This paper examines the relationship between CEO incentives and strong and weak corporate social performance. Using the KLD database we find that incentives have no significant relationship with strong social performance. Salary and long-term incentives have a positive association with weak social performance.

The contribution of this work is a classification of corporate social action underlying the Social Ratings Data compiled by Kinder Lydenburg Domini Analytics, Inc. We compare extant typologies of corporate social action to the results of our exploratory factor analysis. Our findings indicate four distinct latent constructs that bear resemblance to concepts discussed in prior literature. Akey finding of our research is that positive and negative social action are both empirically and conceptually distinct constructs and should not be combined in (...) future research. Additionally, we recommend that some prior research results be reconsidered to determine whether these newly derived measures might clarify some previous findings. (shrink)

ABSTRACT:Many scholars and managers endorse the idea that the primary purpose of the firm is to make money for its owners. This shareholder wealth maximization objective is justified on the grounds that it maximizes social welfare. In this article, the first of a two-part set, we argue that, although this shareholder primacy model may have been appropriate in an earlier era, it no longer is, given our current state of economic and social affairs. To make our case, we employ a (...) utilitarian moral standard and examine the apparent logical sequence behind the link between shareholder wealth maximization and social welfare. Upon close empirical and conceptual scrutiny, we find that utilitarian criteria do not support the shareholder model; that is, shareholder wealth maximization is only weakly linked to social welfare maximization. In view of the dubious validity of this sequential argument, we outline some of the features of a superior corporate objective—a variant of normative stakeholder theory. In the second article, we will advance and defend our preferred alternative and then discuss some institutional arrangements under which it could be implemented. (shrink)

Abstract: In this article, I offer a proposal to clarify what I believe is the proper relation between value maximization and stakeholder theory, which I call enlightened value maximization. Enlightened value maximization utilizes much of the structure of stakeholder theory but accepts maximization of the long-run value of the firm as the criterion for making the requisite tradeoffs among its stakeholders, and specifies long-term value maximization or value seeking as the firm’s objective. This proposal therefore solves the problems that arise (...) from the multiple objectives that accompany traditional stakeholder theory. I also discuss the Balanced Scorecard, which is the managerial equivalent of stakeholder theory, explaining how this theory is flawed because it presents managers with a scorecard that gives no score—that is, no single-valued measure of how they have performed. Thus managers evaluated with such a system (which can easily have two dozen measures and provides no information on the tradeoffs between them) have no way to make principled or purposeful decisions. The solution is to define a true (single dimensional) score for measuring performance for the organization or division (and it must be consistent with the organization’s strategy), and as long as their score is defined properly, (and for lower levels in the organization it will generally not be value) this will enhance their contribution to the firm. (shrink)

This paper argues that the notion of value has been overly simplified and narrowed to focus on economic returns. Stakeholder theory provides an appropriate lens for considering a more complex perspective of the value that stakeholders seek as well as new ways to measure it. We develop a four-factor perspective for defining value that includes, but extends beyond, the economic value stakeholders seek. To highlight its distinctiveness, we compare this perspective to three other popular performance perspectives. Recommendations are made regarding (...) performance measurement for both academic researchers and practitioners. The stakeholder perspective on value offered in this paper draws attention to those factors that are most closely associated with building more value for stakeholders, and in so doing, allows academics to better measure it and enhances managerial ability to create it. (shrink)

This paper divides firms in the Standard and Poor’s 500 (S&P 500) into two groups based on inclusion in or exclusion from the Domini Social Index (DSI). Inclusion in the DSI is interpreted as a positive indicator of ethical status. Using data for the 1992–2003 period, I provide evidence that chief executive officer (CEO) compensation, other executive compensation, and director compensation tend to be lower in DSI firms than in other firms in the S&P 500. This applies to the unconditional (...) group averages (and medians) and is particularly striking given that DSI firms as a group had better financial performance than the other firms. This finding is also true in a regression framework that controls for other influences on compensation, including firm size and financial performance. In a regression context, the estimated discount for CEOs of DSI firms is approximately 12% for both current compensation (salary and bonuses) and total compensation (including the value of options). These results are consistent with the expectation that some senior executives require a “compensating differential” to accept positions in firms with less attractive ethical status. It is also consistent with the expectation that some firms with positive ethical status might use more restraint in setting executive compensation. (shrink)

Extending the dialogue on corporate social performance as descriptive stakeholder management, we examine differences in CSP activity between family and nonfamily firms. We argue that CSP activity can be explained by the firm’s identity orientation toward stakeholders. Specifically, individualistic, relational, or collectivistic identity orientations can describe a firm’s level of CSP activity toward certain stakeholders. Family firms, we suggest, adopt a more relational orientation toward their stakeholders than nonfamily firms, and thus engage in higher levels of CSP. Further, we invoke (...) collectivistic identity orientation to argue that the higher the level of family or founder involvement within a family firm, the greater the level of CSP toward specific stakeholders. Using social performance rating data from 1991 to 2005, we find that family and nonfamily firms demonstrate notable differences in terms of social initiatives and social concerns. We also find that the level of family and founder involvement is related to the type and frequency of a family firm’s social initiatives and social concerns. (shrink)

This study investigates the hypothesis that the advantage corporate social performance (CSP) yields in attracting human resources depends on the degree of job choice possessed by the job seeking population. Results indicate that organizational CSP is positively related to employer attractiveness for job seekers with high levels of job choice but not related for populations with low levels suggesting advantages to firms with high levels of CSP in the ability to attract the most qualified employees.

A quick look at what is happening in the corporate world makes it clear that the stakeholder idea is alive, well, and flourishing; and the question now is not “if ” but “how” stakeholder theory will meet the challenges of its success. Does stakeholder theory’s “arrival” mean continued dynamism, refinement, and relevance, or stasis? How will superior stakeholder theory continue to develop? In light of these and related questions, the authors of these essays conducted an ongoing dialogue on the current (...) state and future of stakeholder thinking. Beginning with a review of research and theory that has developed since the major stakeholder theorizing efforts of the 1990s, the authors individually offer their perspectives on the key issues relevant today to stakeholder thinking, and to suggest possible approaches that might lead toward and enable the continuing development of superior stakeholder theory. (shrink)