Int. Journal of Business Science and Applied Management, Volume 15, Issue 1, 2020

The relationship between corporate social responsibility and

employee engagement - A social exchange perspective

Khalid Rasheed Memon*

Graduate School of Business, University Sains Malaysia

Gelugor, Penang, 11700, Malaysia

Email: khalidilm@hotmail.com

Bilqees Ghani

College of Business Management, Institute of Business Management

Korangi Creek, Karachi, 7519, Pakistan

Email: bilqees.ghani@gmail.com

Saima Khalid

Saudi National Hospital

Al-Aziziyah, Makkah, 21514, Saudi Arabia

Email: drsaima.memon@gmail.com;

Abstract

The purpose of this article is to investigate the impact of internal CSR on Employee Engagement

through a mediation-moderation mechanism in a developing country, using social exchange theory. In

this empirical study, 300 self-reported questionnaires were randomly distributed among the employees

of 25 companies, from the FMCG and Telecom sectors of Pakistan. Data collected from these

employees were further analyzed through confirmatory factor analysis using the structural equation

modeling technique, using the latest available version of software Smart PLS 3. The results of

confirmatory factor analysis prove the hypothesized direct effects of corporate social responsibility on

employee engagement. The findings also indicate the positive mediating role of trust in the relationship

between internal corporate social responsibility and employee engagement. However, the moderator

Leader-Member exchange did not demonstrate any effect. The study encourages practitioners to focus

on building trust in employees for improved participation in the firm's processes, use new ways of

conveying the concerns to employees through various human resource interventions and leader-

member exchange mechanisms. However, since the research has been conducted in a single country, i.e.

Pakistan, with a limited number of respondents, therefore, it cannot be generalized, whereas research in

different countries with a larger sample may bring interesting/contrasting results.

Keywords: corporate social responsibility, employee engagement, trust, social exchange theory,

leader-member-exchange

Int. Journal of Business Science and Applied Management / Business-and-Management.org

1. INTRODUCTION

The acronym “CSR”, i.e. corporate social responsibility, is a relatively new concept (Skudiene &

Auruskeviciene, 2012). Even the world's third-richest country (after the USA and China), Japan, only

adopted the term formally in 2003. It existed earlier in Japan’s corporate principles and policies, as

described by one of the managers during an interview "to put the utmost priority on respecting human

dignity, safety, and legal compliance,'' and by another manager from a manufacturing company, ''to

contribute to society via our business or mono zukuri [making things].’’ (Fukukawa & Teramoto, 2009).

Nevertheless, corporate social responsibility has now become a widely spread term and has gained

global importance for organizations, especially during the last few years. In a survey conducted in the

Middle East, 86% of the companies rated corporate social responsibility as a vital component of

business strategy, and this percentage was 83% worldwide (Azim et al., 2014; Tebini et al, 2014). CSR

has become a demand of various stakeholders, both internal (top management, executive boards) and

external (shareholders, third party agencies), since it leads the organizations to operate in ways that are

considered to be socially and environmentally responsible (Zulfiqar et al, 2019; Ilkhanizadeh &

Karatepe, 2017; Aguilera et al, 2007; Appelbaum et al, 2007; Cramer, 2005; Welford & Frost, 2006).

Today's modern organizations are known not only because of their financial performance but also for

"doing good".

Recently some studies have been conducted to measure the effect of CSR on employee attitudes

and behaviors, such as employee knowledge sharing behavior (M. Farooq et al, 2014), affective

organizational commitment (O. Farooq et al, 2013), OCB (Azim et al, 2014; Shiun & Ho, 2012;

Wenbin et al, 2012), and employee motivation (Skudiene & Auruskeviciene, 2012), yet scholars need

to explore the behavioral impacts of CSR activities in-depth, to extend the social exchange

relationships among various organizational stakeholders (Mallory & Rupp, 2014; Zulfiqar et al, 2019).

For instance, Rupp et al (2006) discussed the role of corporate social responsibility as a process of

developing organizational culture and social consciousness. They considered employees as the most

imperative stakeholders of the organization, especially those employees who are not offering corporate

social responsibility activities but are instead affected by them, and such employees can react to as well

as evaluate the corporate social responsibility initiatives of their respective organizations (Rupp et al,

2006). Their study opens a horizon for evaluating corporate social responsibility activities and their

impact on the individual psychological needs of employees. However, this work is only limited to

analyzing the employees' views/reactions to corporate social responsibility initiatives through the

perspective of organizational justice, and the authors do not examine the impact of employees'

personality traits, they also largely ignore the underlying mediation mechanisms through which

corporate social responsibility can affect employee outcomes. Also, there is a need to examine the

possible mediators and moderators in the said relationship. Therefore, our research specifically

investigates the relationship between the perceptions of CSR from employees' perspectives and their

influence on employees' engagement, which has still not been discussed in the literature (Zulfiqar et al,

2019).

