The elephant (and the donkey) in the boardroom

[The following post is re-blogged from the London School of Economics and Political Science Business Review. Click here to view the article from LSE. It is based on a paper recently published in Administrative Science Quarterly titled “The Elephant (or Donkey) in the BoardroomHow Board Political Ideology Affects CEO Pay.” From LSE:]

 

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Firms governed by politically conservative boards of directors pay their CEOs more money than do firms with more liberal-leaning (the ideological left in the US) boards. That’s the conclusion of our new study on the impact of political ideology in the boardroom. We also find an ideological disparity in the degree to which directors weigh recent firm performance when deciding upon CEO pay. Relative to their liberal counterparts, conservative-leaning boards tie CEO pay more closely to firm performance. They offer bigger financial rewards after periods of strong earnings or stock returns, and impose harsher penalties after periods of weak performance.

How much is a CEO worth to an organisation?

It’s a hotly debated question in American fiscal discourse, especially as the pay gap between chief executives and front-line workers grows ever vaster. Of course, this debate is largely academic for all but the few whose votes really matter: the corporate directors who set compensation packages for their firms’ senior leaders.

Boards have a fiduciary responsibility to ensure that CEOs are paid the appropriate amount to serve the best interest of shareholders. But what’s “appropriate” is highly subjective, and might be directed by political beliefs. Given that pay is the most observable manifestation of directors’ biases about how much CEOs matter to the success of their organisations, we wondered whether corporate boards’ ideological leanings may affect decisions about CEO pay.

To find out, we tracked the pay and performance of more than 4,000 CEOs of S&P 1500 firms from 1998 to 2013. We also tallied donations by those firms’ corporate directors to political parties and candidates over the same period, establishing an ideology score for each board along the left-right political spectrum. To create an apples-to-apples comparison of CEO pay, we controlled for firm size, age, industry, sales growth and other factors in compensation decisions. This allowed us to isolate the relative effect of political ideology on CEO pay across a wide range of public companies.

After levelling the landscape, we found that conservative boards, on average, paid their CEOs four percent more money than liberal boards paid theirs. This translates to approximately $140,000 in additional compensation for the typical chief executive. This pay differential equals more than three times the median income in the United States.

When we factored recent firm performance into the equation, we found that good times brought an even bigger premium in compensation. After a period of strong earnings or increased market capitalisation, conservative boards paid their CEOs 18 per cent more than CEOs who report to liberal boards. The difference in CEO pay across liberal and conservative boards was much smaller, however, following poor performance. Our findings indicated that the poorest performing chief executives fared more or less the same in terms of their pay, regardless of whether their boards were conservative or liberal.

What’s going on here?

Our findings suggest that there may be differences in the way that liberals and conservatives view the impact of individual leaders. While it would be ideal to examine these differences by collecting primary data through surveys, we were unable to do that. Instead, we drew from prior psychological research that has shown that conservatives are more likely to make internal (as opposed to external, or situational) attributions for outcomes.

This logic suggests that directors’ political ideologies may shape their perceptions of how much — or how little —CEOs matter to a firm’s profitability and survival. According to our theory, conservative boards will be more inclined to believe that the fortunes of an organisation hinge on the actions of its CEO. And this higher assessment of CEO impact translates into higher CEO pay. In contrast, liberal boards are more likely to attribute firm performance to social structures, market conditions and broader environmental factors, resulting in lower CEO pay.

What does it mean?

For practitioners and astute observers of business, our findings suggest that the criteria for evaluating corporate governance may be less objectively clear-cut than previously thought. Instead, opinions about whether governance practices are good versus bad may be in part driven by the politics of the beholder. For instance, conservative directors could reasonably argue that higher CEO pay is good governance. After all, it is their responsibility to recruit and retain uniquely talented CEOs, a task that takes on heightened importance when CEOs matter — or are perceived to matter — a great deal to the organisations they lead.

