less motivated to solve them via CSR engagements. In other words, if fair market ideology is predictive of a lack of moral outrage and this lack of moral outrage decreases individuals’ tendency to engage in CSR activities, then fair market ideology should have an indirect negative effect on the tendency to engage in CSR. Stated formally:

Hypothesis 4. There is a negative indirect effect of fair market ideology on tendency to engage in CSR activities. This indirect effect is mediated by moral outrage.

Overview of Studies

This series of hypotheses converges in the theo- retical framework depicted in Figure 1. The center- piece is Path B, which connects fair market ideology and the belief in the CSP–CFP link, as proposed in Hypothesis 1. In Study 1, we first test this path with a sample of executives. We then test this path ex- perimentally in Study 2 in order to rule out concerns about reverse causality or omitted variables. Path A connects educational background, a proxy often used in upper echelons research, to fair market ideology. Paths A and B combined describe the in- direct effect of educational background on the belief in the CSP–CFP link via fair market ideology, which we propose in Hypothesis 2. We test this indirect path in Study 3, exploiting the natural variation in educational backgrounds in a student sample. Paths C, D, and E bring the tendency for CSR engagement into the picture. Path C connects the belief in the CSP–CFP link to CSR engagement. Together, Paths C and B illustrate the indirect positive effect of fair market ideology on CSR engagement via the belief in the CSP–CFP link proposed in Hypothesis 3. Path D leads from fair market ideology to moral outrage. Path E describes the positive link between moral outrage and CSR engagement. Together, Paths D and E constitute the negative effect of fair market ideol- ogy on CSR engagement via moral outrage, as pro- posed in Hypothesis 4. In Study 4, we investigate these two indirect effects (Paths B1C and Paths D1E) concurrently with a sample of executives.

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STUDY 1: EXECUTIVES’ BELIEF IN THE CSP–CFP LINK AND FAIR MARKET IDEOLOGY

The purpose of Study 1 is to test Hypothesis 1 and to investigate the link between fair market ideology and executives’ belief in the CSP–CFP link. To es- tablish the relevance of fair market ideology for de- cision makers who could potentially influence their company‘s policies, we followed Hambrick’s (2007) suggestion to use executive MBAs (EMBAs).

Sample

We recruited 59 executives from an EMBA class at a large Swiss university. We excluded 12 partici- pants because they did not complete the question- naire, respectively did not understand the instructions or the incentive structure of their task (i.e., they failed to correctly answer comprehension check questions). This resulted in a final sample of 47 participants, 12 of whom (26%) were women and 35 (74%) were men. On average, the executives were 37 years of age (SD 5 5.1) and had 11 (SD 5 4.8) years of managerial expe- rience. Twenty percent worked for small companies (1–50 employees), 23% for medium-sized companies (51–500 employees), and 57% for large compa- nies (more than 500 employees).

Measures

Belief about the link between CSP and CFP. In order to measure our subjects’ belief about the link be- tween CSP and CFP, we developed a prediction game. Participants predicted CFP based on information about prior financial performance and prior social perfor- mance. Using a prediction game enabled us to set in- centives for participants to make their judgments according to their actual and true beliefs and thereby avoid social desirability bias. Appendix 1 provides an example of how the predictions were made.

In the prediction game, participants were given information about the social and financial perfor- mance of a company at one point in time (time T). Based on these two pieces of information, partici- pants had to predict the financial performance of this company two years later (time T12).

All the information we presented to the re- spondents was based on real data. To operationalize social performance, we used data from Covalence EthicalQuote (www.ethicalquote.com) for the years 2002–2006 for a total of 183 companies taken from the Dow Jones Sector Titans Index, an index of the largest companies in important industries. Covalence EthicalQuote is a rating agency based in Geneva,

Switzerland that specializes in assessing external information about the social and environmental performance of companies. The rating agency’s methodology is based on the difference between all positive and all negative pieces of information about the social and environmental consequences of the companies’ activities reported in the news media worldwide (in English, Spanish, French, and Ger- man). As a measure of financial performance, we ob- tained the return on equity (ROE) for the previous 12 months from the COMPUSTAT database. ROE is an accounting-based measure from corporations’ bal- ance sheets that is obtained by dividing net income after tax byshareholder equity. ROE expresses a firm’s efficiency in generating profits and is therefore gen- erally used as an indication of how profitably a com- pany has operated over a year. Participants were informed in detail about the measures for social and financial performance.

To make the prediction task as intuitive as possible for our participants, the financial performance and the social performance were given as a rank among the entire set of 183 companies. A low number in- dicated a good rank (1st was the best) and a high number indicated a poor rank (183rd was the worst). Ranks are indicative of how good a company is compared to the other companies. This enabled our participants to consider the relationship between social performance and financial performance in- dependently from factors that affected the economy as a whole. To underline this point, we did not in- dicate the precise years for which the participants were making their predictions.

We selected seven of the 183 companies for the prediction game. The selection procedure for the seven companies was as follows: we chose compa- nies based on their social and financial performance at time T. To avoid a “regression to the mean” effect,2

we chose companies whose rank was closest to the middle rank for financial performance—the

2 This effect describes a situation in which a variable is measured multiple times. When the first measurement of the variable returns an extreme value, the second mea- surement will tend to be closer to the variable’s true mean. As a consequence, had we given our participants compa- nies with extreme ranks at time T (i.e., close to 1 or 183) for the dimension they had to predict (i.e., financial perfor- mance), and had they predicted a rank closer to the mean rank at time T12, then we would not have been able to separate two possible explanations for such predictions: (1) beliefs concerning the link between CSP and CFP that allow us to test our hypotheses, and (2) correct intuitions concerning statistical regression toward the mean.

2017 1589Hafenbrädl and Waeger

dimension that participants had to predict. At the same time, these companies should be as extreme as possible onsocialperformance—thedimensionthatparticipants did not have to predict. We selected seven companies that matched our criteria. Their financial performance ranks were in the middle (between 78 and 111), and their social performance ranks were split: four of the companies had a high rank (between 168 and 183) and three of the companies had a low rank (between 1 and 17). This procedure enabled us to investigate if, and in which way, the information about social performance influenced the prediction of financial performance.