The term employee engagement (EE) was first defined and known as personnel engagement and

personnel disengagement (Kahn, 1990). Since then, it has always been a major concern for

organizations, especially because organizations are meant for profitability and gaining a competitive

advantage over other firms. In this regard, engaged employees play a vital role in achieving the

organizational mission and goals (Rich et al, 2010; Vance, 2006), leading towards organizational

success and financial performance (Azim et al, 2014). Organizations are now looking for those engaged

employees who can work with full passion, commitment, and dedication while having a clear

understanding of organizational goals and mission. Moreover, they strive for the fulfillment of

organizational goals with a sense of ownership while considering every single tiny matter as their own

and resolving it to the best of their ability for the maximum satisfaction of customers and building a

positive organizational image (Bhattacharjee & Sengupta, 2011; Jose & Mampilly, 2015; Lockwood,

2007). They are less likely to leave their organization as well (Batista-Taran et al, 2009) and they are

deeply involved in their work, with a high level of energy and enthusiasm (Xanthopoulou et al, 2009;

Memon et al, 2018) These employees turn out to be the organization’s asset, they add value effectively

and efficiently and increase organizational profitability as well as paving the way to gaining

competitive advantage (Rich et al, 2010; Vance, 2006; Memon 2014a).

Previous research suggested that perceptions regarding the workplace environment and situations

play a vital role in shaping the behaviors and it is proposed that unfavorable perceptions lead towards

deviant behaviors. However, the reaction to such events may be affected due to personality variables

(Colbert et al., 2004). Conversely, the perceived internal CSR may alter the negative perceptions to the

positive ones and develop feelings of care, concern, and safety (Zulfiqar et al, 2019), transforming

Khalid Rasheed Memon, Bilqees Ghani and Saima Khalid

employees into engaged employees. Considering the importance of humans, being treated as capital

now (Knezović et al, 2020; Memon, 2014b), organizations have changed the way they used to treat

their employees (Dash, 2012), customers, and other stakeholders. Firms are now looking for something

that is beyond the narrow economic, technical, and legal framework (Carroll, 1999; O. Farooq et al,

2014; Fukukawa & Teramoto, 2009). Thus, CSR could be one of the ways through which organizations

can get their employees engaged and convey a sense of personal care and value.

The review of the literature shows that the demographic factors, motivating traits and attitudes that

trigger and enhance employee engagement in corporate social responsibility are not fully researched

and still require groundbreaking research directions (Aguinis & Glavas, 2012; Zulfiqar et al, 2019) and

thus our study will open a new avenue for researchers who have an interest in social psychology (O.

Farooq et al, 2013; Keat el, 2019), especially in a developing country like Pakistan, since it has very

typical demographics and attitudes of employees. In most Pakistani work environments, the prevalent

demeanor to employment has been expressed as poor (Shah et al, 2010). Pakistani employees appear to

be careless about their organizations and are inclined towards their gains. Further, they take interest in

those activities which are directly performed for them, for instance, internal CSR activities (O. Farooq

et al, 2013; M. Farooq et al, 2014)

Unlike the previous studies, which have been carried out through either the stakeholder’s

perspective or social identity theory, this study is based upon social exchange theory (SET) (Blau, 1964)

proposed and tested a new model exhibiting the relationship between corporate social responsibility

and employee engagement. We test the above-mentioned relationships mediated through employee

trust in the organization as well as a leader since trust is made up of both elements. We further explore

whether the leader-member exchange (LMX) of sampled firms moderates the relationship of corporate

social responsibility with employee trust (trust in organization and leader) since LMX is one of the key

elements of social exchange theory and plays a vital role in boosting employees' trust.

2. LITERATURE REVIEW

2.1 Corporate Social Responsibility (CSR)

The origin of corporate social responsibility can be traced back in the 1940s (post World War II),

through the decision of the supreme court of New Jersey. This is when for the first time Standard Oil

Company could donate money as philanthropic action to Princeton University. However, at that time

the general perception was that it would reduce shareholder wealth, and thus, a suit was filed against

this donation by one of the shareholders of Standard oil company (Ali et al, 2010; Carroll & Shabana,

2010). Nevertheless, despite a huge amount of work on the concept of corporate social responsibility, it

is not easy to define it (Matten & Moon, 2008) because corporate social responsibility has several

dimensions, levels of analysis and several issues at stake (Aguinis & Glavas, 2012; Campbell, 2007;

Carroll & Shabana, 2010; Dahlsrud, 2006; M. Farooq et al., 2014). Accordingly, it can be defined with

both external as well as internal aspects e.g. organizations that take care of local communities are

engaged in external corporate social responsibility, and those taking care of their employees by paying

them adequate salaries as well as benefits to meet their local costs of living as determined by the United

Nations are participating in internal corporate social responsibility (Campbell, 2007; Manika et al,

2017). Thus, corporate social responsibility is a wide and dynamic term due to growing concerns

regarding stakeholder relations, firm performance, and its implications for business ethics and

corporate citizenship (Matten & Moon, 2008; Ilkhanizadeh & Karatepe (2017). It even has variations in

its understanding and implications with regards to geographical locations as well as across continents

or cultures (Wei et al., 2009). Yet, it communicates clearly articulated policies, practices and programs

affirmed for the good of society i.e. external stakeholders as well as its internal stakeholders.