For corporate directors, it may be beneficial to have the awareness that their political beliefs are shaping their views and influencing their approaches to corporate governance. Political biases may creep into these really important decisions. To understand that this is happening is informative. However, the question is: if you knew about your biases, would it make you more reflective? Would it alter your behaviour?

Notes:

 

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Call for Papers: World Future Review!

Current Issue CoverWorld Future Review is currently accepting submissions concerned with futures research. The journal publishes foresight literature addressing topics informed by technology assessment, policy analysis, operations research, issues management, competition research, and more. To find out more about the manuscript submission guidelines and how you can submit your manuscript to World Future Review, click here.

In the recent June 2016 issue, World Future Review featured articles that addressed social movements and futures research, the operational process for organizational foresight, and the health of futures studies. In addition, a new article published online by authors David N. Bengston, Jim Dator, Michael J. Dockry, and Aubrey Yee entitled “Alternative Futures for Forest-Based Nanomaterials: An Application of the Manoa School’s Alternative Futures Method” delves into four alternative futures for forestry. The abstract for the article:

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Forestry and forest products research has entered into a robust research agenda focused on creating nano-sized particles and nanoproducts from wood. As wood-based materials can be sustainably produced, the potential of these renewable products could be limitless and include high-end compostable electronics, paint-on solar panels, and lightweight materials for airplanes and cars. Others warn about potential serious negative health and environmental consequences. Either way, wood-based nanomaterials could disrupt forestry as we know it. This article is a summary and analysis of a collaborative research project exploring the futures of wood-based nanomaterials within the context of the futures of forests and forest management within the United States. We start by describing the history of forestry through the lens of the U.S. Forest Service, then describe nanotechnology in general and wood-based nanocellulose specifically. Next, we outline the Manoa School alternative futures method, and how we used it to design and carry out a “complete futures of x” project. Following the Manoa School approach, we describe four alternative futures for forestry and forest management. We conclude with implications for the future of forestry, forests, and forest-based nanomaterials, as well as a discussion on the implementation of a complete “futures of x” project.

You can read both the June 2016 issue and the article “Alternative Futures for Forest-Based Nanomaterials: An Application of the Manoa School’s Alternative Futures Method” from World Future Review free for the next two weeks. Want to stay up to date on all of the latest research from World Future ReviewClick here to sign up for e-alerts!

*Wood image attributed to Dennis Hill (CC)

A Broader Look at Firms’ Corporate Social Performance in 2000-2010

 

10310820984_fb57a27068_z[We’re pleased to welcome Elise Perrault of College of Charleston. Elise recently published an article in Business & Society, entitled “What have firms been doing? Exploring what KLD data report about firms’ corporate social performance (CSP) in the period 2000-2010,” with co-author Michael Quinn of Bentley University.]

With a strong interest for firms’ relationship with stakeholders and, more broadly, society, we constantly read about how firms address – or not – a wide variety of social issues. However, this stream of research generally provides anecdotal evidence or analyzes antecedents and consequences of firms’ involvement in a targeted issue (such as philanthrophy or environmental management, for example). In short, we felt the need for a broad, 30,000 ft, view of how firms generally engage with stakeholders through addressing social issues. At the same time, with the soaring popularity of KLD data in the field, we wanted to gain a more precise appreciation of how this data source pictured firms’ actions in society.

We find our results quite revealing and at times surprising. For instance, the results show that firms are increasingly attending to secondary stakeholders, even while garnering more concerns on primary stakeholder dimensions. This points us to question whether managers are experiencing shifting beliefs regarding the value of BAS CoverCSR; specifically that it represents less a mechanism to attract stakeholder support and more a cornerstone to their risk management approach in terms of how society values the firm’s existence. We also find, as expected, that firms generally nurture strengths in the same dimensions in which they present concerns.

