Report from the Research Frontier: May 2019

Report from the Research Frontier: May 2019

New findings: CSR helps companies bounce back; educated CEOs increase energy efficiency; and the case for transparent contributions
Every month, researchers publish dozens of articles on business sustainability. NBS highlights insights at the frontier of knowledge. See all monthly highlights

may 2019

Social and Environmental Actions Help Companies Bounce Back 

Long-term firm survival requires resilience. Resilience lets firms keep a core stability while adapting to change. New research shows that corporate social and environmental action increases resilience. 

Researcher Mark DesJardine and colleagues studied companies’ resilience after the 2008 financial crisis. It’s not possible to measure resilience directly, so researchers look at indicators such as stock recovery from shock. DesJardine’s team examined stock prices of 963 US-based firms after the financial crisis. They found less decline in stock value and/or faster recovery among firms with social and environmental practices that go beyond legal requirements. 

“Strategic” social and environmental practices build resilience more than “tactical” practices. Strategic practices are longer-term and require significant financial investment and organizational adaptation. Examples include employee diversity and supply chain standards. These actions make firms more interdependent with the larger system, increasing knowledge and resource sharing and so contributing to resilience. Tactical activities are short-term social and environmental actions, such as philanthropy. 

Desjardine told NBS: “Managers can build more resilient, long-lasting companies by making substantial investments in social and environmental practices. Investors, likewise, can invest in these companies, knowing their investment will be safer during economic downturns.”
Article: DesJardine, M., Bansal, P., & Yang, Y. 2019. Bouncing back: Building resilience through social and environmental practices in the context of the 2008 global financial crisis. Journal of Management, 45(4), 1434–1460.

Corporate Contributions Should Be Transparent

Across the globe, companies face different requirements related to reporting their charitable and political contributions.

The United States is one of the countries that does not require full disclosure of these contributions. Even shareholders and investors don’t know how companies are allocating money to politicians or nonprofits, and whether those contributions align with the company mission. Statements by companies “fail in their decision usefulness,” write researchers Doug Beetsand Mary Beets.

“Many stockholders would want to know the charitable and political contributions of the corporation that they own,” Doug Beets told NBS. “With such information, their stockholder loyalty to the corporation may change.”

Beets and Beets identify a few ways the picture in the US could change. The Securities and Exchange Commission or Internal Revenue Service could issue rules promoting disclosure. Stakeholders have also petitioned individual corporate boards to release this information.

Other countries provide models of systematic requirements. For example, in the United Kingdom, the 1967 Companies Act requires disclosure of corporate charitable and political contributions above a small amount.

Article: Beets, S.D., & Beets, M.G. 2019. An absence of transparency: The charitable and political contributions of US corporations. Journal of Business Ethics, 155, 1101-1113. 

Educated CEOs Increase Energy Efficiency

More educated CEOs lead more energy-efficient firms, according to a studyof privately-held Danish firms from 1996 to 2012. CEO education in business-related fields had the greatest impact on energy efficiency, compared to education in engineering, natural sciences, or humanities. Researchers Mario Daniele Amore, Morten Bennedsen, Birthe Larsen and Philip Rosenbaum find that an additional year of CEO education is associated with 7 per cent lower electricity use and 17 per cent less gas use. 
 
The researchers suggest that CEOs with business training are more efficient managers, better able to identify and pursue energy-saving approaches. 

The researchers also found that more CEO education generally is positively associated with greener personal lifestyles and greater awareness of climate issues, perhaps because education increases civic engagement. 

Article: Amore, M.D., Bennedsen, M., Larsen, B., & Rosenbaum, P. 2019. CEO education and corporate environmental footprint. Journal of Environmental Economics and Management, 94, 254-273.

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