The relationship between different components of CEO International Experience and Corporate Social Responsibility Performance

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The relationship between different components of CEO International

Experience and Corporate Social Responsibility Performance

And the moderating role of CEO Tenure

Master Thesis

Dr. G. Gary (University of Groningen) Dr. E. Alexander (Newcastle University)

Student: Gaston Okkema

Advanced International Business Management and Marketing University of Groningen, student number: 2975254 Newcastle University Business School, student number: 200372499

Word count: 13.645

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Abstract

The role of CEOs and their background characteristics have been heavily investigated during the past decades. International experiences have become an important asset that offers a competitive advantage to the firm. Despite the fact that there is a widespread belief that CEO international experience positively influences firm financial performance, little research has focused on its impact on corporate social responsibility performance. This study aims to extend the IE literature by proposing that the different components of international experience (length of time, number of countries, and cultural distance) are positively related to a firm’s corporate social responsibility performance. Even though a significant relationship could not be discovered, using a sample of 116 CEOs of Fortune 1000 companies in the United States tech industry, the current analysis does contribute to the general debate by extending IE literature. It is the first article to test a comprehensive measure of CEO international experience related to a non-financial performance measure: corporate social responsibility performance. Additionally, this paper contributes to the understanding of the IE concept by discussing conceptualization and operationalization issues, which are argued to be reasons that existing IE research has not been able to produce consistent findings. Moreover, some evidence for a moderation effect of CEO tenure on the relationship between CEO international experience and corporate social responsibility performance was found. Finally, this study offers contributions to the CSR literature by adopting a measure that includes a correction for opportunistic behavior by firms.

Keywords: Chief Executive Officer, Upper Echelon Theory, Corporate Social Responsibility, Corporate Social Responsibility Performance, International Experience, Tenure, ESG

Abbreviations:

CEO: Chief Executive Officer IE: International Experience

CSR: Corporate Social Responsibility

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Introduction

Chief executive officers (CEOs) are constantly faced with pressures that are concerned with strategic decisions that regard the performance of the firm. There is only a limited amount of money and time, and therefore choices have to be made. How to allocate scarce corporate resources has always been a complex issue, however because of increasing social pressures it is even more so today. Firms are no longer assessed merely on financial grounds, but also on a broader set of expectations posed by society as a whole.

In the past decades the need for systemic change, which is fundamental in nature and affects how the system as a whole functions, has started to become undeniable. Grand social challenges that have troubled humanity for decades like climate change, poverty and overconsumption have seemingly been unsolvable. Harvey (2009), who is an economic socialist that builds on Marx’s theory of social change, points out the importance of changing mental conceptions in the world as a primary factor that drives social transformation. In line with his view, Wright and Nyberg (2017) argue that CEOs and senior executives have a key role to play in overcoming these grand challenges. Businesses, and more specifically business leaders, have been struggling with conflicting demands from shareholders and stakeholders. More specifically, they are not able to satisfy shareholders with the maximization of the profit rate in the short term, while at the same time meeting stakeholder demands by being socially responsible (Risi and Wickert, 2017). Even though businesses and their leaders may not be able to solve this dilemma on their own, they should be aware of their ambiguous role (Wright and Nyberg, 2017). Instead of watching from the sidelines, business leaders could pioneer in these uncertain times by seizing the opportunity to initiate system-wide change. And, in doing so, they can also ensure the long-term survival of their company.

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and Mason (1984). Their theory states that firm-level outcomes are in part predicted by the managerial background of senior managers at the top management level.

One aspect of managerial background involves a CEO’s international experience (IE). This concept refers to past experiences that the executive gained in foreign countries. Existing literature has proven that there is a positive relationship between CEO IE and overall firm performance (e.g. Hsu et al., 2013; Le and Kroll, 2017). More specifically, a CEO’s IE showed a positive effect on firm performance through strategic change by enhancing a CEO’s general competencies and international knowledge.

Even though the concept of IE has been positively associated with financial performance measures, its link to firm corporate social responsibility performance (CSRP) remains unclear. A considerable amount of research has utilized CEO IE, measured as an accumulation of past experiences, as a control variable in combination with other independent variables like CEO narcissism and overconfidence in relation to CSR (e.g. Petrenko et al. 2016; Sauerwald and Weichieh, 2019). The role of IE as a predictor of a firm’s CSR achievements has never been explicitly investigated in the existing literature. Authors Slater and Dixon-Fowler (2009) did discover, however, a positive relationship between international task assignments and corporate social performance in their study. They suggest that IE enhances awareness of societal stakeholders, influences personal values, and provides valuable resources which are associated with CSR values. Their conceptualization of IE was measured as a categorical variable related to whether or not the CEO has spent time on international assignments. Le and Kroll (2017) recognized that IE is a versatile measure, which was in need of a more complete conceptualization. As a result, they studied the notion and proposed a new and more holistic measure including three components: length of time, number of countries, and cultural distance. Even though Slater and Dixon-Fowler (2009) found statistical proof, their measurement of international experience lacked depth. As IE is a multifaceted concept this leaves a gap in the existing literature. In addition to the measurement issue, different components of IE could have different implications for the corporate social responsibility performance measure. This results in the formulation of the primary research question: What is the effect of different components of CEO international experience on the

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Besides investigating the main relationship between CEO IE and a firm’s CSRP, this study also addresses CEO tenure as potential moderator. Existing upper echelon literature extensively covers tenure as a significant predictor of strategic change (e.g. Musteen et al., 2005). More specifically, tenure has shown that a CEO’s commitment to change the status quo diminishes over time as he or she acquires more power in the executive board (Hermalin and Weisbach, 1988; Ryan and Wiggins, 2004). This phenomenon could affect the relationship between CEO IE and a firm’s CSRP. Accordingly, the secondary research question is formulated: Does CEO tenure moderate

the relationship between the components of CEO international experience and the corporate social responsibility performance of a firm?

