Articlegreen2017

Higher Highs and Lower Lows: The Role of Corporate Social Responsibility in CEO Dismissal

Timothy David Hubbard · Dane M. Christensen · Scott D. Graffin

275 citations0/0 files storedStrategic Management Journal

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Corporate Social Responsibility Reporting Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Research summary: Investing a firm's resources in corporate social responsibility ( CSR ) initiatives remains a contentious issue. While research suggests firm financial performance is the primary driver of CEO dismissal, we propose that CSR will provide important additional context when interpreting a firm's financial performance. Consistent with this prediction, our results suggest that past CSR decisions amplify the negative relationship between financial performance and CEO dismissal. Specifically, we find that greater prior investments in CSR appear to expose CEO s of firms with poor financial performance to a greater risk of dismissal. In contrast, greater past investments in CSR appear to help shield CEO s of firms with good financial performance from dismissal. These findings provide novel insight into how CEO s' career outcomes may be affected by earlier CSR decisions . Managerial summary: In this study, we examined a potential personal consequence for CEO s related to corporate social responsibility ( CSR ). We explored the role prior investments in CSR play when a board evaluates the firm's financial performance and considers whether or not to fire the CEO . Our results suggest that while financial performance sets the overall tone of a CEO 's evaluation, CSR amplifies that baseline evaluation. Specifically, our results suggest that greater past investments in CSR appear to (a) greatly increase the likelihood of CEO dismissal when financial performance is poor, and (b) somewhat reduce the likelihood of CEO dismissal when financial performance is good. Thus, striving to deliver profits in a socially responsible manner may have both positive and negative personal consequences . Copyright © 2017 John Wiley & Sons, Ltd.

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References

1997THE CORPORATE SOCIAL PERFORMANCE-FINANCIAL PERFORMANCE LINK 2003Misery Loves Companies: Rethinking Social Initiatives by Business 2000Corporate social responsibility and financial performance: correlation or misspecification?2001Shareholder value, stakeholder management, and social issues: what's the bottom line?1985AN EMPIRICAL EXAMINATION OF THE RELATIONSHIP BETWEEN CORPORATE SOCIAL RESPONSIBILITY AND PROFITABILITY.2009On the use of instrumental variables in accounting research 2009Strategic leadership: theory and research on executives, top management teams, and boards 2002Value Maximization, Stakeholder Theory, and the Corporate Objective Function

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