CEOs are increasingly encouraged and even pressured to invest in reducing a company’s carbon foot print, make the firm more diverse and focus on product safety.
But researchers from the University of Notre Dame and elsewhere said the focus on what is known as corporate social responsibility, or CSR, can lead to accolades or the executive getting fired, and profit or loss appears to be the connection. Their work is published in the latest edition of Strategic Management Journal.
“CEOs running firms with higher levels of CSR are 84 percent more likely to be dismissed when financial performance is poor, compared to their counterparts at firms with lower levels of CSR, Tim Hubbard, assistant professor of management at Notre Dame’s Mendoza College of Business, and one of the study’s authors, said in prepared remarks. “However, research also indicates that prior CSR investments reduce a CEO’s likelihood of dismissal by 53 percent when profits are higher.”
In other words, a CEO’s focus on corporate social responsibility only appears to be welcomed by the company’s board and shareholders when the effort succeeds financially.
Hubbard explains: “Investments in CSR continue to rise and they are becoming an integral part of modern corporations. At the same time, these highly visible investments are not always profitable. Indeed, studies have not been conclusive on whether there is a clear link between CSR investments and profitability. This leads these highly visible decisions to be scrutinized and contested.”
The study looked at CEO transitions in the Fortune 500 from 2003 to 2008, with a goal of assessing whether or not they were voluntary or due to the CEO getting fired. Also scrutinized: Each firm’s previous corporate social activities, based on third-party assessments and their financial performance. Researchers then looked at how CSR and financial returns worked in tandem to lead to a CEO getting fired.
The other co-authors are Dane Christensen of the University of Oregon and Scott Graffin from the University of Georgia. Their research is entitled “Higher Highs and Lower Lows: The Role of Corporate Social Responsibility in CEO Dismissal.”
Source: University of Notre Dame