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1. Literature review

In this section, theoretical and empirical work is discussed related to the research questions, after which hypotheses are formed. First, the notion of CSR (1.1) and the concept CEO IE (1.2) are reviewed. Subsequently, the different components of CEO IE are discussed in relation to CSRP

(1.3, 1.4 and 1.5). Then, the secondary research question that involves a possible moderator, CEO

tenure, on the main relationship between CEO IE and CSR is discussed (1.6). Finally, an overview of the hypotheses is given in the conceptual model (1.7).

1.1 Corporate Social Responsibility

Corporate social responsibility (CSR) refers to a business model or set of actions that follow societal norms and ethical standards (Branco and Rodrigues, 2006). It is a self-regulating notion concerning firms that aim to contribute to societal goals and stakeholder demands by engaging in voluntary and ethically oriented practices. The existing literature claims that firms using CSR practices obtain more positive impressions and are able to acquire a better reputation, ultimately resulting in the ability to realize sustainable growth for the future (e.g. McWilliams and Siegel, 2011; Wright and Nyberg, 2017). Consequently, some firms follow an instrumental approach to CSR as a management strategy in order to achieve a higher level of competitiveness. Such a strategy may also include firms that give the impression that they are highly sustainable, while actually they are not. In contrast to this approach, Jones (1995) proposed that the stakeholder theory includes a normative dimension of CSR. He implied that businesses and their leaders engage in sustainable practices because their moral or ethical compass obliges them to do so. In this line of argument, firms are mainly inclined to invest in CSR for ethical reasons.

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of social responsiveness and policies, programs, and observable outcomes as they relate to the firm’s social relationships (Wood, 1991: 693). It measures the level of a firm’s commitment to a broad set of social, ethical, and legal issues that are related to the company’s operations like governance, environmental protection, and humanitarian contributions.

Corporations have become increasingly aware of the importance of the CSR concept, and accordingly their CSR spending has increased. Multiple studies have found that profitable firms may only be motivated to practice CSR if they are under great scrutiny by various stakeholders (Chiu and Sharfman, 2011; Crilly and Jiang, 2015). In addition, firms are dependent upon the legitimacy they acquire in the eyes of stakeholders as being trustworthy and transparent in order for CSR to be effective (Nielsen and Thomsen, 2018). These claims indicate that managers recognize the potential contribution of CSR to long-term financial performance as well as the need to answer to society’s expectations. Adhering to societal demands is no longer viewed to be just a zero-sum game between business and societal demands (Porter and Kramer, 2011). It is proposed that both parties can jointly benefit by focusing on creating shared value instead of profit maximization. Yet, current literature on CSR puts forward the fact that in the past decades firms have insignificantly changed the way in which they operate their businesses (Wright and Nyberg, 2017). This indicates that firms may still be predominantly following the unsustainable goal of maximizing profits in the short-term.

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respective enterprise through social responsibility. This points out the potential role of the CEO in determining the tendency of firms to engage in such CSR activities or not.

Accordingly, firms cannot be socially responsible without socially responsible managers. For this reason, CEO individual characteristics seem to matter as CEOs directly influence a firm’s CSR strategy. Since the role of corporate leaders in relation to CSR has become more apparent, researchers have been considering CEO attributes such as tenure, educational background, socio-economic background and gender in relation to CSR practices (e.g. Huang, 2013; Manner, 2010). These authors' aim was to fill the gap in the literature by investigating if, and which business leaders’ attributes are associated with CSR consistency. It was found that if CSR is treated as a strategic choice, the assertion that demographic attributes of the CEO influence the CSRP of the firm.

Besides demographic characteristics, other CEO characteristics were shown to impact the way in which a business leader makes sense of the world, and subsequently affect their actions related to CSR strategy. More specifically, CEO characteristics that are related to cognitive processing such as personal values, political values and openness to experience have been investigated in relation to CSR (e.g. Hambrick and Mason, 1984; Mazutis, 2014; Chin and Hambrick, 2013). In her work, Mazutis (2014) found that CEO open executive orientation, which refers to an executive’s worldview and openness to change, is positively related to CSR adoption. The latter was measured as the percentage of the KLD (Kinder, Lydenberg, and Domini) social index strengths that a firm has engaged in out of the total possible KLD strengths for that specific year. Her findings indicate that cognitive processes can lead to the development of specific human cognitive resources by the CEO that positively influences a firm’s adoption of CSR initiatives. In addition, Chin and Hambrick (2013) found that political ideologies of CEOs are manifested in corporations. They suggested that compared to conservative business leaders, liberal CEOs develop greater advancements in CSR as they are less focused on short-term performance.

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researchers started to investigate CEO characteristics on how they impact the sustainable performance of the firm. Results of these studies indicate that there is, at least, some reason to believe that there exists a substantial relation between CEO characteristics and CSR. In the following section a possible CEO predictor variable of CSR, IE is discussed.

1.2 CEO International Experience

International experiences help to develop skills, personal values, as well as the ability to process complex and dynamic information (Le and Kroll, 2017). Such competencies are useful for firms, as they can increase firm-level outcomes, and ensure continuity. International experiences often involve greater levels of responsibility compared to domestic experiences (Slater and Dixon-Fowler, 2009). In addition, a CEO that lived or worked abroad has to some extent demonstrated openness to new experiences. Being exposed to new environments that comprise their own value systems, institutional environments, and language leaders are required to develop new solutions instead of being dependent upon familiar practices in their home country. As a result, CEOs develop the ability to process information and come up with more creative solutions to challenging problems.

