Governance theories impact how corporations are run, which in turn impacts societal well-being. This dynamic is commonly accepted, as evidenced by the flood of articles exploring the links between corporate governance and corporate social responsibility. This article supplements current corporate governance theories with Catholic social thought to address burgeoning societal issues such as the increasing trust gap, income inequality, and an overemphasis on financial compensation as the primary way to motivate senior managers. The authors propose a shift away from agency (...) theory and stakeholder theory, both of which, with their limited depictions of the motivations of managers, have contributed to excessive executive compensation. Instead, the authors develop an alternative—justice stewardship theory—which integrates organizational justice theory, the principles of stewardship theory, and the insights of 150 years of CST. (shrink)

We conjecture that corporate social responsibility can be indicative of managerial ethics and integrity and examine whether equity investors and financial analysts consider CSR performance when they assess firms’ disclosures of actual and forecasted earnings. We find that only adverse CSR performance affects investors’ assessments of these disclosures. In contrast, we find that both positive and adverse CSR performance affect analysts’ forecast revisions in response to firms’ disclosures. We also find that firms with adverse CSR performance exhibit lower disclosure quality (...) and earnings persistence, but do not find that firms with positive CSR performance exhibit higher levels of both measures. This asymmetric result is consistent with investors’, but not analysts’, assessments of the effect of CSR performance on corporate disclosures. Our results are robust to using a three-stage least squares approach to address endogeneity concerns and to a battery of robustness and sensitivity analyses. Overall, our findings suggest that investors and analysts consider CSR when assessing the information in earnings-related corporate disclosures. (shrink)

The objective of this research is to examine whether and how enterprises adjust their corporate social responsibility (CSR) activities in response to top executives’ local tournament incentives. The findings provide evidence to support the claim that local compensation gaps encourage top executives to reduce their CSR performance; furthermore, they indicate that this reduction is accomplished mainly through the CSR categories of diversity, community, the environment and product. The enforceability of noncompete agreements (NCAs) is examined, and the negative relationship between local (...) compensation gaps and CSR is documented to be weaker in states that feature stronger enforcement of NCAs, which constrains labour mobility and imposes turnover costs. The findings of this research are robust to concerns regarding endogeneity and reverse causality. (shrink)

Despite ample research on corporate governance (CG) and corporate social responsibility (CSR), there is a lack of consensus on the nature of the relationship between these two concepts and on how this relationship manifests across institutional contexts. Drawing on the national business systems approach, this article systematically reviews 218 research articles published over a 27-year period to map how CG–CSR research has evolved and progressed theoretically and methodologically across different institutional contexts. To shed light on the full gamut of the (...) CG–CSR relationship, we categorize and explore the nature of this relationship along two strands: (a) CSR as a function of CG and (b) CG as a function of CSR. Through this review, we identify key themes where CG–CSR research has lagged and account for under-explored contexts in this domain. Finally, we put forth a comprehensive agenda for progressing future research in the field. (shrink)

This study examines whether and how the presence of managerial hedging opportunities, which allows executives to reduce the sensitivity of their equity-based compensation to the firm’s stock price performance, affects firms’ corporate social responsibility (CSR) activities. We find a significant and negative relationship between the presence of managerial hedging opportunities and firms’ CSR performance. The effect of managerial hedging opportunities on CSR performance is more pronounced for CEOs with greater personal hedging needs. Additionally, the effect is weakened if firms limit (...) corporate insiders from trading exchange-listed options. Overall, this study suggests that allowing managers to delink their equity-based compensation from firm stock price performance through hedging their personal portfolios can lead to unexpected consequences for firms’ CSR performance. (shrink)

