Study: Social Responsibility Investment ‘Double-Edged Sword’

Tim Hubbard is with the Notre Dame Mendoza College of Business.

A study co-authored by an assistant professor at the University of Notre Dame’s Mendoza College of Business shows the effects investment in corporate social responsibility can have on the job security of chief executive officers. Tim Hubbard says the results show poor performance of CSR initiatives have contribute to the firing of CEOs. "On the other hand," he said, "if they have invested in CSR and the firm performs well, they are less likely to be fired."

Hubbard wrote "Higher Highs and Lower Lows: The Role of Corporate Social Responsibility in CEO Dismissal," which is published in the current issue of Strategic Management Journal, with Dane Christensen of the University of Oregon and Scott Graffin of the University of Georgia.

Results show past investments in CSR can have a "substantial" impact on a CEO’s job security, with effects that linger. "CEOs running firms with higher levels of CSR are 84 percent more likely to be dismissed when financial performance is poor, compared to their counterparts at firms with lower levels of CSR. However, research also indicates that prior CSR investments reduce a CEO’s likelihood of dismissal by 53 percent when profits are higher."

Hubbard says the study results suggest "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."

The research examined transitions of Fortune 500 CEOs from 2003 to 2008, considering CSR activities before and after the CEOs’ dismissals. You can connect to more about the study by clicking here.