Executive Fiduciary Duties and Workplace Safety

Abstract

Does enhanced legal accountability of non-director executives improve workplace safety? We exploit an exogenous increase in executive legal accountability triggered by Delaware Supreme Court’s 2009 “Gantler ruling” to address this question. In a difference-in-differences framework, we show that the workplace injury rate of establishments of Delaware-incorporated firms decreases significantly following the Gantler ruling relative to similar establishments of non-Delaware-incorporated firms. This effect is stronger in firms that have adopted enterprise risk management or have higher labor union membership before the Gantler ruling, but is attenuated by financial constraints or non-director executives’ performance-based compensation. Moreover, the reduction in workplace injuries brought about by the Gantler ruling benefits shareholders by leading to higher factor-adjusted stock returns. This study adds to the limited research on the efficacy of corporate operational risk management and non-director executive accountability.

Keywords: Executive fiduciary duties, Workplace safety, Operational risk management, Gantler ruling

JEL Classification: G32, K22, K32, J28