This article focuses on internal stakeholders and corporate social responsibility activities, where

internal corporate social responsibility means an internal code of conduct, health and safety programs

and policies, working time and environmental policies, fair pay and benefits, redundancy and lack of

unfair dismissals, etc. (Basil & Erlandson, 2008; Campbell, 2007; Matten & Moon, 2008; Skudiene &

Auruskeviciene, 2012).

2.2 Employee Engagement

Employee Engagement, being one of the most discussed and popular topics in the academic arena

during the last decade (Saks, 2006), surprisingly still lacks any single definition (Shuck & Wollard,

2009) due to different as well as inconsistent opinions presented by academicians and practitioners at

the earlier stages of defining the concept (Macey & Schneider, 2008). However, these controversies are

good in the evolutionary stages of concepts; nevertheless, employee engagement has become the need

of time since employees are getting disengaged even in America (U.S), the annual cost of this

Int. Journal of Business Science and Applied Management / Business-and-Management.org

phenomenon is $300 billion (Rizwan et al, 2011). The concept of engagement is operationalized here

as it is defined by Schaufeli, et al (2002) as a positive, fulfilling, work-related state of mind that is

characterized by vigor, dedication, and absorption. Rather than a momentary and specific state,

engagement refers to a more persistent and pervasive affective-cognitive state that is not focused on

any particular object, event, individual, or behavior. Vigor is characterized by high levels of energy and

mental resilience while working, the willingness to invest effort in one’s work, and persistence even in

the face of difficulties. Dedication refers to being strongly involved in one’s work and experiencing a

sense of significance, enthusiasm, inspiration, pride, and challenge. Absorption is characterized by

being fully concentrated and happily engrossed in one’s work, whereby time passes quickly and one

has difficulties with detaching oneself from work (p. 74).

Further literature indicates that getting engaged is an individual’s personal decision (Rich et al.,

2010) thus, our focus of research will be on the huge construct of employee engagement (Castellano,

2012) and its relationship with corporate social responsibility. Such types of relationships developed at

work are characterized as exchange relationships (Moideenkutty, 2006) based on the social exchange

process/ theory (Blau, 1964).

2.3 Social exchange theory

The social exchange theory presented by Blau (1964) is based on the "reciprocity" concept,

considering that if an organization is fair, caring, and kind with its employees, then employees, in turn,

will reciprocate the same generous behavior towards firm (Cropanzano & Mitchell, 2005). Over time,

this relationship shapes itself into trust, loyalty, and commitment (O. Farooq et al., 2013). While

operationalizing this social exchange relationship, the concepts of perceived leader-member exchange

and trust have been discussed (O. Farooq et al., 2013). Leader-member exchange explains the exchange

relationship between the employee and supervisor/leader. Trust explains the exchange relationship of

employees with an employer and immediate supervisor (Cropanzano & Mitchell, 2005).

2.4 Corporate social responsibility and employee engagement: mediating role of employee trust

Whitener, et al (1998) consider trust as one of the most important and fundamental elements of

social exchange relationships that form the basis of cooperation. Further, this interpersonal trust has a

significant relationship with various organizational constructs, for instance, performance, quality

communication, citizenship behavior, etc. (Dirks & Ferrin, 2001) and its definition has the following

three facets:

“First, trust in another party reflects an expectation or belief that the other party will act

benevolently. Second, one cannot control or force the other party to fulfill this expectation—that is,

trust involves a willingness to be vulnerable and risk that the other party may not fulfill that

expectation. Third, trust involves some level of dependency on the other party so that the outcomes of

one individual are influenced by the actions of another” (Whitener et al., 1998).

Whitener et al. (1998) explain that there are two elements of this definition, which are the

“trustor”, the one who develops trust over the other is the “trustee”. Research has focused on 'trustor’

beliefs, perceptions, and attribution regarding the trustee based on how he sees trustees’ behavior.

Further, the authors Whitner et al (1998) have explained this relationship of trust by taking into

consideration the “agency theory” and “social exchange theory”. The authors consider the manager-

employee as the principal-agent, where there is an economic exchange relationship between the two

parties for protecting self-interests and both parties try to maximize benefits as well as minimize the

risks associated with the said relationship. Both the employer and employee face risk; agents face it in

the form of outcome, which may not be controllable, but compensation is based on this outcome. The

principal faces risk regarding the incompetence of agents and opportunism (i.e. unavailability of

information regarding the agent’s actions). This risk may be minimized through social exchange

relationships where economic incentives may not be involved as they are voluntary actions from one

party e.g. the manager, which in return is reciprocated by the employee (the agent) considering it as an

obligation. However, the risk of not reciprocating is there, especially during the early phases of this

relationship, but as this relationship grows over time from a low to a higher level, it gives fruitful

results in the form of employee trust in an organization and the immediate supervisor. Further, social

exchange creates much better relationships because of extrinsic benefits (through economic value) and

intrinsic benefits through social support, where expressions of support and friendship are extrinsic

benefits having intrinsic value as well. Thus, the agency relationship tries to impose greater controls

due to the risks involved, whereas social exchange relationships minimize the risks through the gradual

development of trust (Whitener et al., 1998).

