Research summary: This study examines whether companies employ corporate social responsibility (CSR) to improve employee engagement and mitigate adverse behavior at the workplace (e.g., shirking, absenteeism). We exploit plausibly exogenous changes in state unemployment insurance (UI) benefits from 1991 to 2013. Higher UI benefits reduce the cost of being unemployed and hence increase employees' incentives to engage in adverse behavior. We find that higher UI benefits are associated with higher engagement in employee‐related CSR. This finding suggests that companies use CSR as a strategic management tool—specifically, an employee governance tool—to increase employee engagement and counter the possibility of adverse behavior. We further examine plausible mechanisms underlying this relationship. Managerial summary: This study examines whether companies employ corporate social responsibility (CSR) to improve employee engagement and mitigate adverse behavior at the workplace (e.g., shirking, absenteeism). We find that companies react to increased risk of adverse behavior by strategically increasing their investment in employee‐related CSR (e.g., work‐life balance benefits, health and safety policies). Our findings have important managerial implications. In particular, they suggest that CSR may help companies motivate and engage their employees. Hence, companies dealing with employees that are unmotivated, regularly absent, or engage in other forms of adverse behavior, may find it worthwhile to design and implement effective CSR practices. Further, our findings suggest that CSR can be used as employee governance tool. Accordingly, managers could benefit from integrating CSR considerations into their strategic planning. Copyright © 2015 John Wiley & Sons, Ltd.