Participants were given the rank for financial per- formanceandtherankforsocialperformanceattimeT, and they predicted the financial performance at time T12 (two years later). We calculated our main de- pendent variable by estimating how the given social performance ranks influenced the predicted financial performance ranks across all seven predictions, while controlling for the influence of the given financial performanceranks.Morespecifically,wefittedalinear regression for each participant separately, with the predictedfinancialperformancerankasthedependent variable and the given social performance rank as the independent variable, while the given financial per- formance rank was used as the control variable. A participant’scoefficient fortheeffectof thegivensocial performance rank on the predicted financial perfor- mancerankisourmeasureofthisparticipant’sbeliefin the CSP–CFP link. This coefficient measures the ex- pected change in the predicted financial performance rank when the given social performance changes by one rank. A positive coefficient indicates that the par- ticipant predicted a positive association between social performance at T and financial performance at T12, whereas a negative coefficient indicates that the participant predicted a negative association.

Participants predicted the financial performance of the companies at point T12, which was between 2004 and 2006. We evaluated the accuracy of their predictions by comparing their predicted rank with the actual ranks at that point in time. The ten most accurate participants were each awarded 50 Swiss francs (approximately USD 46.50 at the time of the study). We introduced this incentive to increase participants’ motivation and to counteract potential social desirability biases—that is, that the partici- pants would predict a stronger link between social and financial performance than they believed to ac- tually exist. In this incentive scheme, participants maximize their chances of winning the 50 Swiss francs by stating their true beliefs about how social performance impacts future financial performance.

Fair market ideology. To measure the extent to which participants engage in justification and ide- alization of the market economy system, we used the systemic fair market ideology scale. This scale was developed and tested by Jost et al. (2003a), who aimed to measure individual differences regarding the ideological tendency “to believe that the existing free market system is fair, ethical and legitimate” (Jost et al., 2003a: 66). Example items are “In many markets, there is no such thing as a true ‘fair’ market price” (reverse-coded) and “In free market systems, people tend to get the outcomes that they deserve.” This scale has been shown to strongly correlate with other general and economic system justification scales (Jost et al., 2003a). Participants answered on an 11-point scale ranging from 25 (completely dis- agree) through 0 (neither agree nor disagree) to 15 (completely agree). The 15 items were averaged into a fair market ideology score (Cronbach’s a in this sample 5 0.69, M 5 20.2, SEM 5 0.16).

Demographics and additional measures. Prior research has found a relationship between the political orientation of CEOs and their companies’ CSR engage- ment and has explained this finding by arguing that it is driven by CEOs’ belief in the business case for CSR (Chin et al., 2013). Therefore, we included executives’ political orientation as the control variable (on two seven-point scales, one ranging from liberal to conser- vative and one ranging from left-wing to right-wing).

We were also interested in exploring whether the beliefs about the CSP–CFP link differed systemati- cally between executives with different demographic characteristics. Therefore, we included several de- mographic control variables that are regularly in- cludedinbehavioralresearchinmanagement,suchas upper echelons research. In addition to gender and age, these demographic variables were the number of years of work experience, level of education (with the categories: primary school, secondary school, com- pleted high school, undergraduate degree, graduate degree,PhD), and rank inthe organizationalhierarchy (in terms of number of hierarchy levels below the CEO). For ease of interpretation, we coded both the level of education and the hierarchy level as contin- uous, although all results are robust to using a dummy variable for each level of these variables.

Results and Discussion Study 1

Table 1 summarizes the descriptive statistics and correlations for Study 1. Participants’ belief in the CSP–CFP link is significantly correlated with partici- pants’ fair market ideology (r 5 0.36, p 5 0.01). As can

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beseeninTable2,whenregressingfairmarketideology on the belief in the CSP–CFP link, the coefficient of fair market ideology remains significant (b 5 0.06, SEM 5 0.02, t 5 3.07, p 5 0.004), even after controlling for gender, age, education level, political orientation, work experience,andthehierarchydistancetotheCEO.This analysis is also robust to the exclusion of the control variables. Thus, we find support for Hypothesis 1: in- dividuals’ belief in a positive link between CSP and CFP is correlated with their ideological tendency to justify the market economy system.

STUDY 2: EXPERIMENTALLY ESTABLISHING THE CAUSAL LINK BETWEEN FAIR MARKET

IDEOLOGY AND THE BELIEF IN THE CSP–CFP LINK

The purpose of Study 2 is to establish that the link between system justification of the market economy systemandthebeliefsabouttheCSP–CFPlinkiscausal and in the proposed direction. Specifically, we hy- pothesized that we could prompt participants to be- lieve in a stronger (weaker) link between CSP and CFP by making fair market ideology more (less) salient. Ex- perimentally manipulating the accessibility of fair market ideology and measuring the effect of this ma- nipulation on the belief in the CSP–CFP link enables us to exclude alternative explanations, such as reverse causality or omitted variables.

