Leadership change and corporate social performance: The context of financial distress makes all the difference

Abstract

Change in strategic leadership has important implications for corporate social performance (CSP) and sustainability. As new CEOs have a strong incentive to attend to a broad set of stakeholders to build their trust and reputation within the firm, our study draws on stakeholder salience theory to examine a boundary condition, the presence of financial distress, that might challenge a new CEO's ability to perform such a task. We examine the differential impacts between externally recruited CEOs (outsiders) and internally promoted CEOs (insiders) on CSP under the condition of financial distress. We argue that when firms experience financial distress, outsider CEOs can more quickly shift their attention and prioritize the interests of shareholders over other stakeholders than insider CEOs. Our study contributes to the strategic leadership and CSP literatures by offering new insights into how corporate leadership turnover and firm context may jointly shape new CEO's decision-making in CSP engagement.