Study: CEOs Who Invest In Social Responsibility Initiatives Risk Their Jobs

Oct 31, 2017
Originally published on November 2, 2017 12:46 pm
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DAVID GREENE, HOST:

CEOs - these are people who are hired to make money for their companies' shareholders, of course. Some people would like CEOs to commit to another objective - to make money in a socially responsible way or to give away money to help their communities. Well, there's a new study that shows that CEOs who support corporate social responsibility initiatives might actually be putting their own jobs on the line. And NPR's social science correspondent Shankar Vedantam is here to explain. Hey, Shankar.

SHANKAR VEDANTAM, BYLINE: Hi, David.

GREENE: Can we just start with a thumbnail, Shankar, on what actually corporate social responsibility is?

VEDANTAM: Sure. Corporate social responsibility, or CSR as it's sometimes known, is anything that the firm does that doesn't have a direct relationship to the bottom line. So it could be investments in the community. It could be investments in safety. It could be investments in things that help the environment, investments in diversity, things that in general make the company look like a good public citizen but don't necessarily always have a direct relationship to the financial bottom line.

GREENE: And doing these good things, they can be - they can be bad for CEOs.

VEDANTAM: Well, it can, but it all depends on the context. I was speaking with Tim Hubbard. He's a management professor at Notre Dame. He said investments in diversity or environmental issues or safety procedures, they might endear a company to workers and to communities, but such investments can also invite concerns.

TIM HUBBARD: A lot of people view CSR as a poor investment, that that money could have been spent elsewhere within the firm in a more traditional type of investment like research and development where there's much more of a clear linkage between that investment and the firm's bottom line.

GREENE: This is amazing because a lot of people look at corporate responsibility, you get good media, community relations are better, labor relations can improve if you're working on diversity. But some people just look at the bottom line and say you should be spending money on something else.

VEDANTAM: That's right. And also people, I think, are asking in the long run, are these investments good or bad for the firm? So Hubbard and his colleagues, Dane Christensen and Scott Graffin, decided to analyze whether the investments were a net positive or a net negative. And they decided to use a very simple metric - what do these investments mean for the well-being and the longevity of the CEO who is basically directing these investments? In other words, do investments in corporate social responsibility help a CEO or hurt a CEO?

HUBBARD: We see this double-edged sword where if the firm is doing well, investments in corporate social responsibility can buffer a CEO from dismissal. But on the other hand, if there's negative financial performance, it can really set the CEO up for a situation where they could likely be terminated.

GREENE: Well, just listening there, Shankar, I mean, is the lesson that CEOs should only do socially responsible things if they're confident that their company is performing well financially?

VEDANTAM: Well, that might indeed be the lesson that CEOs take away from this, David, because it seems as if boards use investments in corporate social responsibility as a frame to evaluate the CEO. So if a company is doing well, the board says, look, the CEO is getting us great numbers but is also showing us to be a good citizen. That's great. On the other hand, when the firm is doing badly, boards say, why are we spending money on altruistic causes when we're losing money? So they turn on the CEO, and this makes it more likely that he or she gets fired.

GREENE: Almost sounds like they can use this as a way to feed whatever narrative they have of the CEO to begin with.

VEDANTAM: Indeed. It amplifies whatever the financial picture is showing them.

GREENE: Shankar, thanks as always.

VEDANTAM: Thanks, David.

GREENE: That is Shankar Vedantam. He regularly joins us on the program to talk about social science research. And you can find him on Twitter - @HiddenBrain - and while you're at it, you can follow this program @morningedition.

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