Multiple studies have examined the so-called ‘CEO effect’ in which it is argued that CEOs play a crucial role in determining a part of a firm's performance (e.g. Tichy and Cohen, 1997; Liu and Jiraporn, 2010). Hambrick and Mason (1984) have laid the foundation for the ‘CEO effect’ by integrating existing research into a general perspective called the Upper Echelons. This theory states that strategic choices and organizational outcomes are partially predicted by managerial background characteristics. This indicates that CEOs with different characteristics like age, education, and experience also possess different knowledge, values, and cognitive bases upon which they base strategic decisions (Hsu et al., 2013). Accordingly, CEOs make strategic choices in accordance with highly individualized lenses, formed by their past experiences, values, and personalities (Chin et al., 2013; Hambrick, 2007).

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A possible explanation for this relationship that is suggested regards the additional cognitive and social resources that are acquired by the CEO during international experiences (Le and Kroll, 2017). Although these resources have also been linked to CSR performance, the role that international experiences of a CEO can play in impacting a firm’s sustainable practices still remains unclear. Accordingly, the CEO IE concept needs extra attention in relation to corporate sustainability.

In order for CSRP to work, firms and its business leaders need to meet the performance expectations of societal stakeholders (McGuire, 2003). Research has shown that CEO IE can lead to an increased interest in political and social issues (Chin and Hambrick, 2013), as was described in the previous section. Suggesting that the perceptions and personality of top managers with IE are more internationally oriented, culminating in a global mindset through the exposure to different national settings and value systems. Furthermore, greater IE may result in increased awareness of complex managerial environments. Such location-specific and tacit knowledge is vital for overcoming the psychic and geographical distances between international business-actors (Hsu et al., 2013). Accordingly, CEOs with more of such knowledge are better equipped for operating a business in a foreign country successfully. Retrieving such knowledge requires CEOs to have advanced information processing, allowing them to more easily recognize and reconcile tensions between different stakeholder groups. As a result, CEOs that have been exposed to international environments that include different cultures and subsequent institutions are expected to have a broader pool of information to source from when making strategic decisions in comparison to CEOs that have only domestic experience. As a result, IE enables CEOs to be more aware of and better able to deal with ambiguous global challenges such as human rights, environmental pollution, and climate change (Slater and Dixon-Fowler, 2009).

1.3 Effect of length of time IE on CSRP

In the following sections, the theoretical insights that are explained above are applied to investigate how the different CEO IE components, measured as length of time, number of countries, and cultural distance affect a firm’s CSRP.

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the result of the fact that its value is easy to capture. CEO IE has been found to be positively associated with strategic novelty and firm-level outcomes. Le and Kroll (2017) argue that IE provides CEOs with an inimitable worldview as well as tacit knowledge and professional relationships that allow them to be better able to manage their operations internationally. Authors of existing literature have argued that IE only starts to build up after CEOs have successfully adjusted to the foreign environment (e.g. Faisal et al., 2019). CEOs need some time to overcome the cultural shock during the initial adjustment period, in which they tend to employ their home-country cultural values and beliefs to make sense of certain situations (Dragoni et al., 2014). Dragoni et al. (2014) also found that time spent in global work experiences relates to leaders' strategic thinking competency, particularly for those that have been in culturally distant countries. As a result, CEOs with longer international experience are often preferred over those that lack extensive international experience.

In addition to the cultural shock, national cultures are complex and the outer layer of national cultures can be defined as composing merely the tip of the iceberg. A CEO needs time and exposure in order to observe key values and norms that lie at the core of a nation, culture or ethnic group. The longer business leaders live in a foreign environment, the greater the number of stimuli they receive, which results in greater opportunities and the realization of acquiring knowledge as well as cognitive competencies. Thus, the value of international experiences and its impact on a firm’s CSRP may very well be to some degree determined by the amount of time a CEO needs to adjust to a new culture in order to learn from this novel environment.

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but the quality of the time abroad, that is reflected in the degree of complexity of the international diversification, that matters in developing proactive environmental strategies.

It can be argued that these opposing findings may be the result of measurement problems. Aguilera-Caracuel et al. (2012) utilize a simple construct of the IE variable, measured as the number of years of experience. In addition, their analysis is on the level of the firm rather than the CEO. Instead, using a more holistic conceptualization of IE and utilizing the CEO as the unit of analysis may have resulted in a different outcome. Takeuchi and Chen (2013) argued that authors often are unable to capture the value for IE that they are looking for. This problem results from making mistakes in measuring international experiences through asking wrong or incomplete questions during interviews or questionnaires in the data collection process. Takeuchi and Chen (2013) highlighted issues associated with the conceptualization and operationalization of IE by comparing multiple studies that use varying measurement modes of IE (e.g. dichotomous, amount-based, time-amount-based, type-based and composite). It was found that different articles use work, living, travelling, and general international experiences as the basis for IE research, without clearly specifying what they want to measure. Takeuchi and Chen (2013) proposed that research should distinguish between previous international experiences related to travel-, work- and living experiences as these represent different domains. If such experiences are mixed up, inaccurate effects can emerge.

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with longer IE as compared to a CEO with shorter IE, as measured by length of time in years, will be more positively associated with a firm’s CSRP.

Hypothesis 1: There is a positive relationship between CEO length of time and a firm’s corporate social responsibility performance.

1.4 Effect of Number of countries IE on CSRP

The second component of IE that is considered in this study covers the number of countries a CEO has lived in during international experiences. The inability of executives to successfully adjust to new international environments has been claimed to be one of the most frequent reasons for failure abroad (Takeuchi et al., 2005). By going through multiple processes of accommodation, in multiple foreign countries, CEO’s develop an adaptive capacity to new environments.