This paper examines the role of mutual funds in corporate social responsibility. Using a fund-level, holdings-based CSR score, we find that CSR-friendly mutual funds improve firms’ CSR standings. This effect is more pronounced for firms with higher mutual fund ownership and stronger corporate governance. We further show that while CSR-friendly mutual funds have influence on almost all CSR categories, they focus on increasing CSR strengths rather than reducing CSR concerns. We also discover that CSR-friendly funds are more likely to vote (...) in favor of CSR proposals, and that firms owned by CSR-friendly funds are more likely to link their CEO compensation to CSR outcomes. These results suggest that actively managed mutual funds, which were previously thought to be indifferent to social and ethical issues, play a significant role in corporate social outcomes of the firms they invest in. (shrink)

The Securities and Exchange Commission (SEC) sanctioned investor-paid rating agency Egan-Jones for falsely stating that it did not know its clients’ investment positions. The SEC’s action against Egan-Jones raises the broad question whether knowledge of clients’ investment positions creates a conflict of interest for investor-paid ratings. In an experimental setting, we find that investor-paid rating agencies are likely to assign credit ratings that are biased in favor of their clients’ positions, and that this effect is attenuated when the rated company (...) has a sophisticated investor base that is expected to scrutinize ratings. The effect is not conditional on the risk profile of the rated companies. Taken together, our findings suggest that a conflict of interest stemming from investors’ preferences is likely to bias ratings under investor-pays business models, but scrutiny by the company’s investor base can counteract this bias. (shrink)

Managers face an ethical dilemma in the allocation of scarce resources to corporate social responsibility because the underlying managerial incentives behind such CSR spending can range from pure altruism to complete financial orientation. Despite the importance of the managerial role in implementing CSR, prior studies generally have treated the role of managers as an exogenous factor. This study builds on recent studies on the managerial characteristics in studies on CSR by examining how managerial efficiency influences the outcomes of CSR. Using (...) a newly developed measure of managerial efficiency, we find that, on average, managerial efficiency is positively associated with a subsequent change in corporate social performance, although the association is weak in the level of total CSP. We find that efficient managers are more likely to engage in the product-related CSR that directly connects to corporate financial performance but are less likely to engage in environment-related CSR. We also find that CSP is positively associated with CFP with efficient managers. Our findings contribute to management and other stakeholders’ understanding of the association of CSR to its outcomes, CSP and/or CFP, which is hinged by the indispensable moderating role of managerial efficiency. (shrink)

Companies are expected to monitor sustainable behaviour to help improve performance, enhance reputation and increase chances of survival. This paper examines the relationship between sustainability committees and independent external assurance on the inclusion of sustainability-related targets in CEO compensation contracts. Using a sample of UK FTSE350 companies for 2011–2015 and controlling for governance and firm characteristics, we find both board-level sustainability committees and sustainability reporting assurance have a positive and significant association with the inclusion of sustainability terms in compensation contracts. (...) However, there is no joint impact between the voluntary use of independent external assurance and the role of sustainability committees on CEO compensation contracts. Sustainability-related terms in compensation contracts are more likely to be included, and higher compensation is likely to be paid, when assurance is provided by a Big4 firm and when a company operates in a sustainability-sensitive industry. Our findings highlight the potential of assured sustainability reports in assessing CEO performance in sustainability-related tasks, especially when sustainability metrics are included in CEO compensation contracts. Overall, our results suggest companies that invest in voluntary assurance are more likely to monitor management’s behaviour and be concerned about the achievement of sustainability goals. (shrink)

Investors with standard monetary preferences will give a fund manager incentives to increase firm profits, which can be achieved through a share in profits via carried interest. When investors have social preferences, it is not clear which incentives the manager should receive. We explore this puzzle by applying an agency theory perspective to impact investing, a practice where investors seek both financial returns and a measurable social or environmental impact. Using an inductive, qualitative approach, we identify and describe the ethical (...) tensions and challenges faced by fund managers to structure and implement impact-based variable compensation schemes. Our results indicate that economic incentives tied to non-financial objectives are useful to alleviate goal incongruity between principals and agents during fund creation but have the potential to lead to perverse effects during the fund lifecycle, where managers may exploit subjective non-financial metrics to maximize personal wealth. We introduce the concept of impact fidelity, a conceptual equivalent of fiduciary duty, to ensure that investment decisions reflect the asset owner’s impact preferences. (shrink)

