For Individuals or For Groups? The Influence of CEO Moral Foundations on Firms’ ESG Performance

Abstract

This study examines how chief executive officers’ (CEOs’) moral foundations (MF) – source of intuitions about what is right and wrong – influence their firms’ environmental, social, and governance (ESG) performance. While some CEOs may view harm and injustice caused by their firms’ activities as moral violations against unrelated others (i.e. individualizing MF), other CEOs may perceive adhering to their firm-identified primary stakeholder groups’ expectations as their guiding moral principle instead (i.e. binding MF). Using a linguistic technique to assess MF from unscripted text spoken by 1,860 CEOs of S&P 1500 firms over five years, we show that CEOs with higher individualizing MF drive greater corporate ESG performance, while CEOs with higher binding MF negatively affect their firms’ ESG performance. Moreover, we find that pressures from consumer and employee stakeholder groups negatively moderate the relationship between individualizing MF and firms’ ESG performance. Our findings suggest that stronger stakeholder pressures can have unfavourable consequences, such as diminishing the expression of CEOs’ personal values around firms’ ESG outcomes. As a whole, our study highlights the significance of CEOs’ morality in understanding corporate ESG performance and adds nuance to existing research around the value of stakeholder pressures in driving greater ESG performance.