Master Thesis
EFFECT OF CEOS’ EDUCATIONAL BACKGROUND ON COMPANIES’
CSR PERFORMANCE:
an investigation into MBA programmes and the moderating effect of recent
financial performance.
MSc International Business and Management 2016 – 2017 University of Groningen, Faculty of Business and Economics
TABLE OF CONTENTS
ABSTRACT………3
1. INTRODUCTION………4
2. LITERATURE REVIEW………6
1. BACKGROUND ON CSR……….6
2. UPPER ECHELONS THEORY……….7
3. CEOS’ EDUCATION AND FIRM’S OUTCOMES………..8
4. CEOS’ EDUCATION AND CSR ACTIVITIES………9
3. HYPOTHESES DEVELOPMENT………...15
1. CEOS’ EDUCATIONAL BACKGROUND AND CSR………..15
2. THE MODERATING ROLE OF RECENT FINANCIAL PERFORMANCE………….17
4. METHODOLOGY……….20
1. SAMPLE AND DATA COLLECTION………...20
2. MEASUREMENT OF VARIABLES………...………21 1. Dependent Variable……….……..21 2. Independent variables………21 3. Moderator………..23 4. Control Variables………...23 3. ESTIMATION METHOD………24 4. PRELIMINARY ANALYSIS………..25 5. RESULTS………26 1. TEST OF HYPOTHESES………26 2. POST-HOC ANALYSIS………..28 6. DISCUSSION………..31
1. LIMITATIONS AND FUTURE RESEARCH……….36
7. CONCLUSION………...37
8. AKNOWLEDGMENT………...………39
9. REFERENCES………...……40
Abstract
This research aims to study the relationship between the educational background of CEOs and the Corporate Social Responsibility (CSR) performance of their company. Specifically, the research analyses whether implementing courses such as “Business Ethics” and “CSR” in MBA programmes can effectively influence the CEOs sensitivity to social obligations, and consequently their company’s CSR performance. In this research, I apply to MBAs the concept of “Profit-First” introduced by Ghoshal (2005). Based on this view, this research suggests that due to their better knowledge of ethical issues, CEOs that have obtained an MBA are more conscious about the potential advantages that can derive from the company’s social commitment, and accordingly they will be more inclined to emphasise CSR activities. In addition, the research analyses whether some MBA programmes are more effective in shaping the CEO’s perception of social activities. Finally, the research investigates whether the company’s previous financial performance can moderate these direct relationships. The hypotheses have been tested on a sample of 463 CEOs selected from the FT500 ranking from 2015. Even though findings show no significant effect between the variables, the Post-Hoc analysis suggests that pursuing an MBA can significantly influence one of the four pillars which constitute the CSR index. The study provides several contributions to the research fields that deal with the determinants of CSR policies, and the role of CEO’s educational background. It also provides CSR related implications for managers.
Key words: Corporate Social Responsibility (CSR), social obligations, educational background,
1. INTRODUCTION
In the last decades, the topic of CSR has received growing attention by scholars which developed and extended its meaning overtime (Bowen, 1953; Davis, 1960; Jones, 1980; Carroll 1999). Numerous universities include courses such as CSR and Business Ethics in their Master of Business Administration (MBA) programmes to increase students’ knowledge and sensitivity to the topic (Christensen, Peirce, Hartman, Hoffman, & Carrier, 2007). Yet, the universities, and in general the school’s effort to inject social values in their students, have already drawn the attention of previous researches. Some prior studies have tried to explain the capability of formal education in shaping the individual’s perception of social obligations and have obtained mixed results (Rest, & Thoma, 1985; Browning, & Zabriskie, 1983; Jones, & Gautschi, 1988; Lane, Schaupp, & Parsons, l988; Dubinsky, & Ingram, 1984; Kidwell, Stevens, & Bethke, 1987; Serwinek, 1992). Indeed, whilst education seems to effectively play a role in the development of molar judgment and ethical behaviours (Rest, & Thoma, 1985; Browning, & Zabriskie, 1983; Jones, & Gautschi, 1988), other authors suggest that students personalities cannot be changed by universities (Lane, et al., l988; Dubinsky, & Ingram, 1984; Kidwell et al., 1987; Serwinek, 1992). However, assuming that the implementation of courses such as Business Ethics and CSR in MBA programmes do not have any effect on the students’ perception of social issues, sounds somewhat unlikely.