This study examines how the CSR committee and CSR-linked executive compensation jointly affect CSR performance as governance mechanisms. Prior studies provided mixed results on the CSR committee’s effect on CSR performance. We posit that a CSR committee has both a direct and an indirect positive effect on CSR performance, with CSR-linked compensation playing the role of mediator in the relationship. We base our analysis on a sample of 164 Canadian firms covering the period 2012–2018, for a total of 952 firm-year (...) observations. We propose a regression-based approach for our mediation research design. Our findings reveal that CSR-linked compensation mediates the CSR committee’s positive effect on performance, but the type of mediation depends on whether the performance is social or environmental. We provide evidence of both direct and indirect effects on environmental performance but only a positive indirect effect on social performance. These results suggest that demands from the firm’s internal and external stakeholders are treated differently, with the former receiving priority. (shrink)

This paper examines the effectiveness of the use of executive compensation linked to Corporate Social Responsibility (CSR) goals across US firms. Empirical analysis of a cross-industry sample of 746 listed companies for the period 2002–2013 showed that the use of CSR-linked compensation contracts for Named Executive Officers (NEOs) promotes CSR performance. More specifically, we found that linking NEOs’ compensation to CSR goals produces positive effects in the 3rd year after adoption. As firms accumulate experience and learn how to use the (...) system over the following eight periods, CSR performance increases monotonically. Furthermore, experience accumulated over time affects the different specifications of CSR performance asymmetrically, by reducing both environmental and social CSR concerns and increasing only environmental CSR strengths. Interestingly, we also found that the simultaneous use of other CSR-focused governance systems moderates the effect of a firm’s accumulated experience in using CSR-linked executive compensation on CSR performance: the existence of a CSR committee at the board level and the public release of a CSR report are likely to have a positive moderating effect, while the purchase of a CSR audit has no moderating effect. (shrink)

The current study investigates whether tournament incentives motivate chief executive officer to be socially responsible. Furthermore, it explores the role of sub-national institutional contingencies [i.e., state-owned enterprises vs. non-SOEs, foreign-owned entities vs. non-FOEs, cross-listed vs. non-cross-listed, developed region] in CEO tournament incentives and the corporate social responsibility performance relationship. Data were collected from all A-shared companies listed in the stock exchanges of China from 2014 to 2019. The study uses the baseline methodology of ordinary least squares and cluster OLS regression. (...) Moreover, firm-fixed effects regression, two-stage least squares regression, and propensity score matching deal with the endogeneity problem and check the robustness of the results. The results provide reliable evidence that tournament incentives motivate CEOs to be more socially responsible. On the other hand, sub-national institutional contingencies positively affect the association between CEO tournament incentives and CSRP. The findings have important implications for companies and regulators who wish to enhance CSP by providing incentives to top managers. (shrink)

This study uncovers a new finding on the impact of CEO tenure on corporate social and environmental performance (CS&EP) in coastal and non-coastal areas of China using fixed-effect panel data regression models. The Two-Stage Least Squares instrumental panel regression is used to validate the veracity of the empirical results. To this end, we extract data from all non-financial Chinese listed firms for the period of 2009 to 2015. By applying the multivariant framework, the findings of the study exhibit a negative (...) and significant effect of CEO tenure on CS&EP. Moreover, this study shows that firms with head offices in coastal areas of China tend to weaken the negative impact of CEO tenure on CS&EP, indicating that CS&EP is more focused in coastal areas of China than non-coastal ones. The findings suggest that the increase in CEOs’ CS&EP in the early years of their service tenure tends to increase their compensation packages. This study is useful for policymakers to link CS&EP with firm economic practices to attain sustainable development objectives. (shrink)