Stakeholders and Shareholders: Are Executives Really 'Penny Wise and Pound Foolish' About ESG?

9 Pages Posted: 12 Jul 2019

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Vinay Trivedi

General Atlantic

Owen Wurzbacher

High Sage Ventures

Date Written: July 2, 2019

Abstract

Currently, there is much debate about the role that non-investor stakeholder interests play in the governance of public companies. Critics argue that greater attention should be paid to the interest of stakeholders and that by investing in initiatives and programs to promote their interests, companies will create long-term value that is greater, more sustainable, and more equitably shared among investors and society. However, advocacy for a more stakeholder-centric governance model is based on assumptions about managerial behavior that are relatively untested. In this Closer Look, we examine survey data of the CEOs and CFOs of companies in the S&P 1500 Index to understand the extent to which they incorporate stakeholder needs into the business planning and long-term strategy, and their view of the costs and benefits of ESG-related programs. We ask:

• What are the real costs and benefits of ESG?
• How do companies signal to constituents that they take ESG activities seriously?
• How accurate are the ratings of third-party providers that rate companies on ESG factors?
• Do boards understand the short- and long-term impact of ESG activities?
• Do boards believe this investment is beneficial for the company?

Keywords: corporate governance, shareholder, stakeholder, stakeholder perspective, ESG, environment, sustainable investing, corporate social responsibility, corporate sustainability, long-term investing, risk management, boards of directors, risk management, corporate governance research

JEL Classification: G3, G30

Suggested Citation

Larcker, David F. and Tayan, Brian and Trivedi, Vinay and Wurzbacher, Owen, Stakeholders and Shareholders: Are Executives Really 'Penny Wise and Pound Foolish' About ESG? (July 2, 2019). Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-78, July 2019; Stanford University Graduate School of Business Research Paper No. 3418389. Available at SSRN: https://ssrn.com/abstract=3418389

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Vinay Trivedi

General Atlantic ( email )

Owen Wurzbacher

High Sage Ventures ( email )

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