These considerations have led to the development of the following research questions: “Is education, and specifically an MBA, able to increase the social commitment of CEOs? What are the consequences at corporate level? Are CEOs that have attended these courses during their MBA truly more socially responsible?”
According to the Upper Echelons theory, strategic decision-making is the result of an interpretive endeavour. An executive’s personality, values and experiences form personalised lenses which influence a manager’s perceptions of business opportunities and alternatives (Hambrick, & Mason, 1984). Applying this to CEOs, the theory seems to support the idea that different educational paths can significantly reflect on their company’s strategic activities.
implementing courses such as CSR and Business Ethics, universities underline and present the potential advantages that can derive from the implementation of CSR activities. Thereby, it is possible that CEOs who have obtained an MBA are more inclined to enhance the CSR activities of their company to achieve higher performance.
Moreover, universities differ in the contents of ethical education that they provide to their students. Although the majority of the business schools include in their programmes topics concerning Business Ethics (George, 1987), some universities distinguish different dimensions such as CSR, Sustainability, and Leadership (Christensen et al., 2007). Previous studies have overlooked whether attending different universities can influence a student’s perception of CSR activities. Analysing ethical issues from different perspectives might also influence the students’ perception of social issues, providing them with a wider knowledge of risks and opportunities that stem from a company’s CSR activities. Consequently, this research adds to previous literature by offering a different point of view on the role that CEOs education can play on their company’s CSR performance.
Finally, several scholars have found that a firm’s previous financial performance can significantly influence the ensuing investments in CSR activities. In general, findings show that CEOs
tend to invest in CSR practices only when they perceive them as affordable (Orlitzky, Schmidt, &
Rynes, 2003). Based on these insights, it is presumable that CEOs who perceive CSR as a strategic asset will be more inclined to enhance their company’s CSR activities. Therefore, investigating how previous financial performance might influence the main relationship between CEOs’ educational background and their company’s CSR performance is also of great relevance.
2. LITERATURE REVIEW
2.1 Background on CSR
The concept of CSR has received scholarly attention for decades. Even though many studies and empirical researchers have analysed and developed this concept, there is still no consensus on the general definition of CSR (Carroll, 1999). Therefore, before providing the definition of CSR applied in this study, it is useful recalling some of the main steps of its evolution. 1953 marked the year in which modern literature on CSR began. During this year, Howard R. Bowen (1953) published the book Social Responsibilities of the Businessman. In his book, he defines CSR as “the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society” (p. 6). During the 1960s and 1970s, the literature on CSR developed and new definitions were introduced by authors such as Keith Davis (1960), who defined this concept as “business-men’s decisions and actions taken for reasons at least partially beyond the firm’s direct economic or technical interest” (p. 70). In the 1980s, where the literature laid its focus more on measuring and conducting research on CSR, Thomas M. Jones (1980) extended the definition by stating that “corporate social responsibility is the notion that corporations have no obligation to constituent groups in society other than stockholders and beyond that prescribed by law and union contract” (pp. 59-60). With this definition, Jones became the first person to introduce the idea that CSR has to be voluntarily adopted and therefore without any influence of law or union contracts (Carroll, 1999).
A further study, conducted by Geoffrey P. Lantos (2001), has introduced the concept of strategic CSR underling that CSR can also be used as a way to increase the company’s performance. In his study, Lantos (2001) distinguishes among three kinds of CSR: ethical, altruistic, and strategic. Specifically, the latter is characterised by all the social activities undertaken by a firm to pursue a strategic business goal.
basis; and finally, it does not exclude the use of CSR practices to pursue company’s strategic objectives such as the implementation of financial performance.
