Corporate Governance and the Rise of Integrating Corporate Social Responsibility Criteria in Executive Compensation: Effectiveness and Implications for Firm Outcomes

56 Pages Posted: 1 Sep 2016 Last revised: 3 Aug 2018

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: July 26, 2018

Abstract

This study examines the integration of corporate social responsibility (CSR) criteria in executive compensation, a relatively recent practice in corporate governance. We construct a novel database of CSR contracting and document that CSR contracting has become more prevalent over time. We further find that the adoption of CSR contracting leads to i) an increase in long-term orientation; ii) an increase in firm value; iii) an increase in social and environmental initiatives; iv) a reduction in emissions; and v) an increase in green innovations. These findings are consistent with our theoretical arguments predicting that CSR contracting helps direct management's attention to stakeholders that are less salient but financially material to the firm in the long run, thereby enhancing corporate governance.

Keywords: corporate governance, corporate social responsibility, executive compensation, managerial incentives, long-term orientation

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: Effectiveness and Implications for Firm Outcomes (July 26, 2018). 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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