What Drives Executives to Make Socially Responsible Investments?

Abstract

Corporate social responsibility (CSR) has been the focus of a signifi cant amount of research. Specifi cally, scholars have looked at whether certain types of top executives are more likely to invest in CSR, and if so, what their motivations are for doing so. For example, do CEOs who invest in CSR do so to further the interests of shareholders and the fi rm’s performance, or to enhance their own reputations? Or, are CEOs investing to further the interests of other corporate stakeholders at the expense of shareholders? What’s more, scholars have asked whether these motivations are always mutually exclusive, and whether corporate governance of their fi rms affect CEOs’ decisions regarding CSR. While scholars from a variety of disciplines have long debated these questions, the empirical evidence has been inconclusive. In particular, questions remain about the drivers of CSR and, more specifi cally, the role that top management plays in shaping a fi rm’s investment in CSR and its impact on fi rm performance. Fortunately, a recent study by Richard Borghesi (University of South Florida), Joel Houston (University of Florida), and Andy Naranjo (University of Florida) sheds new light on the subject by examining how the personal attributes of executives drive CSR investments. Borghesi and his colleagues suggest three reasons why top managers invest in CSR—for altruistic reasons, to further a fi rm’s fi nancial interests, and/or to enhance their professional reputations. In particular, this study looks at the political orientation of the CEOs—with the assumption that CEOs donating more to Democrats are more likely to invest in CSR. Borghesi and his colleagues also conjecture that CEOs facing more media exposure will be more responsive to shareholders or stakeholders. Finally, they consider whether CEOs’ gender and/or level of experience infl uence attitudes toward CSR-related investments. In addition to these individual-level motivations, Borghesi and his colleagues also look at organizational-level motivations. Specifi cally, they address whether corporate governance constrains CEOs’ actions with respect to CSR investments. They maintain that strong corporate governance implies that shareholders with more power (e.g., institutional investors) may try to dissuade CEOs from investing in CSR. Finally, the study also considers several different fi rm-level characteristics that may affect a fi rm’s CSR investments, such as fi rm size, age, profi tability, advertising expenditures, corporate diversifi cation, and the competitiveness of a fi rm’s industry. For instance, more visible (high profi le) fi rms may be more likely to invest in CSR. Likewise, fi rms with more organizational slack (higher profi ts and more cash, lower debt ratios) may invest more in CSR. And fi rms that are more diversifi ed and more global and in less competitive industries may be more likely to expand their CSR programs as well.