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Being exposed to multiple foreign environments results in a greater level of ambiguity and complexity that is experienced. CEOs can develop greater domain-specific knowledge and general competencies in varying international environments (Le and Kroll, 2017). Loannou and Serafeim (2012) found that a country’s political system, labor and educational system, and the cultural system affect the CSRP of domestic firms. CEOs that have been exposed to different systems have the ability to obtain more knowledge from different markets, their related institutional environments, as well as the ability to employ this knowledge across different countries. In line with this argument, Slater and Dixon-Fowler (2009) argue that corporations recognize the value of past international work assignments and are willing to pay higher salaries to CEOs with more international experience, indicating that they possess some kind of enhanced human capital. Besides the chance for CEOs to develop themselves on a personal level through cognitive processes, they may also gain more insights about expectations of stakeholders in other countries. Not only do different countries have a different rule of law and institutions that are operated in a different way, expectations related to CSR can be completely different (Capellen and Janssens, 2005). Stakeholders are likely to have varying norms and values in different countries. Being exposed to different societal demands internationally may increase the CEO’s awareness of various stakeholder groups. As a result, a CEO of a multinational may become better equipped to recognize how to gain legitimacy in the eyes of stakeholder groups across international contexts. To sum up, greater number of experiences in different countries leads to an increased adaptive capacity of the CEO, more opportunities to develop values that are in line with the values of CSR, and an increased awareness of stakeholders internationally. Accordingly, it is expected that CEO number of countries related to IE will be positively related to CSRP. Hence, the following hypothesis is formed:

Hypothesis 2: There is a positive relationship between CEO number of countries IE and a firm’s corporate social responsibility performance.

1.5 Effect of Cultural distance IE on CSRP

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depth to the IE concept. For instance, consider two CEOs from the United States, that both have two years of international experiences, one has spent his time abroad in the United Kingdom and the other in China. It seems clear that the CEO that spent time in China has been exposed to greater cultural diversity than the business leader in the United Kingdom.

As previously discussed, living and working abroad is argued to influence the cognitive orientation of CEOs. Business leaders often express that being abroad affects their view of the world and how they operate their firms (Carpenter et al., 2000). Besides influencing a CEO’s cognitive orientation, experiencing cultural differences is argued to influence both moral and personal values (Ford et al., 2005). Whereas personal values represent individual beliefs and norms about desirable behavior and actions, morals define what the society around a specific individual deem desirable. For et al. (2005) argues that being in a foreign context, with different moral values, may result in reconsideration of certain moral or personal values. In line with the former, Ho et al. (2012) even found that Hofstede’s cultural value dimensions, that include moral values, are significantly associated with CSRP. In addition, research found that culture influences people’s ethical attitudes, ethical sensitivity, ethical perception, and ethical decision making (Srnka, 2004; Vitell and Paolillo, 2004). It can be argued that CEOs can develop or change beliefs that are associated with the values of CSR. Such beliefs can change how business leaders run their day-to-day operations, which may positively or negatively influence a firm’s CSRP.

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Based on prior literature, it can be argued that cultural distance is an important component of IE. It enables CEOs to reconsider moral and personal values, change how they make sense of the world, and increases the awareness of societal stakeholders by challenging the cognitive knowledge base of the CEO. Therefore, it is expected that cultural distance IE will be positively related with corporate social responsibility performance. Hence the following hypothesis is formed:

Hypothesis 3: There is a positive relationship between CEO’s Cultural distance IE and a firm’s corporate social responsibility performance.

1.6 CEO tenure

In this section, the secondary research question is investigated. First, the relationship between CEO tenure and CSRP is reviewed (1.6.1). Then, the moderating effect of CEO tenure on the relationship between CEO IE and CSRP is discussed (1.6.2).

1.6.1 The relationship between CEO Tenure and CSRP

CEO tenure is a common executive characteristic that is used in upper echelon research because of its impact on strategic decision making (Hambrick and Mason, 1984) and the association with several firm-level outcomes (e.g. Simsek, 2007; Chen et al, 2019). Hambrick and Fukutomi (1991) described CEO tenure as including several perceptible phases in which a CEO’s commitment can change. Accordingly, it can be argued that CEOs may very well affect firm-level outcomes in different ways at different stages of tenure. One of the main takeaways in their argument is that in both extremely short and extremely long CEO tenures harmful effects can occur.

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contrary, CEOs with longer tenures may have more power to make strategic decisions, including those that are related to CSR.

More recent literature found a negative different relationship between CEO tenure and CSR performance (e.g. Le and Kroll, 2017; Chen et al., 2019). In addition, this relationship was found to become more significant in recent years. In the study of Chen et al. (2019), it was found that the firm's CSRP, between 1999 and 2013, was considerably higher in a CEO’s early tenure compared to later stages of their tenure. More specifically, CEOs that are longer tenured in combination with boards that are less independent have been argued to become vested in current strategies and their ways of doing business (Chen et al., 2019). They propose that the relationship between higher levels of CEO tenure and CSRP is expected to be less negative when the board of directors is independent and the CEOs have longer expected employment periods. Besides independence and longer employment periods, Musteen et al. (2005) found a significant relationship between tenure and attitude towards change with the tendency of CEOs to become more conservative as their tenure increases. As a result, CEOs may be less prone to make strategic changes, including decisions related to CSR, in later stages of their tenure. In this line of argument, CEOs with no prior history may feel less commitment to past strategies, ultimately meaning that business leaders with shorter tenures are better suited to bring about corporate sustainable change.

Even though longer tenured CEOs may have acquired more decision-making power and autonomy, a negative relationship between CEO tenure and CSRP is expected. This is based on the fact that higher CEO tenure is associated with an attitude to be unwilling to change the status quo, and a tendency of a CEO to become more conservative. Hence, the following hypothesis is formed:

Hypothesis 4a: There is a negative relationship between CEO tenure and a firm’s corporate social responsibility performance.

1.6.2 The moderating effect of CEO tenure on the relationship between CEO IE and CSRP

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international experiences in which awareness of societal stakeholder increases and personal values are adapted in favor with the values of CSR (Slater and Dixon-Fowler, 2009). Nonetheless, it is unclear how this attribute concerning experience develops over time, and if it remains as valuable throughout a CEO’s tenure.