Khalid Rasheed Memon, Bilqees Ghani and Saima Khalid

Therefore, the greater the social exchange, the stronger will be the relationship between the

employee-organization and the employee-leader. Organizations try to strengthen this relationship

through internal corporate social responsibility and firms take risks and work for the betterment and

welfare of employees through such activities. This is why it has been demonstrated that perceived

corporate social responsibility is positively related to outcomes (M. Farooq et al., 2014). Further, in

high exchange relationships between the leader and employee, an employee would feel obligated to

engage in job roles especially those which directly benefit the leader but are beyond his job role. In

such instances, a leader would support the employee through rewards and other benefits (Wayne et al,

1997), resulting in employee engagement. Thus, we postulate the following:

Hypothesis 1: Corporate social responsibility has a significant relationship with employee

engagement.

Hypothesis 2: Employees' trust mediates the relationship between corporate social responsibility

and employee engagement.

2.5 Corporate social responsibility and trust: moderation of leader-member exchange

While explaining social exchange relationships, the authors O. Farooq et al. (2013) convey that

there are two forms of exchange relationships with regards to their structures, i.e. restricted (direct) and

generalized (in-direct) reciprocity. Restricted exchange is categorized as one to one (employer and

employee) and generalized exchange represents group-based reciprocity (organization, environment,

community, and consumers). We are here covering the internal corporate social responsibility aspect,

which is why we posit that as corporate social responsibility invokes restricted exchange, it will further

create organizational trust in employees; thus, in our model trust is a primary outcome of internal

corporate social responsibility initiatives leading towards employee engagement (O. Farooq et al., 2013;

Hansen et al, 2011). Similarly, the leader-member exchange is expected to have positive effects on

employee outcomes such as trust in the leader/supervisor, due to internal corporate social responsibility

activities. Consistency of policies and the communication strategy, appraisals, as well as rewards and

recognition, result in the reciprocation of performance results of employees beyond expectations

(employee engagement) through the development of trust in the leader/supervisor (Wayne et al., 1997).

Trust is the most significant outcome of favorable exchanges for a firm’s employee-friendly initiatives

(Blau, 1964; O. Farooq et al., 2013; Hansen et al., 2011). In this regard, human resource policies and

programs also enhance an employee’s trust in his/her organization, being the major contributor to the

conception of organizational support and are considered to be an integral part of internal corporate

social responsibility, which is nothing without human resource policies and programs (Wayne et al.,

1997). Therefore, the third hypothesis of this research is:

Hypothesis 3: The relationship between corporate social responsibility and employee’s trust is

moderated by leader-member exchange (LMX) such that the higher the LMX, the higher will be the

employee's trust in the leader/supervisor.

2.6 Conceptual Framework

Figure 1 depicts the relationship between corporate social responsibility and employee

engagement. Further, it shows the mediation of employee trust in the organization and the leader in the

relationship of corporate social responsibility and employee engagement. Also, the model specifies the

paths showing the moderation of leader-member exchange in the relationship of corporate social

responsibility and employee trust.

Figure 1: Moderated-mediated relationship of CSR and employee engagement

Internal Corporate

Social

Responsibility

Employee

Engagement

(Vigor, dedication

and absorption)

Leader-Member

Exchange

Employee’s Trust

(organization and

leader/supervisor)

Notes:

Hypothesized Causal Relationships

Hypothesized Moderating Effects

Int. Journal of Business Science and Applied Management / Business-and-Management.org

3. METHODOLOGY

3.1 Sample and Procedure

This research is based on a cross-sectional survey administered through a self-reported

questionnaire. We have focused on the employees of 25 manufacturing units in the Telecom and

FMCG Sectors. These include both multinational and national level companies. FMCGs have products

like mineral water and food items whereas the others provide mobile phones and mobile network

services. These companies are operating almost all over the country except for a few national

companies, and these firms have large sales volumes since Pakistan has a population of approximately

200 million inhabitants.

Table 1: Demographic characteristics of the Respondents

The sampled firms were selected based on their corporate social responsibility information

available through secondary data sources, especially websites, implying that they are involved in

corporate social responsibility activities and their employees are well aware of the related concepts and

activities (M. Farooq et al., 2014; O. Farooq et al., 2013).

