{"id":61,"date":"2020-06-17T10:39:52","date_gmt":"2020-06-17T10:39:52","guid":{"rendered":"https:\/\/blogs.hanken.fi\/research\/?p=61"},"modified":"2021-03-03T11:26:39","modified_gmt":"2021-03-03T11:26:39","slug":"what-happens-to-ceos-and-directors-when-firms-are-involved-in-misconduct-relating-to-a-firms-social-responsibility","status":"publish","type":"post","link":"https:\/\/blogs.hanken.fi\/research\/2020\/06\/17\/what-happens-to-ceos-and-directors-when-firms-are-involved-in-misconduct-relating-to-a-firms-social-responsibility\/","title":{"rendered":"What happens to CEOs and directors when firms are involved in misconduct relating to a firm\u2019s social responsibility?"},"content":{"rendered":"\r\n
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When corporate misconduct has a negative effect on shareholders<\/em> \u2013 such as following financial fraud and earnings restatements \u2013 consequences for top management and directors are severe: CEOs are more likely to be fired (and even sent to jail), and directors lose directorships at other firms\u2019 boards. In my dissertation, I examined whether misconduct relating to a firm\u2019s social responsibility<\/em> also leads to consequences for CEOs and directors.<\/p>\r\n\r\n\r\n\r\n

Around the time when I began writing my dissertation, Volkswagen was caught manipulating the emissions in its vehicles. The scandal led to widespread negative media attention and significant fines for the company. It also negatively affected customers, the environment, shareholders, etc. \u2013 as well as led to the replacement of Volkswagen\u2019s CEO Martin Winterkorn. As Volkswagens emission scandalrepresents one of the most severe cases of ESG-related misconduct in past decades, the aim in my dissertation was to study whether this type of misconduct systematically leads to consequences for CEOs and directors.<\/p>\r\n\r\n\r\n\r\n

A number of papers have been published on social responsibility in top journals in finance in recent years. For example, Hartzmark and Sussman find that investors take into account \u201csustainability\u201d factors when making investment decisions; Lins, Servaes, and Tamayo show that companies with high \u201csocial capital\u201d fared significantly better during the financial crisis in 2008 compared to companies with low \u201csocial capital\u201d; Kr\u00fcger finds that investors react negatively to negative news about a firm\u2019s social responsibility; Dyck, Lins, Roth, and Wagner find that when institutional investors invest in a firm, these firms\u2019 environmental and social performance improve, etc.<\/p>\r\n\r\n\r\n\r\n

Seen from the perspective of a financial economist, I thought that the research question in my dissertation was interesting. In public companies, directors are elected to the board to represent shareholders, and are tasked withoverseeing the hiring \u2013 as well as the firing \u2013 of the CEO. If misconduct does not directly affect shareholders, it is possible that shareholders are reluctant to make changes to the board \u2013 and, similarly, that the board may be reluctant to fire the CEO. If this is the case, i.e. CEOs and directors are not disciplined in the labor market for misconduct, prior literature suggests that more regulation could be needed to deter misconduct.<\/p>\r\n\r\n\r\n\r\n

In our ongoing work with the articles included in my dissertation, me and my co-authors find that CEOs of both European and US firms are significantly more likely to be fired following negative ESG-related news. Consequences for directors are somewhat less severe.<\/p>\r\n\r\n\r\n\r\n

We now continue our work on the articles by studying how investor reactions to negative ESG-related news affects the job longevity of CEOs and directors. In addition, as it has been shown that firms headquartered in civil-law countries (which include the Nordic countries) score significantly higher on ESG-ratings than firms headquartered in common-law countries (such as the US), we are interested in examining whether consequences to CEOs and directors following ESG-related misconduct vary by a firm\u2019s home country\u2019s legal origin.<\/p>\r\n\r\n\r\n\r\n

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Niclas Meyer<\/a><\/p>\r\n\r\n\r\n\r\n

Niclas Meyer is a postdoctoral researcher at the Department of Finance and Economics at Hanken. He <\/em>defended his <\/em>thesis \u201d<\/em>Essays on Stakeholder-related Firm Misconduct and Consequences for CEOs and Directors\u201d in finance in 2019.<\/em>\u00a0<\/p>\r\n\r\n\r\n\r\n

References: Karpoff, Lee, and Martin, Journal of Financial Economics, 2008; Hartmark and Sussman, Journal of Finance, 2019; Lins, Servaes, and Tamayo, Journal of Finance, 2017; Kr\u00fcger, Journal of Financial Economics, 2015; Dyck, Lins, Roth, and Wagner, Journal of Financial Economics, 2019; Liang and Renneboog, Journal of Finance, 2017.<\/em>\u00a0<\/p>\r\n\r\n\r\n\r\n

Photo: Istock\/yacobchuck<\/p>\r\n","protected":false},"excerpt":{"rendered":"

  When corporate misconduct has a negative effect on shareholders \u2013 such as following financial fraud and earnings restatements \u2013 consequences for top management and directors are severe: CEOs are […]<\/a><\/p>\n","protected":false},"author":34,"featured_media":62,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-61","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/posts\/61","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/users\/34"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/comments?post=61"}],"version-history":[{"count":6,"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/posts\/61\/revisions"}],"predecessor-version":[{"id":111,"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/posts\/61\/revisions\/111"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/media\/62"}],"wp:attachment":[{"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/media?parent=61"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/categories?post=61"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.hanken.fi\/research\/wp-json\/wp\/v2\/tags?post=61"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}