The most surprising finding is the extent to which prior corporate social performance (CSP) in a given dimension is linked to CSP in other dimensions over time. This suggests that as firms engage in CSP, they find rewards that drives them to further invest in yet other dimensions of CSP. As a result, we are led to reconsider the notion of a “virtuous circle” (Waddock & Graves, 1997) and suggest that future research examines in greater depth the real benefits that firms perceive from CSP and the motives that drive their increasing commitment to CSP.

Having provided this broader view of firms’ involvement with stakeholders and social issues, we hope this research will serve as a foundation for future research in several ways. For starters, we note the significance of industry dummies in the analysis. This finding confirms what previous research indicates, that industry matters to CSP strenghts and concerns. However, the extent to which industry affiliation predisposes a population of firms to certain CSP strenghts or concerns remains unaddressed. Pushing further in this direction would be to explore how industry affiliation affects stakeholders’ perceptions, and whether stakeholders are more forgiving or scrutinizing of firms in certain industries, for example.

Another insight from our analyses is the importance of using a long time frame when analyzing firms’ CSP, which has seldom been used in previous research. Doing so would enable researchers to see patterns and connections between various dimensions of CSP, answering questions such as “Do strengths (concerns) on certain dimensions of CSP generally prompt firms to subsequently perform better or worse on these and other dimensions?” While this would shed light on the ways in which firms can be primed to address certin social issues, on a broader scale, these analyses contribute to the conversation debating the fundamental question regarding the purpose of the firm and its obligations to shareholders and stakeholders.

The abstract for the paper:

With the blossoming of research on corporate social performance (CSP), the data produced by Kinder, Lydenberg, Domini (KLD) have become the standard to measure firms’ social and stakeholder actions. However, to date, only a few studies have focused on examining the data directly, and have done so largely in terms of validating the concepts and methods in the data set’s construction. The present study seeks to complement these efforts by contributing knowledge about what the KLD data report on firms’ actions toward primary and secondary stakeholders, and the dimensions of CSP that firms generally engage in, together or sequentially. With data on 3,073 firms over the period 2000-2010, results show that firms expend more resources on garnering strengths in primary stakeholder dimensions, although this trend is sharply deteriorating to the benefit of secondary stakeholders—notably the natural environment. Results also show that firms generally approach CSP with a mixed behavior, with strengths and concerns in the same dimensions, especially as it pertains to secondary stakeholders. These are the same dimensions in which firms show the longer, more intrinsic commitments, suggesting that secondary stakeholder strengths and concerns may be structural in nature. However, there is also evidence of relationships across dimensions, indicating that firms’ involvement in CSP can generate momentum. The rich implications of these findings are discussed.

You can read “What have firms been doing? Exploring what KLD data report about firms’ corporate social performance (CSP) in the period 2000-2010” from Business & Society free for the next two weeks by clicking here. Want to stay current on the latest research published by Business & SocietyClick here to sign up for e-alerts!

Interested in submitting a manuscript to the journal? You can learn more about Business & Society‘s manuscript guidelines by clicking here.

*Conference sponsorship image attributed to Fortune Live Media (CC)

Does Social Activism Disrupt Corporate Political Activity?

The use and efficacy of corporate political activity has been well researched in the past, but a new paper published in Administrative Science Quarterly from authors Mary-Hunter McDonnell and Timothy Werner is taking a new perspective of corporate political activity. The paper, entitled “Blacklisted Businesses: Social Activists’ Challenges and the Disruption of Corporate Political Activity,” focuses on how large scale activist protests disrupt corporations’ ability to influence political stakeholders. Mary-Hunter McDonnell dives into the findings of the paper in the video below:

The abstract for the paper:

This paper explores whether and how social activists’ challenges affect politicians’ willingness to associate with targeted firms. We study the effect of public protest on corporate political activity using a unique database that allows us to analyze empirically the Current Issue Coverimpact of social movement boycotts on three proxies for associations with political stakeholders: the proportion of campaign contributions that are rejected, the number of times a firm is invited to give testimony in congressional hearings, and the number of government procurement contracts awarded to a firm. We show that boycotts lead to significant increases in the proportion of refunded contributions, as well as decreases in invited congressional appearances and awarded government contracts. These results highlight the importance of considering how a firm’s sociopolitical environment shapes the receptivity of critical non-market stakeholders. We supplement this analysis by drawing from social movement theory to extrapolate and test three key mechanisms that moderate the extent to which activists’ challenges effectively disrupt corporate political activity: the media attention a boycott attracts, the political salience of the contested issue, and the status of the targeted firm.