Sample

We recruited 95 business and economics students from a large Swiss university. Twenty participants

were excluded because they did not complete the questionnaire, respectively did not understand the instructionsortheincentivestructure(i.e.,theyfailed to correctly answer comprehension check ques- tions). Sixty of the participants were women (81%), 14 (19%) were men, and one participant did not

TABLE 1 Descriptive Statistics and Correlations from Study 1

Variable Mean SD 1 2 3 4 5 6 7 8

1. Belief in the CSP–CFP link 0.08 0.15 2. Fair market ideology 20.20 1.12 0.36* 3. Gender 0.74 0.44 0.14 0.12 4. Age 36.87 5.08 20.09 20.19 20.04 5. Political orientation

(liberal–conservative) 21.23 1.13 0.16 20.02 20.12 0.02

6. Political orientation (left–right) 0.17 1.27 20.07 0.27 0.27 20.11 20.14 7. Work experience 11.26 4.82 20.12 20.17 20.07 0.83*** 0.00 0.01 8. Level of education 4.96 0.91 20.04 0.11 20.03 20.05 20.20 0.04 20.16 9. Hierarchical distance to CEO 2.64 1.90 20.23 0.14 20.42** 0.07 0.07 20.07 20.03 0.07

Notes: N 5 47. *p , 0.05

**p , 0.01 ***p , 0.001

TABLE 2 Regression Analysis with the Criterion Belief in the

CSP–CFP Link from Study 1

Variables Model 1 Model 2

Constant 0.13 0.13 (0.25) (0.23)

Gender 0.03 0.003 (0.06) (0.06)

Age 0.002 0.004 (0.009) (0.008)

Political orientation (liberal–conservative)

0.02 0.02

(0.02) (0.02) Political orientation (left–right) 20.009 20.02

(0.02) (0.02) Work experience 20.006 20.006

(0.009) (0.008) Level of education 20.02 20.03

(0.01) (0.01) Hierarchical distance to CEO 20.001 20.008

(0.03) (0.02) Fair market ideology 0.06**

(0.02)

R-Squared 0.11 0.29

Notes: SEM in parentheses; N 5 47. *p , 0.05

**p , 0.01 ***p , 0.001

2017 1591Hafenbrädl and Waeger

provide gender information. The average age was 21.04 (SD 5 1.70) years, and all participants were in the second year of their bachelor studies.

Experimental Design

The experiment consisted of two parts. In the first part, we manipulated the salience of system justifi- cation by inducing participants to conceive of the market economy as either fair or unfair. In the second part, participants played the same prediction game as in Study 1. To manipulate the salience of system justification, we adopted an unscramble sentences procedure from Feinberg and Willer (2011). We pre- sented participants with a set of scrambled sentences and instructedthemto unscramble these sets of words to form coherent sentences. Participants were ran- domly assigned to three conditions in which they were presented different sets of sentences. In the high system justification condition, eight unscrambled sentences described the market economy system as just and fair. These sentences were taken from the systemic fair market ideology scale by Jost et al. (2003a). Example items include “The free market system is a just system” and “In free market systems, people tend to get what they deserve.” These scram- bled sentences were mixed with six filler sentences, which were not associated with the topic. In the low system justification condition, participants were pre- sented with eight scrambled sentences that described the market economy system as unjust and unfair

(e.g., “The free market system is an unjust system,” “A free market does not guarantee that people get what they deserve”) and the six filler items. In the control condition, participantshadto unscramble only thesix filler items.

Measures

Belief about the link between CSP and CFP. Participants played a prediction game similar to the one in Study 1 (described above); the only difference was that participants made ten predictions instead of seven. Wecalculatedthevariablemeasuringthebelief in the CSP–CFP link in the same way as in Study 1.

Fair market ideology. As a manipulation check, participants completed the systemic fair market ideology scale at the end of the questionnaire (Cronbach’s a in this sample 5 0.66, M 5 –0.68, SEM 5 0.13). An ANOVA with experimental condi- tion as the independent variable and fair market ideology as the dependent variable reveals the main effect of the experimental condition on fair market ideology (F (2,72) 5 4.81, p 5 0.01), implying that the manipulation did indeed work.

Results and Discussion Study 2

The results, detailed in Figure 2, provide additional support for Hypothesis 1. An ANOVA with experi- mental condition as the independent variable and the belief in the CSP–CFP link as the dependent variable

FIGURE 2 Belief in the CSP–CFP Link in the Three Experimental Conditions, Study 2

0

0.05

0.1

0.15

0.2

0.25

0.3

B el

ie f

in t

h e

C S

P – C

F P

l in

k (

+ /–

S E

M )

High system justification Low system justification Experimental condition

Control

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reveals that there is a main effect of the experi- mental condition on the belief in the CSP–CFP link (F (2,72) 5 3.13, p 5 0.0499). The belief in the CSP–CFP link for participants in the high system justification condition is significantly higher than for participants in the low system justification condition (high system justification condition: M 5 0.257, SEM 5 0.039; low system justification con- dition: M 5 0.133, SEM 5 0.035, t (49) 5 2.35, p 5 0.023). Thus, we find additional support for Hy- pothesis 1; namely, that there is a link between fair market ideology and the belief in a positive link between CSP and CFP. The belief in the CSP–CFP link for participants in the control condition con- taining only the filler sentences is not significantly different from the belief in the CSP–CFP link for participants in the high system justification condi- tion (control condition: M 5 0.241, SEM 5 0.042, t (46) 5 0.27, p 5 0.79.) and is only marginally sig- nificantly different from participants in the low sys- tem justification condition (t (49) 5 1.98, p 5 0.054). This indicates that being assigned to the low system justification condition had a larger effect than being assigned to the high system justification condition. A possible explanation for this could be that our sample for Study 2 consisted solely of business and economics students. As our results from Study 3 (see below) in- dicate, business and economics students justify the marketeconomytoahigherdegreethanothersamples, whichmeansitmightbemoredifficulttoincreasetheir levels of system justification even further.

STUDY 3: EDUCATIONAL BACKGROUND, FAIR MARKET IDEOLOGY, AND BELIEFS ABOUT THE

CSP–CFP LINK

The purpose of Study 3 is to test Hypothesis 2 and to investigate the role of educational background for individuals’ fair market ideology and, ultimately, for individuals’ beliefs in the CSP–CFP link. Educa- tional background is often used in upper echelons research as a proxy for the individualized lenses of executives, and specifically to explain their beliefs.