Studies have suggested that CEOs may turn out to be unable to influence the CSR strategy in the first year of their tenure (Chin et al., 2013). Nevertheless, existing literature mainly uses arguments that are in favor of short tenured CEOs over long tenured ones with regards to positive associations with CSRP (e.g Manner, 2010; Huang et al., 2013; Chen et al., 2019). CEO IE may lead to the incorporation of personal and moral values into decisions related to CSR throughout an executive’s tenure. However, attitudes in early tenures tend to fade over time (Huang, 2013). This means that international experiences that are further removed in time are less likely to play a role in determining strategic decisions in later tenures. In line with this view, IE would have a bigger impact on CSRP for CEOs that have not been in the firm for a long time relative to their more seasoned counterparts.

Chen et al. (2019) proposed that CEOs are more likely to use their abilities gained in foreign environments to full potential in their early tenure as they have something to prove. More specifically, CEOs have an incentive to perform in order to ensure future benefits such as compensation and autonomy. Besides, early tenured CEOs have a longer horizon and are therefore more inclined to undertake long-term investments as they can reap these benefits in later stages of their tenure (Daily et al., 2000). Managers are no longer assessed on mere financial grounds; strategic decisions related to the CSRP of a firm are also included in the assessment of CEO performance. As such, extra incentives in combination with a drive to challenge the status quo in shorter tenured periods, CEOs with shorter tenures are expected to positively impact the relationship between CEO IE and a firm’s CSRP.

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that CEOs with shorter tenures will have substantially more international experience, as compared to their more seasoned counterparts. As a result, CEOs with longer tenures are expected to negatively impact the relationship between CEO IE and CSRP.

To summarize, CEOs will not be able to change the CSRP in their first year of tenure. However, attitudes that are in favor of CSR may fade over time, such that CEOs may be less inclined to do long-term investments in CSR when their horizon within the firm related to future benefits decreases. Therefore, it is expected that tenure will be negatively associated with IE and therefore have a negative effect on the relationship between CEO IE and CSRP, for all of the IE components. Hence, the following hypotheses are formulated:

Hypothesis 4b: A CEO’s tenure will moderate the relationship between CEO length of time and CSRP, in such a way that the positive relationship between CEO length of time and CSRP is stronger for CEOs with shorter tenures.

Hypothesis 4c: A CEO’s tenure will moderate the relationship between the number of countries IE and CSRP, in such a way that the positive relationship between the number of countries IE and CSRP is stronger for CEOs with shorter tenures.

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1.7 Conceptual Model

For a quick overview of the hypotheses, the conceptual model can be viewed in figure I, depicted below.

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2. Methodology

In this section, the overall research strategy is explained. First, the research aim and methods that were used in this study are discussed (2.1). Next, the sample and data sources sub-section covers information about the data collection tools (2.2). Finally, the justification and measurement of the variables that were used to explore the research questions are discussed (2.3 and 2.4).

2.1 Methods

This study aims to explore how the corporate social performance of a firm is affected by a CEO’s IE. Cross-sectional data was used in order to compare differences between CEO characteristics and firm CSR performances. A quantitative statistical analysis was executed in order to investigate descriptive, correlation, and regression statistics. First, the data was visualized and summarized by using basic statistics to learn how the data is distributed. This process of exploratory data analysis helped to understand the data better.

The main relationship between CEO IE and CSRP was investigated through multiple steps. A scatter diagram was created by plotting the values of CSRP against the CEO IE components in order to assess the assumption of linear regression. Further classical assumptions, like homoscedasticity and non-correlation, were visualized through multiple tests. After this stage, three hierarchical regression analyses were executed, whereby the IE components (length of time, number of countries, cultural distance) were separately regressed with the moderating- and control variables against the CSRP measures. The interaction effect of the moderator CEO tenure was added in the last model of every hierarchical regression.

2.2 Sample and Data sources

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competitiveness, such as the technology or financial sectors, that follow a proactive rather than a reactive strategy (Marín et al., 2012). Technological firms are a constant source of innovation and competitiveness, and therefore, CSR is of extra strategic importance (Bernal-Conesa, Nieto and Briones-Peñalver, 2017). Hence, this study uses the technology sector as these firms present in this industry are sensitive to CSR expectations. Another reason for choosing tech firms is that they represent the largest number of corporations, compared to other sensitive industries, in the list of the Fortune 1000. Subsequently, the dataset was reduced from n=1000 to n=132 by selecting firms that operate in the tech industry, as distinguished by the Fortune 1000 (software, hardware, telecom, IT and related services).

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2.3 Measures

The variables, sources and descriptions used in this study are listed in a table in Appendix A. The dependent variable in this study is corporate social responsibility performance. Different ways and measurement tools are available to evaluate the concept. Many studies have used ratings as provided by the KLD index because of its merits. For example, Waddock (2003, p.369) said that “KLD is the de facto research standard at the moment for CSR research. As KLD could not be accessed, Asset4 on Thomson Reuters was used to obtain data for the CSRP measure. Thomson Reuters’ ESG database offers substantial insights into multiple concepts that relate to CSR (Achim and Nicolae, 2015). It is calculated by a weighted combination of 226 key performance indicators (KPIs), as depicted in Appendix B.