You can read “Blacklisted Businesses: Social Activists’ Challenges and the Disruption of Corporate Political Activity” from Administrative Science Quarterly free for the next two weeks by clicking here. Want to keep current on all of the latest research from Administrative Science QuarterlyClick here to sign up for e-alerts!

Book Review: The Globalization of Inequality

The Globalization of Inequality. By François Bourguignon . Translated by Thomas Scott-Railton . Princeton, NJ: Princeton University Press, 2015. 224 pp. ISBN 978-0691160528, $27.95 (Cloth).

Gary Fields of Cornell University recently wrote a book review in ILR Review for The Globalization of Inequality. An excerpt from the book review:

In this book, he [François Bourguignon] has produced a concise and nontechnical masterpiece of exceptional analytical and policy clarity. His professional expertise and policy involvement shine through in every chapter. Although the book is written for concerned global citizens, professional economists and other social scientists can learn much from reading it.

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Bourguignon begins by posing some provocative questions. Is globalization responsible for rising inequality in the world? Does this represent the death knell for equality? If it continues, will the quest for social justice be squelched?

His analysis makes a crucial distinction between three types of inequality in standards of living: inequality between countries, inequality within countries, and inequality among the world’s people. It is the last of these—what he terms “global inequality”—that is his primary concern and is at the heart of the book.

You can read the full review from ILR Review by clicking here. Like what you read? Click here to sign up for e-alerts and have all the research and reviews like this sent directly to your inbox!

How Do Small Businesses in Developing Countries Participate in Social Irresponsibility?

10127264163_3280e1b6e0_z[We’re pleased to welcome Vivek Soundararajan of Birmingham Business School. Vivek recently published an article in Business & Society entitled “Small Business and Social Irresponsibility in Developing Countries: Working Conditions and ‘Evasion’ Institutional Work” with co-authors Laura J. Spence and Chris Rees of University of London.]

This article is an outcome of my ongoing research about working conditions in developing country supplier facilities. My fieldwork observations in small knitwear exporting facilities located in Tirupur, India shook numerous assumptions drawn largely from a developed country perspective that we usually work with when dealing with small businesses. This prompted me to write this article along with my co-authors Prof. Laura J. Spence and Prof. Chris Rees. A prevailing notion among scholars BAS Coverand policy makers about developing country small suppliers of developed country buyers is that they are resource dependent, powerless and passive. Indeed, small suppliers are resource dependent and may hesitate to retaliate against multinational corporations’ requirements or other institutional demands related to working conditions. But, they do not simply agree with everything or abandon the relationship. They discreetly bypass various institutional demands by engaging in numerous irresponsible business practices which we refer to as ‘evasion work’ – a form of institutional work. In this article, we illustrate numerous ways in which they engage in ‘evasion work’ and the conditions that enable them to engage in such work. We believe that our study highlights the need for a more critical research on the organization of working conditions in small businesses that are part of global supply chains. Our study also adds to the ongoing conversation about the agency of resource-dependent and powerless actors. In terms of practical implications, we emphasize the need for sustainability initiatives tailored to meet the capabilities and characteristics of suppliers in developing countries.

