Prosocial Managers, Employee Motivation, and the Creation of Shareholder Value

42 Pages Posted: 17 Sep 2018

See all articles by Agne Kajackaite

Agne Kajackaite

WZB Berlin Social Science Center

Dirk Sliwka

University of Cologne - Faculty of Management, Economics and Social Sciences; IZA Institute of Labor Economics

Abstract

Milton Friedman has famously claimed that the responsibility of a manager who is not the owner of a firm is "to conduct the business in accordance with their [the shareholders'] desires, which generally will be to make as much money as possible." In this paper we argue that when contracts are incomplete it is not necessarily in the interest even of money maximizing shareholders to pick a manager who pursues this goal. We show in a formal model and in a series of lab experiments that choosing a manager who has a preference to spend resources for social causes can increase employee motivation. In turn, ex-post losses in shareholder value may be offset by ex-ante gains in performance through higher employee motivation.

Keywords: shareholder value, corporate social responsibility, incentives, motivation, experiment

JEL Classification: C91, D03, D21, J33, M52

Suggested Citation

Kajackaite, Agne and Sliwka, Dirk, Prosocial Managers, Employee Motivation, and the Creation of Shareholder Value. IZA Discussion Paper No. 11789. Available at SSRN: https://ssrn.com/abstract=3249903

Agne Kajackaite (Contact Author)

WZB Berlin Social Science Center ( email )

Reichpietschufer 50
D-10785 Berlin, 10785
Germany

Dirk Sliwka

University of Cologne - Faculty of Management, Economics and Social Sciences ( email )

Richard-Strauss-Str. 2
Cologne, D-50923
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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