When The Good Goes Bad For CEOs -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 18, 2017).

CEOs beware: Being a do-gooder could get you fired.

Many corporate chieftains argue that companies shouldn't only seek to be money-making enterprises; they should also be good corporate citizens. From Starbucks Corp. Chairman Howard Schultz to Unilever PLC Chief Executive Paul Polman, leaders variously promote efforts to reduce their company's carbon footprints, work with sustainable suppliers and produce healthier or more eco-friendly products -- both as a marketing tool and business model.

"My personal mission is to galvanize our company to be an effective force for good," Mr. Polman says on his LinkedIn page.

But a new study shows that socially responsible initiatives can be a double-edged sword for CEOs, helping to shield them from being ousted during more prosperous times but increasing the likelihood they would be fired in bad times.

Examining the exits of Fortune 500 company bosses over several years, researchers found that those who heavily invested company resources in good corporate citizenry were 84% more likely to be fired amid sluggish financial results than CEOs at poor-performing companies that spent less on do-good initiatives.

On the flip side, spending on corporate social responsibility acted as a protective buffer for company chiefs who presided over robust profitability. They were 53% less likely to be ousted than other leaders of high-performing companies that didn't invest so much in measures to bolster social welfare, according to the study, publish in the November issue of Strategic Management Journal.

Timothy Hubbard, an assistant professor at the University of Notre Dame's Mendoza College of Business and one of the study's authors, says the findings suggest that CEOs who pull off strong profits in a seemingly socially responsible way build up goodwill with their boards because they have managed to achieve two goals at once.

Yet, he adds, when a social-welfare-minded CEO achieves only lackluster results, investors are likely to conclude that such investments are a distraction and a waste of money -- in large part because the research remains mixed as to whether such efforts boost the bottom line.

The upshot, Mr. Hubbard says, is that shareholders should realize that CEOs face risks in making such investments.

"If boards and investors want CEOs to make big investments in corporate social responsibility," he says, "we need to think about how to protect those CEOs when they make those decisions."

Write to Vanessa Fuhrmans at vanessa.fuhrmans@wsj.com

(END) Dow Jones Newswires

October 18, 2017 02:47 ET (06:47 GMT)