How Corporate Charitable Giving as an Expression of Pro-Social Behavior Eliminates the Hidden Costs of Control

Abstract

Formal control systems are an accepted and widely used instrument in companies. However, research finds that such formal control systems can have unintended negative effects, which poses hidden costs of control. Control systems are perceived as a sign of distrust and restraint (e.g., Falk & Kosfeld 2006; Christ 2013). The ubiquitous use of control systems in practice – despite academic evidence demonstrating negative effects – poses an unresolved conundrum. We draw on the halo effect and propose that context-specific factors alter the perception of control systems. Specifically, we test the effect of pro-social behavior expressed through charitable giving by a company on the perception of the trustworthiness of the party implementing a control system, the perception of the intrusiveness of the control system, and the hidden costs of control. In a laboratory study, we find evidence – consistent with the halo effect – that charitable giving by a company leads to a higher level of trust in the interaction partner, a more positive assessment of controls, and lower costs of control. These findings show that the costs of control in practice can be eliminated by pro-social behavior. Our findings potentially explain why some companies experience negative employee reactions to control systems while other companies continue to enforce control systems.