We used the convenience sampling method for the collection of data with the help of our field

survey team; questionnaires were handed over to employees of the relevant organizations working in

Pakistan. The questionnaire was accompanied by a cover letter explaining the purpose of the study and

asking for consent of the employee to participate in the study; employees were not asked their names to

ensure anonymity. Through this procedure, we collected the data from 300 employees, in line with the

definition of employees as described by (Rupp et al., 2006), those who are not involved in formulating

policies and conducting corporate social responsibility activities themselves and thus do not defend

their corporate social responsibility activities. The demographic characteristics of the sampled

employees are given in Table 1. This shows that the sample comprised 252 males and 48 female

respondents with an educational qualification of bachelors for 141 informants, 126 participants were

less educated than bachelors, 27 had masters and others had MS/MPhils (18 years education).

Employees hold various service tenures i.e. 78 participants had 3-year service, and 51 employees had

4-year experience, 63 respondents had 5-year employment tenure, 21 had 6 or more years of service,

whereas the remainder had less than 3-year service time. 93 of them were functional managers/lower

management, whereas the others were supervisors and operational level staff members.

3.2 Measurements

Various tools have been adapted to test the model, whose validity and reliability have already been

established. For instance, internal corporate social responsibility was measured through the instrument

originally developed by Turker (2009) but adapted from (M. Farooq et al., 2014; O. Farooq et al., 2013)

for the Pakistani context. This tool included 6 items measuring internal corporate social responsibility

towards employees. Employee’s Trust was measured through a 7-item instrument developed by Tyler

Demographics

Frequency

Age

18-28

193

29-40

41-55

Gender

Male

252

Female

Service Tenure (years)

Qualification

Below Bachelors

126

Bachelors

141

Masters

MS/Mphil

Management Level

Middle / Lower Management

Supervisor

Non-Management Lower Level Staff

120

Khalid Rasheed Memon, Bilqees Ghani and Saima Khalid

(2003) as it measures the trust in the leader as well in top management i.e. the organization. Further,

employee engagement was measured through a 17-item instrument developed by Salanova et al (2005);

this measures employee engagement as vigor, dedication, and absorption, which is according to our

operational definition of employee engagement. The moderator leader-member exchange was

measured through a scale presented by Liden and Maslyn (1998). Measurement items are presented in

Annexure-1.

We adapted the instrument and translated it into Urdu (the national language of Pakistan). We also

pre-tested the instrument through 20 MBA students to identify any potential problems associated with

adaptation and translation. Further, as per the suggestions of two field experts at the University of

Lahore, Pakistan, we found some minor problems regarding translation, which were corrected at once.

However, no such problem was found with its structure and flow. Thus, we used five-point Likert

scales (1= strongly disagree to 5= strongly agree) to collect the data.

3.3 Data Analysis

Data was analyzed in depth through Smart PLS 3 by using confirmatory factor analysis (CFA)

using the Structure Equation Modeling (SEM) technique. The aims were to conduct a detailed analysis

of the relationship between corporate social responsibility and employee engagement through the

mediation of employee trust; and to test the moderating effect of leader-member exchange between

corporate social responsibility and trust. Because of the violation of data normality (e.g. studies using

employee engagement, leader-member exchange, etc. tend to have non-normal data) and while the

correct model specification cannot be ensured, it leads us to the application of Smart PLS (Wong,

2013).

It is important to mention here that there are two sub-models in a structural equation model: the

inner model and the outer model. The inner model specifies the relationships between the independent

and dependent latent variables, whereas the outer model specifies the relationships between the latent

variables and their observed indicators (items). Accordingly, a variable may be called exogenous or

endogenous. An exogenous variable (independent variable) has path arrows pointing outwards and

none leading to it, whereas an endogenous variable (dependent variable) has at least one path leading to

it representing the effects of other variables.

4. RESULTS

4.1 Reliability and validity tests

Table 3 presents the validity and reliability of all the constructs included in our study i.e. the outer

model. It shows the values of construct reliability and average variance extracted (AVE), which

represent the convergent validity of our constructs. Values indicate that the construct reliability of all

the variables is greater than 0.7, which is the acceptable standard in terms of internal consistency.

Moreover, the average variance extracted values are greater than 0.5 for each construct, thus indicating

that data is convergent valid. (Hair et al, 2017).

Table 3: Construct Reliability and Convergent Validity through AVE

Constructs

# of

Items

Mean

Std.

Deviation

Construct

Reliability

Average Variance Extracted

(AVE)

1. CSR

3.54

0.53

0.834

0.562

2. EE

3.38

0.69

0.839

0.511

3. LMX

3.55

0.58

0.824

0.549

4. Trust

3.55

0.58

0.882

0.559

In addition to this, Table 4 presents the discriminant validity of the data through the method given

by Fornell and Larker (1981). The values in the diagonal represent the square root of average variance

extracted values, whereas the remaining values represent the correlations between the variables. All

diagonal average variance extracted values are greater than the correlations, which indicates the

existence of discriminant validity of the data. Moreover, to prove discriminant validity, we also

checked the cross-loadings of all the items. The cross-loadings were appropriate and above 0.7 for each

relevant item of a specific variable. Cross-loadings are reported in Table 5.

