MBA progress, Nike’s board-level ethics and how to donate wisely
Playing the Generation Game
As the role of business has grown and globalised, so too has the corporate responsibility agenda. Four decades ago, it was deemed sufficient for companies to generate a profit and merely keep their noses clean. Then came the expectation on companies to promote “rights”, such as fair wages and safe working conditions. Now, the emphasis is on supporting humankind in a collective sense, as espoused by companies’ support for the Millennium Development Goals.
The literature holds to three distinctive phases or “generations” of corporate social responsibilty. Each is characterised by different domains (local through to global), concerns (obeying the law through to issues that ultimately affect humankind) and motivating factors (the pursuit of profit through to an appreciation of the complex interconnections between business and the wider world). Companies will ideally find themselves in the third and final final stage. That’s where many claim to be, but how many really are?
This intriguing paper addresses this question through an assessment of chief executive introductory statements in annual sustainability reports. Basing their study on four Nordic energy companies (Dong Energy, Statoil, Vattenfall and Fortum), the authors turn up results that can only be described as “ambivalent”. For example, most chief executive introductions posit the company’s responsibilities in a global context, as per the latest generation of corporate social responsibility, but most also demonstrate profit-focused thinking more akin to earlier variants.
The notion that companies adopt a pick-and-mix approach to corporate responsibility may frustrate the neat categorisations of academics, but it won’t come as a surprise to practitioners. Yet managing a multi-generational approach is no easy task. To that end, the authors propose a “dynamic” assessment framework that aims to help those companies straddling generational phases of corporate social responsibility to identify where they stand and how they can move forward.
Aggerholm, H., and Trapp, N. (July 2014), “Three tiers of CSR: an instructive means of understanding and guiding contemporary company approaches to CSR?”, Business Ethics: A European Review, 23 (3): 235-247.
“Upper echelons theory” holds that strategic decisions are heavily influenced by executives, and by chief executive officers in particular. Anyone who has worked in a company doesn’t need an academic to tell them that. But corporate social responsibility scholarship may have a role in explaining why CEOs adopt (or don’t adopt) responsible business practices.
It all comes down to “hubris” – generally defined as “extreme self-confidence and pride”. Research pinpoints two major weaknesses of the hubristic chief executive. First, they tend to have an inflated view of their own capabilities. And second, they tend to overestimate the resources at their disposal. Together, these make them less likely to adopt corporate social responsibiltiy as an insurance against risks. They also lead to the overlooking of stakeholder concerns. So what that the company is suffering a consumer boycott because of its environmental record; the hubristic CEO believes the company’s stellar products will win him or (less probably) her a tranche of new customers elsewhere.
To obtain a baseline sample, the authors apply various assessment measures of CEO hubris to a longitudinal dataset of 1,500 firms listed on the Standards & Poor’s index between 2001 and 2010.
The findings resoundingly confirm the hypotheses. And the evidence suggests that hubristic CEOs are more likely to adopt irresponsible business activities. The larger the firm, the greater this tendency becomes (mostly because large firms have greater resources and less propensity to listen to stakeholders).
All is not lost, however. When companies have less financial “slack”, hubristic CEOs are often forced to re-engage with the company’s stakeholders in the hope of accessing valuable resources. In short, pray that market conditions dip or market competition hots up: basically, anything to tame the hubristic CEO’s ego.
Tang, Y., Qian, C., Chen, G., and Shen, R. (2014), “How CEO Hubris Affects Corporate Social (Ir)responsibility” Strategic Management Journal, forthcoming.
The Agency Problem that’s Not a Problem
“How investors get the managers to give them back their money.” That, according to leading economists Andrei Shleifer and Robert Vishny, is what corporate governance comes down to. And most business theorists in Anglo-American countries will agree. Corporate social responsibility’s promotion of non-shareholder interests in the shape of employees, community members and other stakeholders is widely seen as an obstacle in this primary goal of returning to investors what is rightly theirs. This important paper goes some way to debunking the persistent notion that stakeholder management somehow undermines shareholder value, referred to in the corporate finance literature as an “agency problem”.
Using an instrumental variable approach, the researchers evaluate this agency view against datasets relating to companies’ corporate responsibility compliance in 59 countries. Stakeholder advocates will welcome the findings, which reveal that companies with higher CSR ratings tend to have tighter cash flow (a proxy for better-disciplined managerial practice) and higher pay-for-performance sensitivity. The perception that corporate responsibility is associated with a weak connection between managerial pay and corporate performance – a widespread agency concern – is not substantiated either. Moreover, CSR is shown to counterbalance the negative effects of managerial entrenchment, lead to higher shareholder value. The conclusion? “A firm’s CSR practice is consistent with shareholder wealth maximisation.”
Ferrell, A., Liang, H., and Renneboog, L. (July 2014), “Socially Responsible Firms”, European Corporate Governance Institute – Finance Working Paper No 432/2014.
The University of California, Santa Cruz, has received a $4m anonymous donation to establish an endowment for a hands-on apprenticeship programme in organic agriculture.
The International Centre of Economics, Humanities and Management is scheduled to host the International Conference on Business, Law and Corporate Social Responsibility in Phuket, Thailand, on 1-2 October 2014.
Business School Bulletin