The ESG database has the ability to measure the CSR activities of a firm regarding its employees, the environment, consumers, and other stakeholders. There are different scores that are measured for each pillar of sustainability (environmental, social and governance). It is possible to obtain separate scores for different pillars, but it is also possible to acquire a total (ESG) score. The latter is an overall firm score based on self-reported information in the ESG pillars. As self-reported information regarding CSR can be biased, this study uses the ESG controversies score, which gives a score for opportunistic behavior and controversies in correspondence based on 23 controversy topics, such as environmental scandals and human rights violations (Dorfleitner et al., 2020). The dependent variable in this study is represented by the value of the combined ESG score, calculated by dividing ESG performance score by the ESG controversies overlay. If such scandals occur, companies are penalized and their combined ESG score is decreased. Whereas firms that were not involved in ESG controversies, have a combined ESG score that equals the regular ESG score. The dependent variable is continuous and contains values between 1 and 100.

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impossible to gather from secondary databases, they were not included in this study. Second, the CEO number of countries related to international experiences is measured as the number of countries that the CEO has worked or studied and lived in prior to 2014. Again, other types of international experiences were not included. Finally, cultural distance experienced during IE is measured as the highest cultural distance a CEO has experienced during international work or study related experiences. It was calculated by the Kogut-Singh Index (1988) that uses Hofstede’s (2001) cultural value dimension scores as the foundation for their computation. The algebraic formula is represented in Graph I below.

Graph I: Kogut-Singh formula for measuring Cultural Distance (CDj)

Country scores for the 16 different countries were acquired on the Hofstede Insights1, which is publicly available. First, the differences between the host (Iij) and home (Iiu) country scores on each of the four cultural value dimensions (power distance, uncertainty avoidance, individualism and masculinity) were calculated. Then the differences were squared and divided by the variance of the associated cultural value dimension. To find the cultural distance score (CDj), the four dimensions were summed and divided by four. If a CEO has experience in multiple countries, the highest KS index value is selected as the cultural distance score, as this value may represent the international experience in which the CEO’s mental conceptions with which he or she makes sense of the world were challenged the most (Brouthers and Brouthers, 2001).

The moderating variable in this study considers CEO’s tenure, measured in years the CEO has held his or her position as the leader of the firm in 2014. The value is equal to or larger than 0, for which ‘0’ indicates a CEO that is newly appointed.

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2.4 Control measures

CSRP is a broad concept, consequently generating a variable that reflects its full scope at the right time is challenging. Salazar and Husted (2010) argue that it may take some time before sustainable strategies become visible in social index scores of firms. In order to account for this issue related to the CSRP measure, three averages were calculated: a one-year average (CSRP1), a three-year average (CSRP3), and a five-year average (CSRP5). The hierarchical regressions were run for all three of the CSRP measures, after which the results were compared to see if there were significant variations in the outcome of the study.

In the sample there were some cases in which the CEO had a substantially higher amount of length of time in international experience as measured in years compared to the average. This was the result from the fact that some of the foreign CEOs acquired citizenship during their time in the United States. Since these cases may be recognized as outliers, a dummy variable was created. The variable that was added to the study is called ‘immigrant’ for which ‘1’ values indicate a CEO with an immigration status in the U.S. and ‘0’ values indicate a CEO without an immigration status. Prior firm performance or profitability has also been found to predict CSRP (Waddock and Graves, 1997). In their research, good management and CSRP have been proven to be positively associated. It can be measured by either an accounting measure such as return on assets (ROA) or a market valuation measure such as Tobin’s Q. Accounting measures have been getting critique because they fail to consider differences in systematic risk, tax laws, and accounting conventions (Lindenberg and Ross, 1981). For this reason, firm performance is measured by the approximation of Tobin’s Q, accumulated by dividing the total market value of the firm by the total asset value of the firm in 2014.

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3. Findings

In this section, the findings of the empirical analyses are presented. First, the data is summarized by descriptive statistics and correlation coefficients (3.1). Afterwards, classical assumption tests are discussed to determine the relationship between variables (3.2). In the following section, regression results are reviewed (3.3). Finally, robustness tests that have been done to test if estimated effects of interest were sensitive to changes in model specifications are reviewed (3.4).

3.1 Descriptive statistics

Descriptive statistics and correlations are reported in Table I, with statistically significant correlations indicated at the 1% and 5% level.

Table I: Descriptive statistics and correlations

* p < 0.05, ** p < 0.01 [ ] Dummy coded

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3.2 Classical Assumption Tests

To determine how the variables are distributed and related to each other, several assumptions tests were conducted. First, the assumption of normality was tested for the different regression models by analyzing the distribution of the variables. Based on visualized histograms, all the variables except firm performance, educational background and CEO age are shown to possess highly skewed distributions. The Shapiro-Wilk tests provide further indications that there is reason to believe that the assumptions of normality are violated. P-values for all the predictor variables, firm size and firm performance were significant (p < 0.01). As the predictor variables possess a lot of “0” values, transforming the variables into a log function is not optimal. Control variables ‘firm size’ and ‘firm performance’ did not have any ‘0’ values. Hence, these variables were transformed into a log function which resulted in the generation of a more normal distribution.

Second, the assumption that all independent variables are uncorrelated with the error term is tested. Some of the variables show high correlations that could indicate signs of multicollinearity are represented in the models. For instance, the components of IE show substantial correlation, with scores between 0.59 and 0.75. Length of time and the dummy variable immigrant shows the highest significant correlation (0.85; p <0.01). Even though this was anticipated as ‘immigrant’ was created to control outliers in length of time resulting from citizenship, a robustness test is executed excluding immigrants in section 3.4. To make sure there was no multicollinearity present in the data, VIF scores for the different regression models were analyzed, for which means of 2.30 (length of time), 1.61 (number of countries) and 1.74 (cultural distance) were found. As individual VIFs did not exceed the threshold of 10 nor the narrower threshold of 5, and no individual variable was found to have a VIF that is unusually higher than 0, it was indicated that no severe multicollinearity could be detected (Hair et al., 1995).