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Table 4: Discriminant Validity

CSR

LMX

Trust

CSR

0.75

-0.134

0.715

LMX

0.253

0.075

0.741

Trust

0.422

0.177

0.502

0.748

Furthermore, after checking the reliability and validity of the outer model, we examined whether

any multicollinearity issue exists in the data. It was examined for both inner and outer models through

the variance inflation factor (VIF) values. The rule states that variance inflation factor values must be

below 5, indicating no issue of multicollinearity; values for our model lie between 1.0 and 3.5, which

are less than the threshold of 5 (Cohen, 2003).

Table 5: Cross Loadings

Thus, the risk of any problem related to multicollinearity is not present. After that, we conducted

regression tests for the inner model. Results indicate that the overall model fitness is 31%, which is

represented through the value of R squared and depicts a good model fit. In addition to the above test,

another test was performed for calculating the F

(F squared values, which represent the contribution of

individual variables to R squared. The F squared values for each variable should be at least 0.02 for a

minimum contribution, greater than 0.15 for a moderate contribution, and greater than 0.35 for a high

contribution. Our data results showed that F squared values for all variables were above the threshold

value, which means that all variables contributed to R squared.

4.2 Common Method Variance Assessment

Harman’s single-factor test has been used to identify the presence of common method variance

issues. From the analysis, the result indicated that the first and the largest factor only account for

39.50% of the variance, which is below the threshold of 50%. Therefore, no one single factor that is

apparent accounts for the majority of the variance. In this case, we can be assured that the issue of

common method variance is not substantial (Podsakoff et al., 2003).

4.3 Path Coefficients

Table 6 presented below summarizes the acceptance of the hypotheses and our overall regression

results. The bootstrapping method was used with 5000 re-samples and a t-test was employed. Also, the

Q Squared (Geisser Criterion value) is 0.14 i.e. greater than 0 (zero) being its minimum value, which

implies that the latent variables in the model have a high predictive ability (Yi, et al, 2011).

CSR

HRP

LMX

Trust

CSR_Emp1

0.648

CSR_Emp2

0.826

CSR_Emp3

0.865

CSR_Emp4

0.631

EE1

0.67

EE2

0.764

EE3

0.749

EE 4

0.678

EE 5

0.71

LMX1

0.629

LMX 2

0.874

LMX 3

0.861

LMX 4

0.545

Trust-sup1

0.735

Trust-sup2

0.642

Trust-sup3

0.8

Trust-org1

0.624

Trust-org2

0.862

Trust-org3

0.794

Khalid Rasheed Memon, Bilqees Ghani and Saima Khalid

Table 6: PLS Structural Model Results

Table 6 clearly shows all the regression (direct and indirect) paths, their significance levels, and

the standard deviation values of all the variables. The first path as per our first hypothesis is from

corporate social responsibility to employee engagement, i.e. a direct relationship, which has been

proved to be positive and significant at p<0.001 (H1 accepted). Likewise, to prove the mediation of

employee trust between corporate social responsibility and employee engagement, we should see two

paths (one from CSR to Trust, and the other from Trust to EE).

Table 6 indicates that the relationship between CSR and Trust is positive, significant at p<.001,

and the relationship between Trust and EE is also significant, positive at p<0.05. This supports our

second hypothesis that there exists a mediation of employee trust. Moreover, we tested the moderating

effect of leader-member exchange on the direct path (from CSR and Trust). Results show that none of

the moderation is proved, with p=0.00 (H3 rejected).

5. DISCUSSION

This study explores the impact of corporate social responsibility on the engagement of employees

working in the FMCG and Telecom sectors of Pakistan. Further, we explored whether employees' trust

in their organization and immediate supervisor/leader plays any role in getting these employees

engaged based upon their firm’s corporate social responsibility towards them. In addition to this, the

moderating effect of leader-member exchange was tested to identify whether they aid in affecting

employee trust through corporate social responsibility.

The outcome of our study highlights that CSR activities intended for employees are just like

organizational investments that ultimately result in amplification of constructive work-related

behaviors, i.e. work engagement, and organizational trust. The internal CSR is an imperative gauge of

management’s sensitivity about the comfort and safety of employees. Employees smell these clues and

extend their support in gratitude for the well-being activities carried out in their interest. This in-turn

leads employees to reciprocatory behavior of thankfulness in the form of dedicated, committed, and

high-performance work at the organization.

Our results from, for instance, hypothesis 1 and hypothesis 2 are consistent with other studies on

corporate social responsibility, conducted in a Pakistani context (M. Farooq et al., 2014; O. Farooq et

al., 2013) showing that taking corporate social responsibility initiatives, showing care and concern for

employees lead towards the development of trust and then getting employees engaged. It has been

found, however, that due to a lack of support for employees, the moderating effect is not as desired and

the same has not played its role in moderating employees’ behavior towards the development of

organizational or leader trust. This shows that employees in the Pakistani environment are more

concerned about activities that are performed directly for them instead of other employees or external

stakeholders, probably due to having low economic status and Pakistan being a developing nation.

