April

The article at a glance: Cambridge Judge Associate Professor and Cambridge Endowment for Research in Finance (CERF) Research Fellow Dr Jenny Chu looks at how labor unions influence the quality of corporate social responsibility (CSR) reporting, shedding light on the strategic role of non-financial disclosure in managing labor relations.

How Labor Unions Shape the Quality of CSR Reporting

By Jenny Chu, CERF/CCFin Fellow, Cambridge Judge Business School, University of Cambridge

A new lens on union influence

Historically, organized labor has been perceived as a challenge to corporate transparency - especially in financial disclosures. Firms often withhold financial information or manage earnings to gain an edge in labor negotiations. But what about non-financial disclosures, such as CSR reporting?

The authors of this study investigate this question using data from over 6,000 U.S. firm-year observations between 2002 and 2017. They explore whether firms facing stronger union presence—measured through both firm-specific labor intensity and industry-wide unionization rates—are more likely to invest in higher-quality CSR reporting.

Stronger unions, better CSR reporting

The study finds that firms with organized labor produce higher-quality CSR reports. These reports are more likely to follow global frameworks (such as GRI or OECD), cover global operations, and be independently audited - characteristics that collectively indicate greater transparency and credibility.

Interestingly, this trend runs counter to how firms typically behave with financial information in a unionized environment. While firms often reduce financial disclosure quality to limit bargaining leverage, CSR appears to serve a different function—one of relationship-building and trust with employees.

Why firms lean into CSR disclosure

The study suggests that companies use CSR reporting strategically to strengthen labor relations, especially during times when unions are more likely to push for better terms - such as periods of strong financial performance or high liquidity. In these situations, high-quality CSR disclosure helps firms maintain goodwill with employees and pre-empt more aggressive bargaining.

Moreover, the study finds that this isn’t just surface-level signalling. Firms with stronger unions and higher CSR reporting scores also show better actual CSR outcomes, such as more inclusive workplace policies and lower employee injury rates. This diminishes concerns of “greenwashing” and supports the idea that these reports reflect genuine organizational efforts.

What happens when union power declines?

To ensure these results weren’t driven by other firm characteristics, the researchers looked at the staggered introduction of Right-to-Work (RTW) laws in U.S. states - regulations that weaken union power by making union membership optional. They found that CSR reporting quality declined after RTW laws were passed, reinforcing the connection between union strength and CSR disclosure efforts.

Implications for managers, investors, and regulators

This research reframes how we understand the interaction between labor relations and corporate transparency. Managers appear to view CSR reporting not as a bargaining liability but as a tool for collaboration with workers. For investors and regulators, it highlights the potential of CSR reports to serve as credible indicators of labor engagement - particularly in settings where unions are active.

With CSR reporting becoming a global norm and mandatory in some jurisdictions, understanding these dynamics is vital. Voluntary, high-quality CSR disclosure may not just reflect social commitment—it may also be a strategic move in managing internal stakeholder relationships.