The abstract for the paper:

Small businesses in developing countries, as part of global supply chains, are sometimes assumed to respond in a straightforward manner to institutional demands for improved working conditions. This article problematizes this perspective. Drawing upon extensive qualitative data from Tirupur’s knitwear export industry in India, we highlight owner-managers’ agency in avoiding or circumventing these demands. The small businesses here actively engage in irresponsible business practices and “evasion” institutional work to disrupt institutional demands in three ways: undermining assumptions and values, dissociating consequences, and accumulating autonomy and political strength. This “evasion” work is supported by three conditions: void (in labor welfare mechanisms), distance (from institutional monitors), and contradictions(between value systems). Through detailed empirical findings, the article contributes to research on both small business social responsibility and institutional work.

You can read “Small Business and Social Irresponsibility in Developing Countries: Working Conditions and ‘Evasion’ Institutional Work” from Business & Society free for the next two weeks by clicking here. Want to know about all of the latest research from Business & Society? Click here to sign up for e-alerts!

*Bazar image attributed to michael_swan (CC)

Vivek Soundararajan (PhD, Royal Holloway, University of London) is a research fellow at Birmingham Business School, University of Birmingham, United Kingdom and a visiting lecturer at Royal Holloway University of London. His research interests include corporate responsibility, multistakeholder initiatives, labor and environmental standards, sustainable global supply chains, small business responsibility, and emerging country contexts. He has obtained various grants, honors and awards for excellence in research, including two prestigious awards for his doctoral dissertation, namely, “Best Dissertation Award, Social Issues in Management (SIM) Division, the Academy of Management, USA” and “Honourable Mention, Thomas A. Kochan & Stephen R. Sleigh Best Dissertation Competition, Labor and Employment Relations Association (LERA), USA.”

Laura J. Spence (PhD, Brunel University/Buckinghamshire College) is professor of business ethics in the School of Management at Royal Holloway, University of London. Her research includes a wide range of critical approaches to understanding corporate social responsibility and business ethics. In particular, she is known for her work on small- and medium-sized enterprises and the emerging concept of small business social responsibility. Her articles have been published in Accounting, Organizations and Society; Business Ethics Quarterly; California Management Review; and Organization Studies.

Chris Rees (PhD, University of Warwick) is professor of employment relations in the School of Management at Royal Holloway, University of London. His research interests include the sociology of work, employee voice, and transnational and European labor regulation. His work has appeared in journals such as European Journal of Industrial Relations, Human Resource Management Journal, Transfer: European Review of Labour and Research, and Public Management Review.

How Coca-Cola Uses Social Media to Promote Corporate Social Initiatives

19792301106_fa09faba36_zWhat is the most effective way for companies to implement corporate social marketing (CSM)? In the Social Marketing Quarterly article “Examining Public Response to Corporate Social Initiative Types: A Quantitative Content Analysis of Coca-Cola’s Social Media,” authors Lucinda L. Austin and Barbara Miller Gaither suggest that the effectiveness depends upon the the corporate social initiative (CSI) type and the message content more than anything else. The abstract for the paper:

Corporate social initiatives (CSIs) are increasingly important in boosting public acceptance for companies, and emerging research suggests corporate social marketing (CSM) could be Current Issue Coverthe most effective type of CSI. However, scholars caution that CSM is not a one-size-fits-all. Through a content analysis of Coca-Cola’s social media posts on potentially controversial topics related to sustainability, health, and social change, this study explores how CSI type and message content influence public response to an organization’s social media corporate social responsibility posts. Posts emphasizing socially responsible business practices generally received the most favorable public response, while posts focused on cause promotion were received the most negatively. Findings also suggest that CSM is less effective when the issue and advocated behavior change appears to be acting against the company’s interests.

You can read “Examining Public Response to Corporate Social Initiative Types: A Quantitative Content Analysis of Coca-Cola’s Social Media” from Social Marketing Quarterly free for the next two weeks by clicking here. Want to know all about the latest research from Social Marketing Quarterly? Click here to sign up for e-alerts!

*Coca-Cola image attributed to Aranami (CC)