Sample

We chose a student sample for Study 3 in order to exploit the natural variation in exposure to reasoning about the market economy system in different edu- cational backgrounds, which allows us to test Hy- pothesis 2. We recruited 124 students from a large Swiss university. Twenty-two participants were excluded because they did not complete the

questionnaire, respectively did not understand the instructions or the incentive structure (i.e., they failed to correctly answer comprehension check questions). We targeted students from two groups: (a) business, economics, and law; and (b) sociology, psychology, and philosophy. Forty-eight of the participants were women (47.6%), 53 (50.5%) were men, and one par- ticipant did not give gender information. The average age was 22.54 (SD 5 2.35) years, and the participants had studied for an average of 3.33 (SD 5 0.97) years.

Measures

Belief about the link between CSP and CFP. Participants played the same prediction game as in Study 2 (described above). We calculated the vari- able measuring the belief in the CSP–CFP link in the same way as in Studies 1 and 2.

Robustness check for the way financial perfor- mance is measured. In the prediction game, we ran- domly assigned two different measures of financial performance to participants. The goal of this manipu- lation was to test whether our results would be sensi- tive to the type of financial performance used to determine the companies’ financial performance ranks. Approximately half of the students (n 5 53) re- ceived rank information based on ROE (as in Studies 1 and 2). The remaining students (n 5 49) received rank information based on the relative change in share price overthepast 12months. ContrarytoROE, thismeasure is based on the valuation of the company on the stock market. We expected similar results from both groups.

Educational background. To measure partici- pants’ exposure to reasoning about the market economy system, participants reported their field of study. We created a dummy variable that was coded 1 for business, economics, and law students, and 0 for sociology, psychology, and philosophy stu- dents. Because participants’ belief in the CSP–CFP link could potentially also be influenced by knowl- edge about the CSP–CFP link acquired in a business ethics or an ethics course, we also asked participants whether they had taken such a course.

Fair market ideology. As in Study 1, participants completed the systemic fair market ideology scale developed and tested by Jost and colleagues (2003a) (Cronbach’s a in this sample 5 0.70, M 5 –0.21, SEM 5 0.11).

Results and Discussion Study 3

Table 3 summarizes the descriptive statistics and correlations. Table 4 summarizes the results from

2017 1593Hafenbrädl and Waeger

our mediation analysis, and Figure 3 illustrates these results graphically. For the direct path, studying business, economics, or law is positively associated with the belief in the CSP–CFP link (c 5 0.105, p 5 0.016). In the indirect path, fair market ideology is significantly greater for participants studying business, economics, or law (a 5 1.02, p , 0.001) than for other participants. Holding the academic field constant, fair market ideology sig- nificantly increases the belief in the CSP–CFP link (b 5 0.043, p 5 0.02).

To test for the hypothesized mediation, we fol- lowed the bootstrap procedure proposed by Preacher and Hayes (Preacher & Hayes, 2004, 2008; see also, Zhao, Lynch, & Chen, 2010). The mean indirect effect is positive and significant (a x b 5 0.044; the bootstrapped bias corrected 95% confi- dence interval [0.0102, 0.1013] does not include 0, which indicates a significant effect). When the me- diator is included in the regression, the direct effect

is no longer significant (c9 5 0.061, p 5 0.187). Since a x b is significant and c9 is not, the effect can be categorized as an indirect-only mediation. The re- sults from this mediation analysis support Hy- pothesis 2, namely that fair market ideology mediates the relationship between participants’ educational background and their belief in the CSP–CFP link.

Our results are not sensitive to the way financial performance is defined. We did not find a signifi- cant effect of the experimental manipulation of the financial performance measure (ROE versus rela- tive change in the share price), either overall or as a control variable in all the reported results. Also, our results are not sensitive to age or gender or whether participants have taken a course in ethics or business ethics as control variables. Thus, knowledge about the CSP–CFP link that partici- pants could have acquired during these courses does not seem to affect our results.

TABLE 3 Descriptive Statistics and Correlations from Study 3

Variable Mean SD 1 2 3 4 5 6 7

1. Belief in the CSP–CFP link 0.12 0.17 2. Fair market ideology 20.21 1.09 0.31** 3. Educational background 0.75 0.44 0.22* 0.49*** 4. Age 22.54 2.35 0.04 0.16 0.05 5. Gender 0.52 0.50 0.04 0.32*** 0.34*** 0.00 6. Course in business ethics 0.24 0.43 20.04 0.11 0.32*** 20.16 0.21* 7. Course in ethics 0.14 0.35 0.18 0.02 0.04 20.01 0.16 0.25* 8. Financial performance given in ROE or

share price 0.48 0.50 20.05 20.13 20.07 0.16 20.02 20.21* 20.21*

Notes: N 5 102. *p , 0.05

**p , 0.01 ***p , 0.001

TABLE 4 Mediation Analysis from Study 3

Regression paths B SE p

Mediation a path (Educational background on Fair market ideology) 1.020 0.24 ,0.001 Mediation b path (Fair market ideology on Belief in the CSP–CFP link) 0.043 0.18 0.020 Total effect, c path (Educational background on Belief in the CSP–CFP link; No

mediator) 0.105 0.43 0.016

Direct effect c’ (Educational background on Belief in the CSP–CFP link including Fair market ideology as mediator)

0.061 0.046 0.187

Indirect effect (c – c’) with bootstrapped bias-corrected 95% CI 0.044 [0.0102, 0.1013]

Notes: N 5 102, B 5 unstandardized coefficient; CI 5 confidence interval. Because the indirect effect may not be normally distributed, the CI is derived by a bootstrap procedure (here 10,000 resamples). As the CI does not include zero, the criterion for mediation has been meet (Preacher & Hayes, 2004).

1594 AugustAcademy of Management Journal

STUDY 4: FAIR MARKET IDEOLOGY, THE BELIEF IN THE CSP–CFP LINK, MORAL OUTRAGE, AND CSR ENGAGEMENT

Study 4 was designed to investigate the effect of both the belief in the CSP–CFP link and fair market ideology on CSR engagement. While we expect that fair market ideology has a positive indirect effect on CSR engagement via the belief in the CSP–CFP link (Hypothesis 3), we also hypothesized that fair market ideology has a negative indirect effect on CSR en- gagement via moral outrage (Hypothesis 4). The purpose of Study 4 was to test these hypotheses.