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3.3 Regression Results

The hypotheses posed in this study were tested using hierarchical linear regression analyses. The average CSRP scores are regressed on each of the three components of CEO IE in combination with the interaction effect in three hierarchical models. Table II contains coefficients and model results for the control variables that are present in the study. In total, they account for 21.4% of the variance in CSRP1 measure (F=4.96; p < 0.01); 25.4% of the variance in the CSRP3 measure (F=6.19; p < 0.01); and 22.8% of the variance in the CSRP5 measure (F=5.98; p < 0.01).

Table II: Regression control variables (CSRP1, CSRP3 and CSRP5)

Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

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3.3.1 Length of time and CSRP

The results of the hierarchical regression analysis using the length of time and CSRP measures are presented in Table III. Among the control variables in model 1, it was found that only firm size (p < 0.01) is a significant positive predictor for all of the CSRP measures. In model 2, no significant relationship is found between the predictor variable CEO length of time and CSRP for any of the dependent variable measures. Accordingly, no supportive evidence was found for hypothesis 1. Note that in Model 3, there is a lower sample size because of missing values in the dependent variable. Certain firms within the sample had been acquired or went private during the timeframe in which the CSRP measure was calculated (2014-2019). In model 3, no significant relationship was found for CEO tenure as a significant predictor of CSRP. Thus, no supportive evidence was found for hypothesis 4a. However, it was found that there is a significant negative interaction effect between CEO tenure and CEO length of time on the predictor CSRP (p < 0.1). Accordingly, there is some support for hypothesis 4b.

Table III: CEO length of time (IE) and CSRP

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When plotting the interaction effect from model 3, which was slightly significant at the 10 percent level, in Graph II it is shown how CSRP differed at different levels of CEO tenure and CEO IE. Because the interaction did not differ across the CSRP measures, only the plot for the CSRP3 measure is shown. The green line, 1 standard deviation above the mean, exhibits a negative slope. This line indicates that there is a negative interaction for higher values of CEO tenure, such that there is a negative effect of tenure on the relationship between length of time and CSRP. In contrast, the blue line, 1 standard deviation below the mean, exhibits a positive slope. This line indicates that there is a positive interaction for lower values of CEO tenure, such that there is a positive effect of CEO tenure on the relationship between length of time and CSRP.

Graph II: Interaction CEO length of time (IE) and CEO tenure on CSRP3.

3.3.2 Number of countries and CSRP

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dependent variable measures. Hence, no supportive evidence was found for hypothesis 4a. In model 3, no significant interaction between CEO tenure and number of countries IE as significant predictors of CSRP was found. Thus, no supportive evidence was found for hypothesis 4c.

Table IV: CEO number of countries (IE) and CSRP

Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

3.3.3 Cultural distance and CSRP

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Table V: CEO cultural distance (IE) and CSRP

Standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1

3.4 Testing for Robustness

As can be recalled, three different values for the dependent variable, CSRP, were used in testing the hypothesis. It was anticipated that it may be required to use a prolonged time frame including multiple years of data in order to see if the CSR performance measure increased or decreased. The results of the five-year average were qualitatively the same as the three- and one- year average. Subsequently, no substantial differences were found across the different measures of the dependent variable.

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without IE. These results indicate that having included ‘0’ values for IE in the sample did not affect the outcome of the study. These findings should be interpreted with caution given the limited amount of observations in the sample.

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4. Discussion

Drawing from CSR and IE literature, it was argued that the different components of IE enhance a CEO’s awareness of societal stakeholders and lead to the chance to develop valuable competitive resources through challenging their cognitive capacity and personal values. The purpose of the empirical analysis above was meant to investigate the effect of CEO IE components on the CSRP of a firm. Even though no significant results were found for the main research question, underlying problems such as conceptualization and operationalization issues were identified. In this section, the findings are summarized and related to the existing literature.

First, no proof was found that CEO length of time in international experiences is related to CSRP. This is contradicting literature that found a positive relationship between CEO IE, measured as the number of years in international environments, and CSRP (e.g. Slater and Dixon-Fowler, 2009; Le and Kroll, 2017). The lack of significant results may be the result from the fact that enhanced competitive resources and the increased cognitive competencies that CEOs gained during IE are insufficiently captured in this study. In addition, contradicting findings are not new in the IE literature as pointed out by Takeuchi and Chen (2013). Issues related to the conceptualization and operationalization of IE have led to inconsistent findings in the existing literature. Accordingly, the findings in this study may also be exposed to these measurement issues, resulting in not finding significant results for the hypothesized relationship between CEO length of time and CSRP. However, these findings are in line with research that did not find a positive relationship for international experiences, measured as length of time, and CSRP (e.g. Aguilera-Caracuel et al., 2012; Takeuchi and Chen, 2013). Aguilera-Caracuel et al., that focused on the firm level and measured IE as the number of years in foreign activities, did not find a direct positive relationship between IE and proactive corporate sustainable practices. However, they did find a positive relationship between a firm’s involvement in markets with diverse environmental institutions and a firm’s proactive environmental strategy. The reason they provide for not finding a positive relationship between IE and sustainable strategies is that it is not about the quantity, but rather about the quality of the time abroad.

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already noted. Takeuchi and Chen (2013) suggested that authors are often unable to capture the value that they want to measure. In this study, the number of countries is measured as an amount-based and categorical variable, which is unable to measure any depth of the experiences in different countries. Assume, for example, that two different CEOs have an equal amount of IE as measured in years and the same number of countries IE, but one has gained extensively more knowledge about the market, culture, and institutional environment; these differences would, then, not be represented in the sample. To capture such differences a more detailed approach should be used in testing the proposed relationships. Information as shown in CEO biographies, LinkedIn, company websites, and other sources may be too superficial to capture substantial detail of IE. Future research may want to investigate this relationship more thoroughly by obtaining primary data from a large set of CEOs. Accordingly, rich data could be retrieved by conducting in-depth interviews and questionnaires focused on past international experiences of the CEO.