By adopting a strategic perspective, much of the previous work has focused on the relationship between CSR activities and firm outcomes. For example, some studies find that activities such as the adoption of an environmentally responsible identity or the development of interactions between an organization and the surrounding community might enhance a firm’s competitive position. This outcome is the result of the positive effect that these activities have on the company’s image (Heikkurinen, & Ketola, 2009; Mandina, Maravire, & Masere, 2014).
Further, empirical research has also focused on the association between CSR and corporate financial performance. Some authors have found evidence for a positive relationship between these variables (Margolis, & Walsh, 2001; Orlitzky, et al., 2003). In particular, in their study, Orlitzky et al. (2003) claim that the relationship between companies’ CSR and their financial performance is stronger when analysed through the use of accounting based measures instead of market-based indicators. However, others find that the relationship between the variables might be much weaker than previously thought when measured following an approach based on time series fixed effects. Thus, depicting that the result is still not clear (Nelling, & Webb, 2009). Therefore, whilst some authors argue that CSR should be emphasised by managers (Heikkurinen, & Ketola, 2009; Mandina, et al., 2014; Margolis, & Walsh, 2001; Orlitzky, et al., 2003), others think that CSR practices are often over-emphasised (Nelling, & Webb, 2009).
Despite inconsistent empirical findings, there is a growing recognition that CSR is critical for firms, with some authors developing a specific business case for it. For example, in a recent review conducted by Carroll and Shabana (2010), the authors find that developing CSR practices is likely to impact the firm’s performance through four mechanisms: reducing risks and costs, strengthening reputation and legitimacy, providing a competitive advantage and developing a win-win relationship with the stakeholders.
2.2 Upper Echelons Theory
Upper Echelons perspective supports the idea that managers are not able to process huge amounts of information that are available from the environment. As a consequence, information is filtered and selected by an interpretation process that is influenced by personal experiences and values. According to the theory, executives are unable to act as fully rational machines and consequently their choices reflect their personal differences (Slater, & Dixon-Fowler, 2010).
The importance of the work of Hambrick and Mason (1984) is clearly confirmed by the huge number of articles which have examined and extended specific aspects of the theory (e.g., Carpenter, Geletkanycz, & Sanders, 2004), and also from many books that have reviewed and developed the research on Upper Echelon Theory (Wang, Holmes, & Zhu, 2016). Further studies demonstrated that these effects also exist in international settings, no-profit and public agencies, and both in mature and newly founded enterprises (Carpenter et al., 2004). Moreover, recent meta-analysis based on 308 studies finds support to the predictions of the Upper Echelon Theory showing a significant effect of CEOs characteristic such as formal education, tenure and previous career experience on their firm’s strategic actions (Wang, et al., 2016).
2.3 CEOs’ Education and Firm’s Outcomes
Whether and how educational background of the CEOs influence their firm is a relevant debate in the management area. Most of the previous literature from psychology finds data supporting the relationship between level of education and the individuals’ cognitive ability. In particular, according to Arthur R. Jensen (1998) numerous social and economic outcomes are determined by the cognitive ability of individuals, or “IQ”. The author suggests that several mental capacities such as speed of reactions and lifetime income are positively connected with individuals’ cognitive ability (Jensen, 1998). Moreover, Lubinski and Humphreys (1997) find that the decision-making ability is influenced by the intelligence of the individuals. Finally, focusing on the decision-making process, Mischel (1974), Shoda, Mischel, and Peake (1990) Funder, and Block (1989), Parker and Fischoff (2005) argue that more intelligent individuals act less on impulse and exhibit greater patience. In addition, previous studies suggest that CEOs who have graduated in universities which require higher score in the entrance exam, are not only more intelligent, but they also show better managerial ability (Frey, & Detterman, 2004).
and faster than people with a lower cognitive ability. As education can be considered a reliable proxy to assess intelligence, CEOs with higher level of education can be provided with a greater capacity to undertake managerial decisions and pursue innovation. Moreover, CEOs who have been better educated may be more prepositive in using sophisticated methodologies that can lead to a positive effect on the performance of the company (Gottesman, & Morey 2006). An example has been provided by Graham and Harvey (2002) that describes the implementation of sophisticated methodology to estimate capital costs during the allocation of capital budget. Finally, Gottesman and Morey (2006) propose that a higher level of education can have a positive effect on the human capital of top executives. Thus, CEOs that are able to develop more and stronger ties with other individuals can positively influence the performance of the firm. However, when they specifically consider the difference between CEOs with an MBA and CEOs without an MBA, the authors find a non-significant difference between companies’ performance.
