Does CEO guilt influence the adoption of employee welfare practices?

Abstract

This study examines the role of CEOs' guilt in adopting employee welfare practices (EWP). Using the context of privatization that is associated with large‐scale layoffs, we argue that witnessing the distress of laid‐off workers and their families causes CEOs to experience guilt for not doing enough to alleviate their suffering. The guilt, in turn, drives CEOs to engage in remedial actions of restitution that reflect positively on employee‐related practices. We find support for our idea in a sample of newly privatized firms from 31 countries. Our results show that CEOs' guilt positively influences the adoption of EWP among newly privatized firms. This effect is stronger in countries with collectivistic orientation and higher unemployment rates. Our findings suggest CEOs' values and emotions play an important role in business decisions concerning their employees. This perspective challenges the conventional view of business decisions as purely rational and profit‐driven, highlighting the importance of ethical and emotional considerations in decision‐making.