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Further, no proof was found for the relationship between CEO tenure and CSRP. Results in this study provide no evidence that this hypothesis may be supported, which is not in line with the findings by Chen et al. (2019). Using a sample of 1500 S&P 500 firms, the aforementioned authors found that lower values of tenure are positively associated with CSRP. They proposed that shorter tenured CEOs have a longer horizon and are therefore more inclined to undertake long-term investments as they can reap the benefits themselves in a later stage. Musteen et al. (2006). The aforementioned found evidence that CEO tenure is significantly negatively associated with attitude towards change. Musteen et al. (2006) did, however, not use CSRP as their main variable but organizational change.

Finally, it was further proposed that CEO tenure could affect the relationship between CEO IE and CSRP. Some support was found for an interaction effect between one of the components of IE, length of time in international experiences, and CEO tenure on the main relationship. More specifically, shorter tenured CEOs were shown to positively impact the relationship between CEO IE and CSRP. This finding is in line with existing literature that found CEOs with shorter tenures are less likely to be vested in current strategies and corporate inertia, which would benefit the CSRP (e.g. Daily et al., 2000; Chen et al., 2019). Apart from this interaction, no supportive evidence was found for the other hypotheses regarding CEO tenure. Daily et al. (2000) proposed that CEOs with shorter tenures would be more likely to have international experiences as IE was not considered as being such a valuable resource to firms in the past. The lack of supportive evidence for tenure may be the result of the sample. The Fortune 1000 exists of the largest corporations in the United States, for which the CEOs are often aged and long tenured. Future research may want to further explore the impact of CEO tenure on the proposed relationship by examining a larger, and more diverse sample with regards to age and tenure.

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influence positive and proactive CSR initiatives, but has no effect on risky and opportunistic behavior. Literature such as the article by Slater and Dixon-Fowler (2009) and Mazutis (2014) have in common that they emphasized positive CSR as their measurement of the dependent variable. Accordingly including the controversies overlay in this study could explain why positive relationships between the components and the CSRP measure were not found. Yet, using only positive CSRP variables is not representative of reality.

Moreover, rather than using multiple components, Slater and Dixon-Fowler (2009), used only one variable as their measure for IE. More specifically, they used a categorical variable that indicated whether or not a CEO has had international experiences. Utilizing such a simple construct lacks the versatile nature of the IE concept. The categorical measure was used to test if measuring IE as ‘yes’ or ‘no’ would have resulted in a different outcome. However, similar results were found that do not provide support for the hypotheses posed in this study.

Even though no significant relationship was found, this study advances some contributions made in IE and CSR literature. This is the first work that utilizes the construct including multiple components of international experience as introduced by Le and Kroll (2017). It can be used as a starting point for future research that regards business leaders' past experience as a predictor for a firm’s CSR performance. IE is not a simple construct that can be fully measured by a simple categorical variable. Besides using multiple components of CEO IE as presented in this study, future research may want to explore additional components that are able to capture more detail of foreign experiences.

4.1 Limitations and recommendations for future research

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order to capture its value (Le and Kroll, 2017). IE should not be calculated as a simple construct consisting of categorical variables, it should rather attempt to capture depth and detail of a CEO’s prior experiences. The concept of IE should be further explored, especially in relation to CSR outcomes. Additional variables may be needed in order to find what resources CEOs have gained during past experiences.

Besides problems with the conceptualization of IE, the operationalization issue has also been highlighted in this study. Future research should clearly define how they want to measure the IE components, referring to measurement mode and data collection. Different types of IE, such as work-related or non-work related experiences, may have different outcomes (Takeuchi and Chen, 2013). Additional variables may be needed in order to capture the depth that is associated with international experiences. An example of such a variable could be the specific period in which international experiences are gained, distinguishing between e.g. childhood and adulthood. There are some CEOs in the sample that have lived in more than ten different countries during their childhood, this does not fall under the conceptualization of IE in this study (work or study abroad) the value of that experience is not captured.

Apart from additional variables, future research should adopt a more representative sample. Due to a limited timeframe, the time consuming nature and the complexity of manual data collection the sample size in this study was rather small (n=116). Accordingly, an explanation for not finding significant relationships may be the sample size (i.e. only 43 of the 116 CEO’s were found to have international experiences). In addition, as the sample is relatively small, it is worth mentioning that there were some non-normality issues during the investigation of the data. Even though dummy variables and root transformation were used in an attempt to satisfy the assumption of normality, the predictor variables remained highly negatively skewed. It can be argued that it was the result of the large amount of observations without IE (“0” values).

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terms of CSR. Such sensitive industries that could be considered are for example energy, chemicals, and raw materials.

4.2 Conclusion

Even though no evidence was found for the main relationship in this study, it still makes contributions to the existing literature in multiple ways. First, it is the first article that tests the IE components as proposed by Le and Kroll in 2017 on corporate social responsibility performance. Second, this study further extends the understanding of the IE concept and its conceptualization and operationalization challenges. This study emphasizes the fact that IE is a versatile notion. The concept is overly multifaceted and too complex to be fully measured by a simple classification of ‘yes’ or ‘no’. Future research should therefore investigate additional variables that may be able to explain more depth of the IE concept. Third, some evidence was found for a moderation effect of CEO tenure on the relationship between length of time in international experiences and CSRP. This suggests that future research should investigate additional moderating influences to better understand this relationship. Finally, the concept of CSR performance was further explored in relation to IE by using the ESG pillars of corporate responsibility. As society increasingly demands sustainable performance, more research should focus on what drives such practices and go beyond financial performance measures. This study proposes that future research should not merely use CSR strengths as measurement for CSRP. As CSR is a self-regulating concept for businesses, controversies overlay should be included in research in order to correct for opportunistic behavior.

4.3 Acknowledgements

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The relationship between different components of CEO International Experience and Corporate Social Responsibility Performance