Cornell researchers found that companies pay a steep and often overlooked price after corporate wrongdoing, as employees become more likely to quit when firms violate the public’s trust.
New research from Cornell’s ILR School shows workers are more willing to leave their jobs after stakeholder violations, which can include misconduct ranging from environmental damage to fraud. Departures rise even faster when penalties span multiple states, happen close together or involve new types of violations.
The study found that these exit patterns cut across seniority, education, income and geography. Employees who leave also tend to move to companies and industries with cleaner records.
“We are underestimating the effects of firms engaging in stakeholder violations,” said Forrest Briscoe, who holds the Maurice and Hinda Neufeld Founders Professorship in Industrial and Labor Relations. “We tend to look at the monetary amount of the fine and say, ‘Oh well, that’s the cost of doing business,’ but if we also take into account these effects on human capital, which are often harder to observe but which our evidence suggests are happening, that’s a significant additional cost.”
Reputation drives employee exits
Briscoe and co-author Mark DesJardine of Dartmouth College analyzed eight years of job history data from 735 large U.S. public companies.
Their findings suggest employees leave voluntarily after violations, rather than being pushed out by declining finances or worsening workplace conditions.
“In just observing that employees are leaving, you don’t know exactly what the motivations are,” Briscoe said. “But we were able to indirectly establish it being a reaction to concerns about their reputation.”
One indicator came from employee reviews. Glassdoor ratings tied to company culture and values dropped at the same time employee exits increased.
When violations multiply, turnover spikes
The research shows the scale of penalties matters.
When a company faced violation penalties equal to 5% of annual revenue, employee departures increased by 3.9%. That number jumped to more than 10% when companies committed a different kind of violation or when violations occurred across more states.
“For businesses, turnover is one of those things that is chronically underappreciated when you look at financial impact,” Briscoe said. “Beyond the obvious hiring and training costs, you’re also losing human capital, social capital and, if the individual is involved in innovation, you’re potentially losing that to rivals.”
The paper, titled “Seeking Greener Pastures: Employee Turnover Following Corporate Stakeholder Violations,” was published Jan. 9 in the Academy of Management Journal.
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