By Bongsun Kim, Jon Jungbien Moon, & Eonsoo Kim

Following the Business Roundtable Statement on the Purpose of a Corporation in 2019, there is a great deal of interest in corporate social responsibility (CSR). However, despite the heightened level of interest, CSR may not necessarily be correlated with positive financial performance. Emmanuel Faber, a star of sorts in the CSR circles during his four-year leadership at Danone, learned this the hard way when he was fired over weak financial performance in March 2021. Suppose that he gets hired by another company. Given his experience at Danone, would he push a similar approach toward CSR? Would he have a hard time selling his idea to the new top management team, given the negative financial performance at the previous company?

Clearly, CSR is a hot issue and will stay that way for the long haul, particularly ever since it was openly demanded as a nonfinancial measure of firm performance by Blackrock and its CEO Larry Fink. Many public companies around the world have now set up CSR committees, or their equivalents, inside the board, a significant change from the situation in 2007 when just about one third of S&P 500 companies had a CSR committee or equivalent on their board. In Korea, for example, most of the top 100 public firms now have an ESG (Environmental, Social, and Governance) committee. The general public and the investment community now expect that firms take real actions towards tangible corporate social performance that can be summarized in what we call “CSR profile”. CSR profile calculates where a company allocates its CSR resources and aggregates them into one measure. For instance, companies can allocate different proportion of resources into corporate governance, diversity, employee relations, environment, product safety, and so on. Our study investigated whether and how the CSR profile of a company is transferred to another company when an executive left a firm and joined another one. Drawing upon the U.S. KLD data over a 14-year period, we found that migrated executives did take the elements of their old firms’ CSR profiles to their new firms.

We devised a method to measure how closely two firms’ CSR practices resemble. For example, George M. C. Fisher (CEO and chairman of Motorola from 1990 to 1993) became CEO and chairman of Eastman Kodak in 1993. In 1994, the CSR practices of both firms became a lot similar than before. This tendency of mirroring strengthened what the new firm was doing well already and also improved previously weaker areas of CSR. It is not surprising that you will bring your belief and experience to a new place consciously or unconsciously.

But that’s only half the story because you will need to sell your ideas and persuade people in the new firm. What will make it easier for you to push your initiatives? Again, our research suggests that when you come from a company which is larger, and with better CSR record and better financial performance, you can shift the new company’s practices much closer to those of your previous company. Interestingly though, this tendency was only applied to the areas of CSR weaknesses rather than CSR strengths. In other words, migrated executives could better affect what the firm was missing than what the firm was doing well.

So, if you were Emmanuel Faber, you would want to accept a job offer from a company which is smaller and with a relatively lackluster CSR record. You will have a better chance of fixing problems related to CSR than improving what the company was already doing well. Of course, you being fired due to not so good financial performance at Danone may get in the way of receiving full support from your top management team in the new company.

What if you are a firm recruiting new executives? Firms selecting new outsider executives should also consider the CSR of the previous employer as an important selection criterion. Furthermore, firms should try to predict incoming executives’ future strategic directions, which will have broader implications for executive search and succession, the board of directors’ roles and responsibilities, and corporate governance. This applies to firms that pay a great deal of attention to what investors want. For instance, if you want to attract activist investors who care about a certain ESG issue, who you hire may send out a credible signal.

Corporate investments in CSR initiatives are costly. The same principle of resource allocation will be at work here. Where and how you expend your company’s resources will be inevitably influenced by your past experience. Hiring a seasoned executive from another firm could help fix a CSR problem of your firm.

Reference:

Kim, B.S., Moon, J.J. & Kim, E. 2022. Executive migration matters: The transfer of CSR profiles across organizations. Business & Society, 61(1): 155-190.