When Doing Good Ends Badly for CEOs -- Update
October 17 2017 - 11:28AM
Dow Jones News
By Vanessa Fuhrmans
CEOs beware: Being a do-gooder could get you fired.
Many corporate chieftains argue that companies shouldn't only
seek to be money-making enterprises; they should also be good
corporate citizens. From Starbucks Corp. Chairman Howard Schultz to
Unilever PLC Chief Executive Paul Polman, leaders variously promote
efforts to reduce their company's carbon footprints, work with
sustainable suppliers and produce healthier or more eco-friendly
products -- both as a marketing tool and business model.
"My personal mission is to galvanize our company to be an
effective force for good," Mr. Polman says on his LinkedIn
page.
But a new study shows that socially responsible initiatives can
be a double-edged sword for CEOs, helping to shield them from being
ousted during more prosperous times but increasing the likelihood
they would be fired in bad times.
Examining the exits of Fortune 500 company bosses over several
years, researchers found that those who heavily invested company
resources in good corporate citizenry were 84% more likely to be
fired amid sluggish financial results than CEOs at poor-performing
companies that spent less on do-good initiatives.
On the flip side, spending on corporate social responsibility
acted as a protective buffer for company chiefs who presided over
robust profitability. They were 53% less likely to be ousted than
other leaders of high-performing companies that didn't invest so
much in measures to bolster social welfare, according to the study,
publish in the November issue of Strategic Management Journal.
Timothy Hubbard, an assistant professor at Notre Dame
University's Mendoza College of Business and one of the study's
authors, says the findings suggest that CEOs who pull off strong
profits in a seemingly socially responsible way build up goodwill
with their boards because they have managed to achieve two goals at
once.
Yet, he adds, when a social-welfare-minded CEO achieves only
lackluster results, investors are likely to conclude that such
investments are a distraction and a waste of money -- in large part
because the research remains mixed as to whether such efforts boost
the bottom line.
The upshot, Mr. Hubbard says, is that shareholders should
realize that CEOs face risks in making such investments.
"If boards and investors want CEOs to make big investments in
corporate social responsibility," he says, "we need to think about
how to protect those CEOs when they make those decisions."
Write to Vanessa Fuhrmans at vanessa.fuhrmans@wsj.com
(END) Dow Jones Newswires
October 17, 2017 11:13 ET (15:13 GMT)
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