Moving closer to the research question of this thesis and focusing on MBAs, further studies have tried to assess the effect of CEOs’ MBA on their firm’s performance. In particular, the findings of Bhagat, Bolton, and Subramanian (2010) show that companies which hire CEOs with an MBA are more likely to increase their operational performance. Conversely, when a company hires a new CEO without the MBA the short-term operational performance of the firm is expected to decline. Finally, focusing specifically on the effect of CEOs’ MBA in the banking sector, King, Srivastav & Williams (2016) find that CEOs that obtained an MBA during their educational path are able to outperform their colleagues. This result has been linked to the capability of CEOs with an MBA to exploit more innovative and risker model better than CEOs without an MBA.
To summarise, many researchers have analysed the level of the CEOs’ education and have obtained mixed results. Whilst it seems widely recognised that the educational background plays a relevant role in shaping CEOs capabilities (Lubinski, & Humphreys 1997; Mischel, 1974; Shoda et al. 1990; Funder et al. 1989; Parker, & Fischoff, 2005; Frey, & Detterman, 2004; Gottesman, & Morey 2006), whether and how MBAs can effect CEOs skills and their company’s outcome it is still not clear. (Gottesman, & Morey, 2006; Bhagat et al. 2010, King et al., 2016).
2.4 CEOs’ Education and CSR activities
the moral judgment of individuals. In order to explain their findings, Rest and Thoma (1985) propose five different interpretations. Firstly, they suggest that changes in moral judgment can be connected to the relationships created in college environments. A second hypothesis suggests that particular skills or contents of moral philosophy acquired during the courses can influence the students’ perception of social obligations. The third interpretation supports the idea that college is characterised by a socio-moral perspective that shapes the student’s way of thinking. The fourth interpretation implies that college only stimulates the intellectual activity of individuals, leading them to excel in different domains, including moral judgment. Finally, the fifth interpretation proposes that the difference in the perception of moral obligations is not connected with college itself but rather with the personal characteristics of people who decide to attend it (Rest, & Thoma, 1985).
Keeping the focus at an individual’s level, the second stream of studies have analysed the influence of individuals’ education in shaping their ethical behaviour. Ethical behaviour has been defined as “the use of recognized social principles involving justice and fairness in situations that are part of business relationships.” (Browning, & Zabriskie, 1983, p. 219). Therefore, these researches have tried to link the individuals’ educational background with the adoption of fair conducts within the business relationships (Browning, & Zabriskie, 1983; Jones, & Gautschi, 1988; Lane et al., l988; Dubinsky, & Ingram, 1984; Kidwell et al., 1987; Serwinek, 1992). Although many authors have tried to link the educational background of the executives and their ethical behaviour, this stream of study has led to mixed findings. The study of Browning and Zabriskie (1983) shows that purchasing managers with a higher education perceive behaviours such as giving or receiving favour and gifts to obtain a preferential treatment as more unethical than other managers who have lower levels of education. In addition, their findings are supported by the study conducted by Jones and Gautschi (1988) which shows that students, in particular female students, who have obtained an MBA, are more sensitive to ethical issues.
study considers both undergraduate and postgraduate students without any particular discrimination of the acquired titles.
Within the second stream of research, the study conducted by Lane et al. (1988) and the ways in which they interpret their findings is particularly interesting. In this research, Lane et al. (1988) suggest that even though colleges are recognising the importance of ethics introducing compulsory courses in their curricula, they could unwittingly suggest to students the idea that “winning is everything” (p. 223). The result of their analysis shows that despite the increasing efforts of the universities to stress on the importance of ethics, its role is still perceived by students as subordinated when compared to obtaining higher grades. Their findings confirm that most students did not have to engage in unfair tactics or go against their values to obtain a higher grade; however, students clearly expressed the idea that grades are the primary goal that needs to be achieved. According to Lane et al. (1988), this belief is due to the fact that students tend to give more importance to academic success in order to achieve their career aims.
significant relationship between the managers’ perception of CSR and their training status and religiosity. Thus, according to this research, the managerial commitment to CSR is due to the acquired qualities (education, training and religiosity), rather than inherent physical maturity. However, it is worth mentioning that only in the studies of Jones and Gautschi (1988), there is a clear distinction of MBA students, while other studies consider postgraduate students in general.