Sample

For study 4, we recruited managers and executives in class settings. Specifically, we recruited 83 MBAs from a large Swiss business school, 32 EMBAs from a large Swiss university, as well as 12 EMBAs from a large Dutch university.3 We excluded 22 participants because they did not complete the questionnaire, respectively did not understand the instructions or the incentive structure of their task (i.e., they failed to correctly answer comprehension check questions). In addition to using the exact same exclusion criteria that we used in Studies 1–3, we excluded four participants who only submitted their questionnaires after the debriefing, and five partici- pants who took multiple days between starting and finishing the questionnaire. (All our results are ro- bust to the inclusion of excluded participants.) This resulted in a final sample of 96 participants, 30 of

whom (31%) were women and 66 (69%) were men. They had an average age of 34 (SD 5 5.7) and an average of 10 (SD 5 5.0) years of managerial experi- ence. Twelve percent worked for small companies (1–50 employees), 18% for medium-sized compa- nies (51–500 employees), and 70% for large compa- nies (more than 500 employees).

Measures

Moral outrage. To measure participants’ potential to feel outraged by injustices or violations of moral principles, we used the moral outrage scale de- veloped by Montada et al. (1986), which was linked to system justification by prior research (Wakslak et al., 2007). Example items include “I feel morally outraged by social injustice” and “I rarely feel bur- dened by the unfairness of this world” (reverse- coded). Participants answered on a seven-point scale ranging from –3 (“That is not at all what I am thinking or feeling”) to 13 (“That is exactly what I am thinking or feeling”). The ten items were averaged into a moral outrage score (Cronbach’s a in this sample 5 0.82, M 5 1.16, SEM 5 0.09).

Tendency for CSR engagement. To measure participants’ tendency for CSR engagement, we re- lied on the corporate stakeholder responsibility scale developed by El Akremi, Gond, Swaen, De Roeck, and Igalens (2015). The items on this scale describe various “actions and policies designed to enhance the welfare of various stakeholder groups” (El Akremi et al., 2015: 2). We instructed participants to imagine that they were the CEO of a large company and then asked them to what extent they would en- sure that their company engaged in the actions and policies described in the items of El Akremi et al.’s (2015) scale. Specifically, we selected the three items with the highest factor loadings, as reported by El Akremi et al. (2015), for the domains of community- oriented CSR, natural environment-oriented CSR,

FIGURE 3 Fair Market Ideology Mediates the Relationship Between Educational Background and Belief in the CSP–CFP

Link, Study 3

A: Educational background

B: Belief in the CSP–CFP link

M: Fair market ideology

c = 0.105*

c'= 0.061,n.s.

b = 0.0

43* a = 1.02***

3 We recruited multiple samples to ensure sufficient statistical power. The pattern of results is similar in all three samples, and all our hypothesis tests also reach sta- tistical significance when only considering the managers and executives recruited in Switzerland. Nevertheless, we used a dummy variable for each sample to control for sample fixed effects in our analyses.

2017 1595Hafenbrädl and Waeger

employee-oriented CSR, and supplier-oriented CSR, and averaged these 12 items into a CSR engagement score (Cronbach’s a in this sample 5 0.85, M 5 2.95, SEM 5 0.11). Example items are “As the CEO, I will ensure that my company invests in humanitarian projects in poor countries,” “As the CEO, I will en- sure that my company makes investments to im- prove the ecological quality of its products and services,” “As the CEO, I will ensure that my com- pany promotes the safety and health of its em- ployees,” and “As the CEO, I will ensure that my company makes sure that its suppliers (and sub- contractors) respect justice rules in their own work- places.” Participants responded on a scale ranging from –5 (completely disagree) through 0 (neither agree nor disagree) to 15 (completely agree).

Belief about the link between CSP and CFP. Participants played the same prediction game as in Studies 2 and 3 (making ten predictions). As in the other studies, we incentivized participants to make accurate decisions. Specifically, the 10% of the participants who made the most accurate pre- dictions received 50 Swiss francs each (for the EMBAs and MBAs recruited in Switzerland), or 50 euros (approximately USD 50 at the time of the study) (for the EMBAs recruited in the Netherlands). To confirm the validity of our prediction game, we also included a direct question for what participants believe is the effect of social performance on future financial performance, with answers ranging from –3 (“strong negative influence”) through 0 (“no influ- ence”) to 13 (“strong positive influence”). The an- swer to this question is significantly correlated with our measure of the CSP–CFP belief based on the prediction game (r 5 0.33, p 5 0.011).

Fair market ideology. As in studies 1, 2, and 3, participants completed the systemic fair market ideology scale developed and tested by Jost and colleagues (2003a) (Cronbach’s a in this sample 5 0.70, M 5 0.21, SEM 5 0.12).

Demographics and additional measures. Par- ticipants were asked to indicate their gender and age. As a control variable for any potential effect of social desirability, we asked participants to com- plete the three items of the sincerity subscale from the honesty–humility scale, which is part of the HEXACO inventory, developed by Ashton and Lee (2009). (Cronbach’s a in this sample 5 0.60, M 5 1.40, SEM 5 0.23.) As in Study 1, we also included participants’ political orientation as a control vari- able (on two seven-point scales, one ranging from liberal to conservative, and one ranging from left- wing to right-wing); their level of education (with the

following categories: primary school, secondary school, completed high school, undergraduate de- gree, graduate degree, PhD); the number of years of work experience; and their rank in the organizational hierarchy (in terms of whether they considered themselves non-managerial, lower-, middle-, or upper-management). For the ease of interpretation, we coded both the level of education and the hier- archy level ascontinuous variables, but all results are robust to using a dummy variable for each level of these variables.

Results and Discussion Study 4

Table 5 summarizes the descriptive statistics and correlations for Study 4.

