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:]

 

donkey-vs-elephant

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:

 

Follow Administrative Science Quarterly on Twitter!

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)

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)

Responsible Management Education – Are Schools Walking Their Talk?

business-graphics-1428641-m[We’re pleased to welcome Andreas Rasche of Copenhagen Business School. Dr. Rasche recently published an article in the July issue of Journal of Management Inquiry with Dirk Ulrich Gilbert of the University of Hamburg entitled “Decoupling Responsible Management Education: Why Business Schools May Not Walk Their Talk.”]

In the recent past business school education has been increasingly in the line of fire. The public, politicians, and scholars alike blamed business schools to educate the wrong people in the wrong ways, paving the way for irresponsible management practices. Driven by discussions about whether and to what extent business schools contributed to the 2008-2009 financial crisis and to large-scale corporate accounting scandals, the discourse on responsible management education has gained traction. Schools are increasingly asked to educate students in a way that they build up knowledge related to corporate responsibility, sustainability, and ethics. Numerous initiatives have problematized “traditional” management education by calling on business schools to adapt to new realities. Initiatives like the UN-backed Principles for Responsible Management Education (PRME) and the Globally Responsible Leadership Initiative (GRLI) have called on business schools to embed relevant discussions into their curricula and extracurricular activities. These initiatives are popular and many schools publicly support their underlying agenda (e.g., 554 schools had signed onto PRME as of July 2014).

Our paper that appears in Journal of Management Inquiry titled “Decoupling Responsible Management Education – Why Business Schools JMI_72ppiRGB_powerpointMay Not Walk Their Talk” offers a hard look at the soft practice of responsible management education. We argue that responsible management education increasingly exposes schools to institutional pressures that can hardly be neglected (e.g., due to changing accreditation criteria). We further argue that while schools may respond to these pressures by modifying some of their formal structures (e.g., new policies and committees), there is a risk that under certain conditions they will decouple these structures from everyday organizational practices. Our analysis explores these conditions and suggests that decoupling is likely to occur when: (1) schools only have limited resources available, (2) there is resistance by powerful organizational actors, (3) schools face competing non-aligned institutional pressures, and when (4) organizational actors perceive institutional demands as ambiguous and hence believe that symbolic adoption will remain undiscovered.

We are not claiming that all business schools decouple talk from action when it comes to responsible management education. What we are claiming is that due to the organizational characteristics of business schools (e.g., protection of academic freedom) and the specific nature of institutional pressures surrounding responsible management education, there is a risk that some schools may decouple relevant structural effects. We believe that a discussion of whether, how and why business schools may decouple responsible management education is timely. As of July 2014, 43 schools were delisted from the PRME initiative for failure to comply with the initiative’s mandatory reporting requirements, while nine schools decided to withdraw from the initiative. The bottom line is this: If we really want schools to educate more responsible business leaders, we need to start a discussion about what enables and, most of all, impedes implementation. “Quick fixes”, like adding more elective courses with relevant content, are unlikely to do the job.

You can read “Decoupling Responsible Management Education: Why Business Schools May Not Walk Their Talk” from Journal of Management Inquiry for free for the next two weeks by clicking here. Want to have all the latest research like this from Journal of Management Inquiry sent directly to your inbox? Click here to sign up for e-alerts!


rascheAndreas Rasche is professor of business in society at the Centre for Corporate Social Responsibility at Copenhagen Business School (CBS) and research director of the CBS World-Class Research Environment on “Governing Responsible Business.” He holds a PhD (Dr.rer.pol.) from European Business School, Germany, and a habilitation (Dr.habil.) from Helmut-Schmidt University, Hamburg. His research focuses on corporate responsibility standards (particularly the UN Global Compact), the political role of corporations in transnational governance, and the governance of global supply networks. More information is available at http://www.arasche.com. Dirk Ulrich Gilbert is a professor of business ethics at the University of Hamburg, Germany. He received his PhD from

gilbertDirk Ulrich Gilbert is a professor of business ethics at the University of Hamburg, Germany. He received his PhD from Johann Wolfgang Goethe–University in Frankfurt (Germany) and held positions at the University of New South Wales (Sydney, Australia) and the University of Nuremberg (Germany). His most recent research focuses on management education, international accountability standards, and deliberative democracy. He published in internationally acclaimed journals such as Business Ethics Quarterly, Business & Society, Academy of Management Learning and Education, Management International Review, and the Journal of Business Ethics.

How Do Attitudes Towards CSR Influence Job Choices Across Cultures?

BAS_v50_72ppiRGB_powerpoint[We’re pleased to welcome Cedric E. Dawkins of Dalhousie University. Dr. Dawkins recently collaborated with Dima Jamali, Charlotte Karam, Lianlian Lin, and Jixin Zhao on their article “Corporate Social Responsibility and Job Choice Intentions: A Cross-Cultural Analysis” from Business & Society.]

  • What inspired you to be interested in this topic?

The paper was inspired by the travel of the authors and observing the concerns and challenging around CSR and how they varied, but maintained similar presence, in different countries.

  • Were there findings that were surprising to you?

The results of the study, that the preference to work for firms respondents viewed as socially responsible were relatively consistent but the reasons for the preferences differed, did not surprise us in that culture impacts so much of our decision making. It is noteworthy from a decision making/motivation perspective, that the respondents in different countries arrive at the same place by assigning different weights to the same variables.

