- CEOs committed to social impact initiatives are more likely to move on to bigger and better leadership roles, according to an analysis of almost 2,000 leadership transitions.
- The study’s findings reinforce the value placed on corporate social responsibility and other impact efforts by institutional investors and asset managers.
- More than one-quarter of professionally managed assets worldwide include social performance among their metrics.
Backers of corporate social responsibility and other social impact initiatives have long argued that these efforts improve the bottom line for companies. New research suggests the same is true for the executives who lead them.
“CEOs leaving firms with strong social performance are more likely to secure new executive positions,” according to a paper published by the Social Science Research Network. “These results suggest that the managerial labor market rewards CEOs for their social performance.”
Financial results have long been the yardstick by which CEOs have been measured, but impact-focused investors in recent years have focused on a “double bottom line“ — positive social impact along with financial results. Numerous studies and surveys of business leaders have suggested strong links between social impact and profit. The new paper — by researchers from four U.S. business schools — indicates that the corporate social responsibility performance of companies can pay off big time for CEOs looking to advance.
Along with a greater likelihood of securing new jobs, the researchers found that these leaders were more likely to find new positions sooner — and at bigger public companies. “CEOs leaving CSR firms are more likely to be hired by larger firms and are more likely to receive higher total compensation,” the paper states.
Tracking CEO Impact
The researchers — Xin Dai of Drexel University’s LeBow College of Business, Feng Gao of Rutgers University Business School, Ling Lei Lisic of Virginia Tech’s Pamplin College of Business, and Ivy Zhang of the University of California-Riverside School of Business — examined almost 2,000 CEO departures and their subsequent hires by publicly traded U.S. firms between 1993 and 2016.
The researchers examined the extent to which CEOs directly affected their companies’ socially responsible initiatives. They found that companies whose CEOs were focused on such initiatives saw their CSR ratings decrease after their departure, while their new companies saw their respective ratings increase, as compared to firms whose executives are less focused on CSR. “Forced CEO turnovers“ — in other words, being fired — also are correlated with significant drops in CSR ratings, the researchers found.
And the paper offers a bit of practical career advice for C-suite employees: “CEOs from CSR firms have better career outcomes after departure when their names are mentioned more in CSR news releases,” the authors state.
Changing Investment Trends
The link between social impact and CEO careers reinforces the growing importance of corporate social responsibility efforts, including the increased emphasis on social performance as a metric by institutional investors and asset managers. Sustainable investment worldwide exceeded $30 trillion in 2018, a 34% increase over the previous two years, according to the Global Sustainable Investment Alliance. Sustainable investments represent 26% of all assets under professional management in the U.S. and almost half of those in Europe, according to an Alliance study.
The new paper supports that emphasis. “Our finding that the labor market rewards CEOs’ previous CSR engagement suggests that shareholders’ overall view of CSR activities is positive,” the authors wrote.