We tested Hypotheses 3 and 4 following the rec- ommendations from Preacher and Hayes (2008) for mediation analysis with multiple mediators. In line with these recommendations, we estimated three regression equations simultaneously, using the seemingly unrelated regression method (Zellner & Huang, 1962). In all regressions, we include gender, age, political orientation, work experience, level of education, hierarchy level, and social desirability, as well as a dummy variable for each of the different courses from which we recruited participants as control variables. All the results reported below are robust to the exclusion of these control variables. Figure 4 illustrates the different paths in the media- tion analysis, while Table 6 summarizes its results.

First, we regressed the independent variable, fair market ideology, on the first mediator, belief in the CSP–CFP link (a1 5 0.04, p 5 0.015). Thus, we rep- licatethe effect of fair market ideology on the belief in the CSP–CFP link that we established in Studies 1–3. Second, we regressed the independent variable, fair market ideology, on the second mediator, moral outrage. Fair market ideology significantly decreases moral outrage (a2 5 20.18, p 5 0.011). Third, we regressed both mediators and the independent vari- able on the dependent variable, tendency for CSR engagement (paths b1 and b2). The belief in the CSP–CFP link (b1 5 1.68, p 5 0.001) and moral outrage (b2 5 0.52, p , 0.001) significantly affect the tendency for CSR engagement.

The bootstrap analysis reveals that the indirect effect of fair market ideology on tendency for CSR engagement mediated by the belief in the CSP–CFP link is positive and significant (indirect path a1b1 5 0.070; bootstrapped bias-corrected 95% CI: [0.007, 0.195]), thereby supporting Hypothesis 3. The boot- strap analysis also reveals that the indirect effect of

1596 AugustAcademy of Management Journal

T A B L E 5

D es cr ip ti v e S ta ti st ic s a n d C o rr el a ti o n s fr o m

S tu d y 4

V a ri a b le

M ea

n S D

1 2

3 4

5 6

7 8

9 1 0

1 1

1 .B

el ie f in

th e C S P – C F P li n k

0 .1 9

0 .2 1

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ai r m ar k et

id eo

lo gy

0 .2 1

1 .1 5

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e 1 .1 6

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2017 1597Hafenbrädl and Waeger

fair market ideology on tendency for CSR engage- ment mediated by moral outrage is negative and significant (indirect path a2b2 5 –0.096; boot- strapped bias-corrected 95% CI: [–0.200, 20.026]), thereby supporting Hypothesis 4.

The total indirect effect of fair market ideology on tendency for CSR engagement (the sum of the two indirect effects reported above) is negative and does not reach statistical significance (total indirect effect 5 20.025; bootstrapped bias-corrected 95% CI: [–0.150, 0.123]).This means that the positive in- direct effect on tendency for CSR engagement, which stems from the path via the belief in the CSP–CFP link, is neutralized by the negative indirect effect on tendency for CSR engagement, which stems from the path via decreased moral outrage.

GENERAL DISCUSSION

Recent literature has focused on the individual characteristics of company executives that influence these executives’ tendency to invest in CSR-related activities. One characteristic that has received much

attention is the extent to which executives believe in the business case for CSR. Two premises are perva- sive in existing research on the belief in the business case. First, to believe in the business case, executives need factual evidence that this business case actually exists (Kang et al., 2016; Margolis et al., 2009; Orlitzky et al., 2003; Waddock & Graves, 1997). And second, those executives who do believe in the business case will readily invest in CSR-related ac- tivities (e.g., Bansal & Roth, 2000; Brønn & Vidaver- Cohen, 2009; Chin et al., 2013). The results from our four studies tell a different story. On the one hand, rather than focusing on factual evidence, we show that managers believe in the business case because they espouse a fair market ideology. On the other hand, even though managers who espouse a fair market ideology believe in the business case for CSR, they are not more inclined to engage in CSR because they also experience weaker emotional reactions to ethical problems than managers who do not hold such an ideology.

We developed a theoretical framework with the central contention that the belief in the business case for CSR is grounded in fair market ideology; that is, individuals’ tendency to justify and idealize the mar- ket economy system. While this contention might seem like an inconspicuous departure from prior re- search, our four studies show that it carries important implications. In Study 1, we demonstrated that exec- utives’ belief in the business case is indeed grounded in fair market ideology; we confirmed this finding in Study 2 with an experimental design. In Study 3, we found a relationship between individuals’ educa- tional background and their belief in the business case for CSR and that this relationship is mediated by fair market ideology. In Study 4, we showed that even

FIGURE 4 Overview of the Different Paths in the Mediation

Analysis, Study 4

Belief in the CSP–CFP link

Fair market ideology

Moral outrage a2

b1 Tendency for CSR engagement

b2a1

c’

TABLE 6 Mediation Analysis from Study 4

Regression paths B SE p

Mediation a1 path (Fair market ideology on Belief in the CSP–CFP link) 0.04 0.017 0.015 Mediation a2 path (Fair market ideology on Moral outrage) 20.18 0.064 0.011 Mediation b1 path (Belief in the CSP–CFP link on Tendency for CSR engagement) 1.68 0.494 0.001 Mediation b2 path (Moral outrage on Tendency for CSR engagement) 0.52 0.117 ,0.001 Indirect a1b1 path (via Belief in the CSP–CFP link) with bootstrapped bias-corrected 95% CI 0.070 [ 0.007, 0.195] Indirect a2b2 path (via Moral outrage) with bootstrapped bias-corrected 95% CI 20.096 [–0.200, 20.026] Total indirect effect with bootstrapped bias-corrected 95% CI 20.025 [–0.150, 0.123] Direct effect c’ (Fair market ideology on Tendency for CSR engagement including both

mediators) 20.08 0.087 0.36

Notes: N 5 96, B 5 unstandardized coefficient; CI 5 confidence interval. Because the indirect effects may not be normally distributed, the CI is derived by a bootstrap procedure (here 10,000 resamples). When the CI does not include zero, the criterion for mediation has been meet (Preacher & Hayes, 2004).