Research has shown the great impact of organizational support in the form of organizational trust

and social relationships between supervisor and subordinates for the perception of having a safe

environment and the development of psychological empowerment, enabling an employee to display

extra-role behaviors like work engagement and voice behavior (Raub & Robert, 2012). It is very

unfortunate that in countries like Pakistan, where we have an authoritarian and bureaucratic style of

dealing, employees do not trust their supervisor/leaders and this has a lesser effect on their overall work

behavior.

6. THEORETICAL IMPLICATIONS

The domino effect of our research advances the underlying theories on the relationship between

CSR, organizational trust, LMX, and employee engagement. Our study finds support in the existing

literature that employee oriented activities of care and concern performed through internal CSR at the

place of work influences organizational trust (Cropanzano & Mitchell, 2005; Mount et al, 2006;

Coefficients

Standard

Deviation

(STDEV)

T Statistics

Values

2.50%

97.50

CSR -> EE

-0.219

0.051

4.317

0.00

-0.307

-0.119

CSR -> Trust

0.251

0.041

6.096

0.00

0.168

0.327

CSR LMX Trust -> Trust

-0.116

0.089

1.3

0.19

-0.238

0.201

Trust -> EE

0.118

0.051

2.309

0.02

0.021

0.214

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Colbert et al, 2004; Liu et al, 2010; Yu & Choi, 2014; Fischer et al, 2020), leading towards work

engagement and extra-role behaviors ((Antonaki & Trivellas, 2014; Seibert et al, 2011; Morrisson,

2011; Liu et al, 2010). Similarly, we found support for CSR oriented organizational trust (Zulfiqar et al,

2019; M. Farooq et al., 2014; O. Farooq et al., 2013; Yu & Choi, 2014; Mallory & Rupp, 2014).

Therefore, we argue that being a socially responsible organization, whether internally or externally,

develops in employees the sense of trust in an organization that the organization is reliable and will not

deceive people on personnel issues too. This in turn advances the feeling of personal care, concern, and

safety through perceived organizational support, resulting in the development of a higher level of

feelings of it being obligatory to perform reciprocatory actions. Due to this feeling, the employee in

exchange performs the acts of discretionary job behaviors, displaying a high level of performance and

greater loyalty to the organization through work engagement.

Unlike previous studies that incorporated social identity theory (Zulfiqar et al, 2019; O. Farooq et

al, 2013; M. Farooq et al, 2014), our study employed social exchange theory to test the above-discussed

relationships. Results revealed numerous important findings and thus contributed to the theory in

multiple ways. Most of the previous studies have measured the performance as compared to the

employee’s engagement behavior through individual personality traits and have declared emotional

stability and conscientiousness as the predictor of performance criteria in almost all trades (Barrick &

Mount, 2005; Colbert et al., 2004; Mount et al, 2006; Rothmann & Coetzer, 2003).

Contrary to previous studies which have focused on other constructs for measuring the effect of

corporate social responsibility, for instance affective organizational commitment (O. Farooq et al.,

2013), organizational identification and knowledge sharing behavior (M. Farooq et al., 2014), our study

has focused on the broader construct of employee engagement. Also, the construct of trust has been

measured as trust in the organization and trust in the leader/supervisor, whereas, previous studies have

mostly not conducted empirical studies by taking both dimensions of this construct into account since

this kind of trust enhances employees' motivation towards extra-role behaviors and work engagement

(Tyler, 2003)

The findings of our proposed model offer insights into the value of internal CSR activities, which

can develop understanding among researchers and practitioners as to how the internal dimension of

CSR can be a prime gauge of helpful employee behavior. The study provides adequate support for the

application of social exchange theory as an academic archetype in accepting the probable mechanism

between the internal dimension of CSR and employee behavior. Further, social exchange theory is a

significant motivational frame for the elucidation of the specific engagement of employees in

discretionary behaviors, since these behaviors are neither obligatory nor recognized by the firm's

prescribed reward systems. For such behaviors, social exchange is analogous and can refer to the

common interactions that are continuously evolving with no time limit and are based on social benefits.

(Zulfiqar et al, 2019)

7. MANAGERIAL IMPLICATIONS

This study proposes a model based on the significantly important construct of employees’ trust,

developed as a result of perceived organizational support (through internal CSR activities) and leader-

member exchange, being the fundamental element of the relationship between corporate social

responsibility and employee engagement. This empirically tested model within the context of Pakistan

provides important implications for researchers as well as practitioners. Through this study, the

emphasis has been on the relationship between corporate social responsibility and employee

engagement through the social exchange perspective and considering “trust” as the critical element, and

it has been proposed that corporate social responsibility plays a major part in gaining employees’ trust

in organizations as well as leaders. Further, it is proposed that employees may perceive corporate social

responsibility as good for identification purposes, but for their personal interest and engagement

employees need internal support and care through internal corporate social responsibility. However,

concepts such as leader-member exchange may not be of much importance in deriving trust, especially

in Pakistani culture.

