When executives change firms, the move can unleash the transfer of knowledge, social capital and resources, and this can have direct impacts on the new employer’s actions in the area of corporate social responsibility. Jiali Fang, Yining Tian and Yuanyuan Hu write that executive job-hopping can be a valuable opportunity for boosting corporate social responsibility performance across the board. They share actionable insights for businesses, investors and other stakeholders.
Executives play a key role in shaping firm strategy, culture and decisions. As they move between organisations, they aren’t just carrying their leadership skills: they can significantly impact the transfer of knowledge, social capital and resources. Here we focus on the effects of executive job-hopping on corporate social responsibility (CSR).
New executives can reshape the direction and priorities of CSR initiatives in their new firms by transmitting the knowledge and experience gained in their previous roles. This “CSR ripple effect” has far-reaching implications for businesses, investors and society at large.
The ripple effect of executive moves
Imagine dropping a pebble into a pond. The ripples spread outward, affecting the entire surface. This is what happens when executives move from one company to another. They can create ripples in corporate social responsibility practices. Firm decisions in this area are highly discretionary in nature. There exists a correlation in social responsibility practices between an executive’s prior employer and the subsequent one, and this can improve or worsen CSR practices.
A striking example is Paul Polman, previously the financial chief of Nestlé, a company known for its strong environmental and social responsibility initiatives. Polman joined Unilever as the chief executive in 2009, significantly influencing the company’s CSR initiatives. For example, he launched the Unilever Sustainable Living Plan, which not only increased revenue but also reduced the firm’s environmental footprint, solidifying its CSR leadership.
However, executives can also bring negative social responsibility baggage to a new job. During Travis Kalanick’s leadership at Uber (from 2010 to 2017), he faced criticism for fostering an unethical corporate culture, such as imposing long working hours without additional compensation. In 2018, he assumed the role of chief executive at City Storage Systems, a company operating CloudKitchens. In 2021, CloudKitchens faced legal action over allegations of labour law violations and deceptive business practices. This case highlights the potential risks of hiring executives with poor CSR track records.
The cases discussed above prompt an intriguing research question: When executive change jobs, does the corporate social responsibility performance of the hiring firm show some connection to the former employer’s performance in the area? If so, how long does this effect last, and to what extent is it influenced by the characteristics of the executive, the subsequent firm, and the nature of the job transition?
The science behind the spillover
Motivated by these questions, our research team set out to formally investigate the correlation in companies’ CSR performances due to executive migration. We used a large sample of 11,023 instances of executives changing employers among Chinese listed firms from 2010 to 2020. This sample covers 6,236 job-hopping executives from 3,463 firms. The sample ensures our findings’ representativeness.
We do our study in China for several additional benefits. First, China is a significant global economic power, and its rapid development has caused a range of social and environmental challenges. Investigating CSR determinants in an emerging economy is, therefore, timely.
Second, it is relatively common for executives to change employers in China and this affects the way firms operate and make strategic decisions.
Third, owing to China’s unique institutional context, examining the correlation between corporate social responsibility and executive job-hopping in the country can offer valuable insights into CSR performance, which is characterised by weak law enforcement and diverse stakeholder expectations.
The results help us understand the influence of executive job changes, a non-institutional channel, on corporate social responsibility. There are broad implications for policy and practice not only in China, but also in other countries.
We find a positive correlation between the corporate social responsibility performance of the hiring firm and that of the executive’s previous firm. This effect is strongest in the year of the job switch, weakens in the second year and fades entirely by the third year, suggesting that the influence of job changes on CSR is short-lived.
This raises important questions about how firms capitalise on positive influences brought by new executives, while ensuring these practices become ingrained in the company’s long-term CSR strategies. Only the practice of the former firm up to one year prior to the executive’s move has predictive power for the social responsibility performance of the new firm.
Strength of correlation
The strength of this CSR transfer isn’t uniform across all situations. More nuanced research identifies several factors that drive the degree of similarity between the old and new firms in this respect:
Job-hopping characteristics: Taking a career break, receiving a significant pay rise, moving to a company with below-average industry CSR performance, and changing geographical location can reduce the strength of the job-hopping effect.
Executive characteristics: The positive CSR correlation is more pronounced for older executives, female executives and those with overseas experience.
Firm attributes: Larger firms, those with lower ownership concentration and non-state-owned enterprises tend to see a greater transfer effect. This effect is also stronger in underperforming firms, as well as in firms with relatively higher levels of managerial ownership or where the CEO holds significant power, such as serving as both chief executive and chair of the board.
CSR dimensions: The effect is stronger for social responsibility aspects related to specific stakeholder groups, such as shareholders, employees, consumers and the environment, but weaker for broader, more abstract social dimensions.
Actionable insights for businesses
Strategic hiring: Firms seeking to enhance their social responsibility performance should prioritise hiring executives with proven track records in the area. Conversely, they need to be cautious about the potential negative effects when hiring executives from companies with poor social responsibility reputations.
Diversity in executive hiring: Consider hiring female executives and those with international experience to boost the firm’s CSR.
Onboarding and integration: Given the transient nature of the executive job-hopping effect, develop strategies to timely integrate and institutionalise positive corporate social responsibility practices brought by new executives.
Targeted CSR: Recognise that experience in certain CSR dimensions, such as employee and consumer responsibility, is more easily transferable. The hiring firm can plan strategy accordingly.
Insights for investors and stakeholders
Executive moves as CSR indicators: Pay attention to high-level executive moves as potential predictors of shifts in corporate social responsibility performance.
Short-term vs. long-term impact: Be aware of the short-term nature of the executive job-hopping effect in CSR performance and look for signs of long-term integration.
Company-specific factors: Evaluate how company size, board diversity, and existing social responsibility frameworks might interact with the influence of incoming executives.
In the fast-paced realm of corporate leadership, executive job-hopping is often viewed as a challenge. However, our research reveals that it can be a valuable opportunity for boosting corporate social responsibility performance across the board.
- This blog post is based on Job-hopping Executives and Corporate Social Responsibility, in China Accounting and Finance Review and first appeared at LSE Business Review.
- Featured image provided by Shutterstock
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- Note: The post gives the views of its author, not of USAPP– American Politics and Policy, nor of the London School of Economics.
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