New York, Oct 19

Are you leading your company towards making social endeavours? Beware, corporate social responsibility (CSR) investments can act as double-edged sword, which can either result in high praise or get you fired, depending on the financial returns you gain, reseachers warn.

The findings showed that chief executive officers (CEO) running firms with higher levels of CSR are 84 per cent more likely to be dismissed when financial performance is poor, compared to their counterparts at firms with lower levels of CSR.

The effects of a CEO's past investments in CSR are substantial and can linger.

However, prior CSR investments can also reduce a CEO's likelihood of dismissal by 53 per cent when profits are higher, the researchers said.

"If a CEO has invested in CSR and the firm performs poorly, they are much more likely to be dismissed," said Tim Hubbard, Assistant Professor at the University of Notre Dame in Indiana, US.

"On the other hand, if they have invested in CSR and the firm performs well, they are less likely to be fired. This shows that CSR investments can be a double-edged sword -- do well and they'll buffer you from dismissal, do poorly and you're more likely lose your job," Hubbard added.

For the study, published in Strategic Management Journal, the team examined all CEO transitions in the Fortune 500 to assess whether or not they were voluntary or the CEO was fired.

On the other hand, stakeholders interested in seeing a CSR uptick, should understand that CEOs make such investments at great personal risk, the researchers said.

"If shareholders and boards expect CEOs to take profitable actions, they may need to consider incentives and compensation schemes that protect them in some way. That would help the CEO to be more comfortable making these contentious, highly scrutinised investments," Hubbard noted.

 

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