Corporate Governance and the Rise of Integrating Corporate Social Responsibility Criteria in Executive Compensation: Antecedents and Outcomes

44 Pages Posted: 1 Sep 2016 Last revised: 12 Dec 2016

Caroline Flammer

Boston University

Bryan Hong

University of Western Ontario - Richard Ivey School of Business

Dylan Minor

Northwestern University - Kellogg School of Management

Date Written: December 11, 2016

Abstract

This study examines the antecedents and consequences of integrating corporate social responsibility (CSR) criteria in executive compensation, a relatively recent practice in corporate governance. Using a novel database of CSR contracting, we find that CSR contracting is more prevalent in emission-intensive industries and has become more prevalent over time. We further find that the adoption of CSR contracting leads to i) a reduction in short-termism; ii) an increase in firm value; iii) an increase in social and environmental performance; iv) a reduction in emissions; and v) an increase in green innovations. These findings are consistent with our theoretical arguments highlighting a new form of agency conflict — the misalignment between shareholders' and managers' preferences for stakeholder engagement — and suggest that CSR contracting can enhance corporate governance.

Keywords: corporate governance, corporate social responsibility, executive compensation, agency theory, short-termism

JEL Classification: D9, G3, J3, M1, M5, Q5

Suggested Citation

Flammer, Caroline and Hong, Bryan and Minor, Dylan, Corporate Governance and the Rise of Integrating Corporate Social Responsibility Criteria in Executive Compensation: Antecedents and Outcomes (December 11, 2016). Available at SSRN: https://ssrn.com/abstract=2831694 or http://dx.doi.org/10.2139/ssrn.2831694

Caroline Flammer (Contact Author)

Boston University ( email )

Boston University Questrom School of Business
595 Commonwealth Avenue, Office 634A
Boston, MA 02215
United States

HOME PAGE: http://sites.bu.edu/cflammer/

Bryan Hong

University of Western Ontario - Richard Ivey School of Business ( email )

1255 Western Rd
London, Ontario N6G 0N1
Canada

Dylan Minor

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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