Have you been served? The relationship between corporate social responsibility and lawsuits

Abstract

Extant literature suggests that corporate social responsibility (CSR) can help firms avoid the unpleasantness of being involved in lawsuits. However, prior work has focused on how CSR affects the outcomes of lawsuits. The literature has not yet measured the relationship between CSR and involvement in litigation. In this study, we assess whether CSR buffers firms against lawsuits through a longitudinal examination of 1047 firms from 46 countries from 2002 through 2012. Controlling for a variety of factors, we unexpectedly find a positive association between CSR and lawsuits. Once we parse the data, subdividing CSR into its three common pillars: environmental, social, and governance practices, we find that the positive relationship is driven by social performance. By contrast, environmental performance and governance performance exhibit a negative relationship. Thus, our findings suggest that environmental performance and governance performance repel lawsuits, but social performance actually attracts lawsuits. Despite appearing contradictory at first glance, our findings actually complement the extant literature. We recognize that different types of CSR are more or less likely to promote the conditions that cause firms to need to cash in their stockpile of goodwill chits (Godfrey, 2005) in the first place.