Does CEO Morality Matter for Their Firms’ ESG Performance?
In this article, co-authors Eunice SQ Ng, Riyang Phang, and Eugene Kang reflect on the importance of considering Chief Executive Officers’ moral foundations when engaging on their firms’ environmental, social, and governance issues. Their research article, “CEO Moral Foundations and Firms’ Environmental, Social, and Governance Performance,” highlights the impact of CEO binding versus individualizing MFs on corporate ESG performance and can be found in Strategic Organization.
Does something as fundamental and innate as chief executive officers’ (CEO) moral foundations (MFs) affect firms’ environmental, social, and governance (ESG) outcomes? If MFs are formed in advance of experience and are relatively stable in adulthood, do stakeholder engagements with firms’ CEOs still matter in shaping corporate ESG performance? Questions around individual-level antecedents of firms’ ESG performance triggered our exploration of the role of CEO MFs within corporate ESG issues.
Our study found that CEO MFs do influence firms’ ESG performance. The article examines the impact of two higher-order MFs – binding MFs and individualizing MFs – on a broad-based measure of ESG performance. Our results show that CEOs with higher binding MFs negatively affect their firms’ ESG performance while CEOs with higher individualizing MFs positively affect their firms’ ESG performance. We posit that this is due to the range of ESG issues that CEOs attend to, with binding MFs focusing on specific firm-identified stakeholders’ ESG demands while individualizing MFs focus on firms’ impacts on individuals at large.
Nevertheless, we do not believe that one set of moral standards is superior to another. As much as higher broad-based ESG performance implies better outcomes for society and the natural environment, our exploratory analyses show that this may compromise higher shareholder wealth. Discussions around financial versus ESG performance are far more nuanced than pitting one performance dimension against another. Instead, our study hopes to inform stakeholders on how they can leverage certain ESG rhetoric to engage CEOs with different MFs productively.
What does this mean for stakeholders seeking to drive greater corporate ESG performance? By identifying CEOs’ MFs, stakeholders can assess which stakeholder group will serve as the most effective conduit for conveying ESG messages to CEOs. For example, CEOs with higher binding MFs will attend to in-group stakeholder groups’ ESG demands more, making them effective message bearers. Stakeholders can also consider how their ESG messages are framed, such as highlighting the impact of firms’ ESG activities on in-group stakeholder groups or on individuals at large. CEOs with higher binding MFs are likely to respond more when their in-group stakeholder groups’ interests are affected, while CEOs with higher individualizing MFs will be more concerned about issues of harm and fairness. Hence, stakeholders must consider both the message bearer and the message when engaging with CEOs about their firms’ ESG issues.
Another key contribution of our study is the use of textual analysis to measure CEO MFs within strategic management literature. While such an approach has been used to measure CEO psychological constructs such as narcissism, regulatory focus, temporal focus, and commitment to status quo, to our knowledge our study is the first to achieve this with MFs and demonstrate MFs impact on firm-level outcomes. In doing so, we draw attention to the impact of individual-level morality on firm-level outcomes, with implications for society and the natural environment. We hope our study will serve as a launchpad for further research on the role of individuals’ moral standards within business, society, and the natural environment.
