CEO Activism As Communication to Multiple Audiences

47 Pages Posted: 2 Oct 2019

See all articles by Gaia Melloni

Gaia Melloni

HEC Lausanne - Department of Accounting and Control

Andrea Patacconi

University of East Anglia (UEA) - Norwich Business School

Nick Vikander

University of Copenhagen

Date Written: September 10, 2019

Abstract

CEO activism refers to corporate leaders taking a public stand on issues such as race relations, gender equality or climate change not directly related to their business. In this paper, we investigate under what conditions CEO activism can create firm value. We develop a model where consumers care about the type of firm they buy from. Taking a stand raises two issues. First, not all consumers share the same viewpoint, so while some may be more eager to buy from a firm with an activist CEO, others may be put off. Second, consumers may discount CEO communications if they perceive them to be profit motivated. We show that credibility requires CEO communications to be public and sufficiently controversial. CEO activism is more likely to create firm value when competition is strong, consumers care a lot about "symbolic" value and polarization is high. CEO activism is associated with niche product market strategies and high prices, while "strategic ambiguity" (not taking a stand) is associated with mass market strategies and low prices. The model sheds light on the costs and benefits of intrinsically motivated CEOs and the limits of corporate governance.

Keywords: CEO activism, strategic communication, corporate governance, cheap talk, non-market strategy

JEL Classification: D21, D82, L21

Suggested Citation

Melloni, Gaia and Patacconi, Andrea and Vikander, Nick, CEO Activism As Communication to Multiple Audiences (September 10, 2019). Available at SSRN: https://ssrn.com/abstract=3455330 or http://dx.doi.org/10.2139/ssrn.3455330

Gaia Melloni

HEC Lausanne - Department of Accounting and Control ( email )

UNIL Dorigny
Lausanne, Lausanne 1015
Switzerland
1015 (Fax)

HOME PAGE: http://hec.unil.ch/people/gmelloni?dyn_lang=fr

Andrea Patacconi (Contact Author)

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

Nick Vikander

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

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