The internal CSR is all about dealing with employees in a socially responsible way and it can find

out the method employees will perform in the organization. Employees are very much adaptive; they

examine and read the indications in the work environment and build up attitudes. This means that when

employees perceive that the organization has an attitude of care and concern for them, employees will

reciprocate with the same helpful behavior and will be inclined by heart to perform their

responsibilities for the achievement and growth of their organization. Similarly, an organization with a

high CSR reputation and high ethical principles and practices is considered a trustworthy business

collaborator and a highly regarded member of the business community. CSR conveys a heartening

signal and suggests to its employees that the organization is considerate about them. Internal CSR

Khalid Rasheed Memon, Bilqees Ghani and Saima Khalid

amplifies employees' self-esteem, sanguinity and a sense of positive reception, resulting in elevated

work engagement (Zulfiqar et al, 2019).

This study encourages practitioners to experience new methodologies of conveying the feelings of

concern, care, and protection through various human resource interventions, supervisor/ leader

mentoring behaviors, and communication system are the most effective drivers of employee

engagement leading towards employee performance as well as gaining the trust of employees

(Bedarkar & Pandita, 2014). Further, employees may be involved in the goal-setting process and

suggestions can be offered for improvement, if required, during review sessions. Similarly, training and

development activities like on the job training, rotations, educational opportunities, and involvement in

the decision-making process will surely develop a sense of shared ownership (Vlachos, 2009; Knezović

et al, 2020; Ghani & Memon, 2020). Accordingly, employees will perform reciprocally and will go

beyond their work obligations, provided they receive a sense of meaningfulness, safety, and availability

as proposed by Kahn (1990).

8. LIMITATIONS AND FUTURE RESEARCH

As this particular study is only within the context of Pakistan (a developing country), with a

limited number of respondents, the study cannot be generalized to developed country settings and the

results may vary with different contexts and countries, especially the moderating effect of leader-

member-exchange. The same may be extended to the other Asian countries, especially developing

south Asian countries with a similar infrastructure and economic conditions and geographical settings

to compare and further authenticate the results of the said study.

The authors propose that surveys or interviews with co-workers may be carried out to know the

exact reaction and dealing in a practical situation for testing how individuals with different personality

traits behave under those circumstances and control the situation. Accordingly, the validity of these

personality traits and the expected performance can be measured; weak and strong relations can be

found as well. Similarly, a survey regarding employees’ engagement can be filled in through their peers

and supervisors instead of self-reported questionnaires to compare both results and differences in

reporting certain behavior.

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ANNEXURE 1:

Questionnaire items used in the study

(To be measured through Likert scale ranging from 1-5, 1 strongly disagree to 5 strongly agree)

Internal CSR

1. My company encourages its employees to participate in the voluntary activities

2. My company policies encourage the employees to develop their skills and careers

3. The management of my company is primarily concerned with employees’ needs and wants

4. My company implements flexible policies to provide a good work and life balance for its employees

5. The managerial decisions related with the employees are usually fair

6. My company supports employees who want to acquire additional education

Leader Member Exchange

1. I like my supervisor very much as a person.

2. My supervisor is the kind of person one would like to have as a friend

3. My supervisor is a lot of fun to work with.

4. My supervisor defends my work actions to a superior, even without complete knowledge of the issue

in question.

5. My supervisor would come to my defense if I were attacked by others.

6. My supervisor would defend me to the others in the organization, if I made an honest mistake.

7. I do work for my supervisor that goes beyond what is specified in my job description.

8. I am willing to apply extra efforts, beyond those normally required, to meet my supervisor's work

goals.

9. I do not mind working my hardest for my supervisor.

10. I am impressed with my supervisor’s knowledge of his/her job.

11. I respect my supervisor’s knowledge and competence on the job.

12. I admire my supervisor’s professional skills

Employee’s trust (Trust in organization and leader)

1. I am usually given an honest explanation for decisions

2. My views are considered when decisions are made

3. My needs are taken into account when decisions are made

4. The authorities try hard to be fair to their employees

5. My supervisor gives me honest explanations for decisions

6. My supervisor considers my views when decisions are made

7. My supervisor takes account of my needs

Employee Engagement

1. At work, I feel full of energy.

2. In my job, I feel strong and vigorous.

3. When I get up in the morning, I feel like going to work.

4. I can continue working for very long periods at a time.

5. In my job, I am mentally very resilient.

6. At work, I always persevere, even when things do not go well.

7. I find the work that I do full of meaning and purpose.

8. I am enthusiastic about my job.

9. My job inspires me.

10. I am proud of the work I do.

11. I find my job challenging.

12. Time flies when I’m working.

13. When I am working, I forget everything else around me.

14. I feel happy when I am working intensely.

15. I am immersed in my work.

16. I get carried away when I’m working.

17. It is difficult to detach myself from my job.