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though managers espousing a fair market ideology believe in the business case for CSR, they are not more prone to engage in CSR because they also experience weaker emotional reactions to ethical problems than managers who do not hold such an ideology.

Contributions to the Micro-foundations of CSR

Existing research on the micro-foundations of CSR has argued that both managers’ belief in the business case for CSR and their moral inclinations can explain why managers are prone to engage in CSR (Chin et al., 2013). However, this existing re- search has treated the belief in the business case and moral inclinations as independent factors (Agle et al., 1999; Brønn & Vidaver-Cohen, 2009). In our theoretical framework, we propose that the two are linked together by a common antecedent, fair mar- ket ideology. Figure 1 above summarizes the hy- potheses of our theoretical framework, for which we found support in our four studies. Specifically, Figure 1 illustrates that we would draw highly misleading conclusions if we did not study fair market ideology as a psychological antecedent to both the belief in the business case for CSR and to moral outrage. For instance, if our knowledge was restricted to the relationships among the three boxes in the upper part of Figure 1, we would con- tend that selecting executives with an educational background in business, economics, or law would lead to higher CSR engagements because their ed- ucational background leads them to believe in the CSP–CFP link (which then leads to CSR engage- ment). It is only when we also consider fair market ideology that we can see that selecting executives with an educational background in business, eco- nomics, and law will not increase a firm’s CSR engagement—even though executives with such an educational background believe in the business case for CSR. This is so because the relationship between educational background and the belief in the CSP–CFP link is driven by fair market ideology. In turn, fair market ideology impacts executives’ tendency for CSR engagement via two competing paths. It has an indirect positive impact on the tendency for CSR engagement via the belief in the CSP–CFP link, but it also has an indirect negative impact on the tendency for CSR engagement via lack of moral outrage. Importantly, our findings from Study 4 show that the negative impact of a lack of moral outrage neutralizes the positive impact of the belief in the CSP–CFP link on executives’ CSR engagement.

These findings highlight the significant potential that lies in the study of micro-level foundations for advancing our knowledge about CSR (Aguinis & Glavas, 2012; Christensen et al., 2014; Kourula & Delalieux, 2016). They further underline the need for more research that heeds Hambrick’s (2007) call to investigate the psychological antecedents of execu- tives’ beliefs, values, and emotions. Our studies also illustrate the importance of inferring executive characteristics, not only through biographical prox- ies, such as educational background, but also via more precise measures (Carpenter et al., 2004; Lawrence, 1997), because the rather distant bio- graphical proxies upon which much of the research on upper echelons relies might not adequately capture the underlying hypothesized constructs (Hambrick, 2007; Hambrick et al., 1993). Indeed, it is only because we have developed a prediction game to measure the belief in the CSP–CFP link as pre- cisely as possible that we could investigate the complex web of relationships illustrated in Figure 1.

Contributions to the Literature on the Business Case for CSR

Our results also have implications for the many studies that have aimed to answer the question of whether there is a link between CSP and CFP at the company level (Allouche & Laroche, 2005; Margolis et al., 2009; Margolis & Walsh, 2003; Orlitzky et al., 2003). Much of the research in the area implies that, a priori, executives do not believe in the business case for CSR, but that scientific evidence of the ex- istence of the business case could convince them to believe in it (Baird, Geylani, & Roberts, 2012; Margolis et al., 2009; Orlitzky et al., 2003; Van Beurden & Gössling, 2008). However, we show that, rather than waiting for scientific evidence, managers believe in the business case for CSR for ideological reasons. We also find that, rather than needing to be convinced, the majority of executives believes in this link. In fact, 80% of the executives who participated in our studies believe in the business case for CSR, as expressed in a positive coefficient in our measure for the belief in the business case.

The business case for CSR also occupies a central role among researchers advocating for an in- strumental view on CSR (McWilliams & Siegel, 2001; Siegel, 2009; Sundaram & Inkpen, 2004). Scholars in this tradition suggest that executives should invest in CSR activities when such activities enhance a firm’s profitability. The underlying assumption in this ar- gument is that executives are rational actors who

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apply cost–benefit calculi to determine whether a business case exists. However, our results indicate that executives believe in the existence of the busi- ness case on the basis of ideological rather than ra- tional considerations.

More critical scholars have noted that executives endorsing such an instrumental view would refrain from investinginCSRwhen they havedifficulty seeing a business case for CSR (Banerjee, 2008; Crane, Palazzo, Spence, & Matten, 2014; Hahn, Preuss, Pinkse, & Figge, 2014; Marques & Mintzberg, 2015). However, under the premise that executives endorsing an instrumental view on CSR also hold a fair market ideology, the results from our four studies suggest that even though these executives believe in the business case, theyneverthelessrefrainfrom investingin CSR. It is thus not so much the difficulty of believing in the business case, but rather their lack of moral emotions that prevents executives with an instrumental view from investing in CSR. Hence, our results point toward a potential new micro-level explanation for why ex- ecutives with an instrumental CSR orientation may refrain from investing in CSR activities.

Contributions to System Justification Theory

Our results show that those individuals who study business, economics, or law, and therefore have the highest level of formal knowledge about companies and the economic system, are also those with the highest level of ideology about the market economy system. Thereby, our results support system justifi- cation theorists’ proposition that more knowledge doesnot necessarilymake ideologiesobsolete,but can instead contribute to their continuing existence. For instance, Shepherd and Kay (2012) suggested that individuals closely tied to a system will increase their idealization of that system and subsequently avoid searching for information that could challenge this idealized view. This notion, that actors who are closely tied to an institutionalized system are unlikely to look for and perceive alternatives to that system, is in line with neo-institutionalists’ argument that change in highly institutionalized settings is less likely to come from actors deeply ingrained in an in- stitution. Rather, change initiatives are more likely to originate from either peripheral actors(Faulconbridge & Muzio, 2016; Greenwood, Raynard, Kodeih, Micelotta, & Lounsbury, 2011) or from actors operat- ing across multiple systems (Greenwood & Suddaby, 2006; Smith, Gonin, & Besharov, 2013). Institutional scholars argue that such actors are well positioned to initiate change efforts because they are less subject to

institutional pressures for conformity or because they have access to prevalent ideas in multiple in- stitutional orders. A system justification perspective would add that such actors have a lower tendency to idealize the existing order and thus be more open to alternative arrangements.