  • How do you see this study influencing future research and/or practice?

We believe that a clear implication of our paper for recruiters and HR officers is that when seeking international workers the ŒCSR message may be better received if it is tailored to the specific cultural context. This insight is nothing special, but illustrates the need to extend cross-cultural sensitivity to perception of CSR as well.

You can read “Corporate Social Responsibility and Job Choice Intentions: A Cross-Cultural Analysis” from Business & Society free for the next two weeks by clicking here. Want to know about all the latest research like this from Business & Society? Click here to sign up for e-alerts!


dawkinsCedric E. Dawkins (PhD, Ohio State University) is an associate professor of management at the Rowe School of Business at Dalhousie University. His research interests focus on connections between labor rights and corporate social responsibility (CSR), labor union revitalization, and the impact of disclosure on corporate behavior. His work has appeared in journals such as Business & Society, Business Ethics Quarterly, Employee Relations, Journal of Business Communication, and Journal of Business Ethics.

jamaliDima Jamali is a professor of management in the Olayan School of Business at American University of Beirut and currently holds the Kamal Shair Endowed chair in responsible leadership. With a PhD in social policy and administration from the University of Kent at Canterbury, her research revolves primarily around CSR a nd social entrepreneurship (SE). She is the editor of three books (CSR in the Middle East, Social Entrepreneurship in the Middle East, and CSR in Developing Countries), and more than 50 international research publications, focusing on different aspects of CSR and SE in developing countries in general and in the Middle East in particular. Her research record has won her a number of scientific awards and honors, including the Abdul Hameed Shoman Award for Best Young Arab Researcher for 2011.

KaramCharlotte Karam (PhD, University of Windsor) is an assistant professor of organizational behavior in the Olayan School of Business at American University of Beirut. Her research broadly examines responsible engagement at the intersection among gender, corporate responsibility, and employee extra role behavior at work within developing and emerging economies. Most of her research is examined within a multilevel contextual framework, which considers factors relating to societal culture, socioeconomic development, and political stability. Her work has been published in the Asia-Pacific Journal of Management, Business Ethics Quarterly, Career Development International, among other journals. In 2012, she was awarded the university-wide teaching excellence award for her classes in business ethics, leadership development, and organizational behavior.

LinLianlian Lin (PhD, University of Texas at Austin; LLM, University of Pennsylvania Law School) is a professor of management at California State Polytechnic University Pomona. Her research interests focus on cross-cultural issues, multinational management, and law. Her articles have appeared in journals such as Yale Journal of International Law, University of Pennsylvania Journal of International Economic Law, and Journal of Asian American Studies.

Jixin Zhao (DBA, China Agricultural University) is a professor of management and director of MBA Education Center at North China University of Technology. His research interests focus on human resource management and industrial economics. His articles have appeared in journals such as Productivity Studies and Economic Issues. He has published books such as Humanistic Management and Managers Roles and Skills Upgrading.

Read Organization and Environment’s Special Issue for Free!

challenges-1221258-mCan institutional theorists constitute a society to better the relationship between organizations and the natural environment? What is the current state of the research on carbon disclosure? How have researchers addressed the tensions inherent in corporate sustainability? These topics and more are explored in Organization and Environment‘s Special Issue entitled “Review of the Literature on Organizations and Natural Environment: From the Past to the Future.”

Stephanie Bertels and Frances Bowen collaborated on the introduction to the Special Issue:

In summer 2015, the Organizations and the Natural Environment Division of the Academy of Management will celebrate the 20th anniversary of its first formal oae coverconference program back in 1995. Over the past two decades, a vibrant and engaged scholarly community has generated thousands of empirical and conceptual studies on the complex relationships between organizations and their natural and social environments. Each individual study focuses on specific research questions crafted to meet the rigorous requirements of academic journals. However, too often our journal publishing and professional norms push us to focus on small, incremental contributions to knowledge. Anniversaries can remind us to pause, take stock, and build on the past to shape a new future. The Organization & Environment (O&E) editorial board decided to provide a venue for this anniversary celebration: a special issue where as a community of scholars we can reflect on where we have been, what we have learned, and what remains to be understood to both further our field and help society address pressing environmental challenges.

In this first review issue of O&E, we hoped to draw insight and inspiration from in-depth reviews of specific topics. Our call for articles invited authors to reflect on the state of theory, empirical research, and practice in relation to key questions at the interface of organizations and the natural environment. We sought out comprehensive and analytical reviews of recent research that synthesized, integrated, and extended our thinking. We encouraged authors to anchor their thoughts in detailed retrospection on past and current research, and to identify the key theoretical, empirical, methodological, or practical challenges of future O&E research. There was an enthusiastic response from the community of scholars and in the end, we have assembled a group of six articles. Each offers a stand-alone review of a particular phenomenon within the O&E domain. Together they showcase the wide range of scholarship addressing topics ranging from the macro to the micro foundations of our field.

You can read Organization and Environment‘s Special Issue for free for the next 30 days! Click here to access the Table of Contents. Want to know when all the latest research like this becomes available from Organization and Environment? Click here to sign up for e-alerts!