Limitations and Future Research

There are certain limitations to this paper, which we suggest could be addressed in future research. First, our studies took place in a controlled envi- ronment (i.e., in the classroom). This allowed us to take clean measurements and to exploit random assignment to make causal claims, but it might limit the external validity of our findings. At the same time, as prior research already provided evidence for the external validity of the relationship between executive characteristics and CSR engagement (Chin et al., 2013; Lewis et al., 2014; Petrenko et al., 2016), our explicit goal was to focus on un- derstanding the psychological underpinnings of such executive characteristics and specifically of their beliefs and their moral emotions. Further- more, we have established (Study 1) and replicated (Study 4) our main finding with different samples of experienced executives—the population that we want to generalize to –and have developed an in- novative methodology to measure their beliefs re- liably. Nevertheless, further investigations—using, for instance, field data to measure actual CSR engagement—would strengthen the generalizabil- ity of our results. An ideal study would follow ex- ecutives and aim to detect changes in their fair market ideology, and then analyze whether such changes would manifest themselves in their belief about the business case for CSR, in their moral outrage about ethical problems, and ultimately in their companies’ CSR engagements.

Second, to make the belief in the business case for CSR measureable and to make our analysis feasible, we represented the belief within one single re- gression coefficient. Thus, we have assumed that executives conceive of the relationship between CSP and CFP as linear. While existing research on exec- utives’ belief in the CSP–CFP link implies such lin- earity (e.g., Chin et al., 2013), it would be interesting to explicitly test this assumption in the future. For instance, executives might believe that there are di- minishing returns to CSR engagements and assume that, while going from zero CSR engagements to moderate levels of CSR increases financial performance, going from very high levels of CSR to

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even higher levels will at some point decrease fi- nancial performance (Flammer, 2015).

Third, the present article focused on beliefs that are, by definition, at the level of the individual ex- ecutive. As executives usually make decisions in teams (Carpenter et al., 2004; Hambrick, 2007; Hambrick & Mason, 1984), team members might not only be diverse in terms of their beliefs but also in terms of their educational background, their fair market ideology, and their level of moral outrage. Potentially, such diversity could boost CSR en- gagement, as diverse teams might include both members who are sensitive to the ethical dimension of corporate activities because they feel outraged by moral problems and those who believe that it pays to engage in CSR.

Fourth, while we investigated the beliefs of execu- tives with the goal of contributing to the micro- foundations of CSR, executives are not the only group whose decisions affect companies and the economic system. For instance, consumers often evaluate com- panies and their products. Such evaluations are not only based on the actions of the companies and the attributes of their products, but also on the underlying motivation that is assumed to have driven the com- panies’ actions. Specifically, consumers believe that products of companies with CSR engagements have better quality and functionality (Chernev & Blair, 2015), unless they believe that the company in- tentionally focused on the product’s social value (Newman, Gorlin, & Dhar, 2014). In this case, con- sumers assume that the company sacrificed product quality by directing limited resources toward making the product socially beneficial. Other research has shown that people evaluate companies less favorably when those companies benefit economically from investing in social or environmental initiatives, even compared to companies that do not engage in such initiatives at all (Makov & Newman, 2016; Newman & Cain, 2014). More generally, high profits are seen as indicators of low social value (Bhattacharjee, Dana, & Baron, in press). Linking these findings to our studies, it would be interesting to investigate whether people evaluate companies differently if they believe in the business case for CSR. Because evaluators are often unaware that there is a business case for CSR in a specific company, or where the company’s profits come from, it would be fruitful for future research to investigate the relationships between fair market ideology, the belief in the business case for CSR, and the evaluations of corporate activities by consumers, or other third parties such as investors, regulators, or the general public.

CONCLUSION

In thisarticle, we focused on the ideological origin of executives’beliefinthebusinesscaseforCSRandtheir emotional reactionstoethical problems. Wefound that executives holding a fair market ideology are more likely to believe in the business case but are less likely to be morally outraged by ethical problems. This ideological foundation has important consequences for executives’ tendency to engage in CSR activities. Indeed, our results show that even though they believe in thebusiness casefor CSR, executiveswho hold a fair market ideology will not readily engage in CSR be- cause they experience weaker emotional reactions to ethicalproblemsthanexecutiveswhodonotholdafair market ideology. Hence, while existing research con- tends that executives will readily invest in CSR activ- ities if they believe in the business case for CSR (Baird etal., 2012; Orlitzkyet al., 2003),ourfindingslead usto caution against this assertion.

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Sebastian Hafenbrädl ([email protected]) joined IESE Business School as an assistant professor, after conducting postdoctoral studies at the School of Management, Yale University. He received his PhD in management from the Faculty of Business and Economics (HEC) at the University ofLausanne. His research onjudgment anddecision making lies at the intersection of psychology and economics. In particular, he focuses on managerial contexts, ethics, and the role played by social and institutional forces.

Daniel Waeger ([email protected]) is an assistant professor at Wilfrid Laurier University. Before joining Wilfrid Lau- rier, Daniel was an assistant professor at the University of Amsterdam. He received his PhD from the University of Lausanne and conducted post-doctoral studies at North- western University. Daniel’s research interests include social movement theory and organization theory as well as

empirical phenomena such as corporate responsibility and corporate governance.

APPENDIX 1 EXAMPLE PREDICTION

Your prediction for the financial performance two years later:

Rank ______ out of 183

Company A Financial performance:

Rank 95 out of 183 (among middle rank performers)

Social performance: Rank 180 out of 183 (among the worst 10%)

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