Finally, the last stream of studies has developed the research of the influence of CEOs’ educational background on the perception of social obligations at corporate level. Slater and Dixon-Fowler (2010) explore if and how CEOs with an MBA could increase their firm’s corporate environmental performance (CEP). According to their interpretation, executives that have obtained an MBA consider the implementation of environmental sustainable activities as a way to optimise their firm’s performance. Focusing on the implications for CEOs with an MBA degree, their findings specifically show a significantly positive impact of CEOs’ MBA on their company’s CEP score. In accordance with the study of Samuelson (2006), the authors claim that due to the relevant positions occupied by MBA graduates in American companies, their perceptions of sustainability’s practices can significantly influence the world’s natural resources. Therefore, in this study they try to answer how MBA graduates will exert their positions of power over these vast resources. The research analyses the relationship starting from the main criticisms of MBAs programmes that have been underlined by previous studies.
Firstly, many researchers suggest that MBAs do not provide students with any useful skill, knowledge or specific managerial ability, leading to neither individuals nor organisational benefits. Some authors (Pfeffer, & Fong, 2002; Mintzberg, 2004) suggest that MBA programmes focus on specialised training and lack in practical experience; thereby, they are unable to develop broader managerial skills. In addition, many others support the idea that these programmes focus too much on quantitative analytical skills at the expense of other necessary “soft skills” such as communication and interpersonal skills (Jenkins, & Reizenstein, 1984; Porter, & McKibbin, 1988; Simpson, 2006).
The second criticism related to MBA programmes can be attributed to Ghoshal (2005), which lies in the “Profit-First” ideology. This concept suggests that basing their courses on theories such as agency and transaction-cost economy universities are shaping graduates who pursue profit as primary goal. This idea has also been mimicked by other authors (Giacalone & Thomson, 2006; Mitroff, 2004) who suggest that stakeholders and other positions are left in the background when compared to other aspects such as status power and money.
index, it is possible to measure and compare the different impacts that companies have on the environment. They have empirically tested the relationship on a sample of 416 S&P 500 CEOs.
The criticisms analysed in the paper suggest that the CEP of a company should be non-significantly or even negatively effected by the educational background of the CEOs. In the first case, the irrelevance criticism suggests that MBAs are unable to provide the knowledge necessary to develop a profitable sustainable strategy. Moreover, irrelevance criticism implies that higher education, and MBAs in particular, do not have any significant impact on the ethical decision making process. Secondly, the “Profit-First” criticism suggests that there is a significant negative impact due to the MBAs of the CEOs. According to this theory, universities indoctrinate students to assess any decision following an economical perspective and consequently leading them to compromise their ethical judgments (Giacalone, & Thomson, 2006). This result would also explain the numerous business scandals connected to unethical behaviours and decisions of executives (Goshal, 2005).
Similar to the previous study of Quazi (2003), despite theories appearing to clearly forecast the result of the research, findings are again contradictory. Slater and Dixon-Fowler (2010) reveal a significant positive effect between CEOs with an MBA and their company’s CEP score. According to the authors, this outcome can be connected to the “Profit-First” criticism. Interestingly, Slater and Dixon-Fowler (2010) utilise this result by extending the concept that environmental performance of CEOs with MBAs is not due to their higher perception of moral obligation but rather to their better ability to optimise the firm performance. The case study analysed by the authors shows that a higher CEP brings economic benefits and financial returns to the firm. As a consequence, CEOs with an MBA will enhance the sustainability of the company pushed by their motivation to achieve higher financial performance. In other words, even though the result in terms of investment in sustainable practice is the same, the reason behind them is that MBA graduates are more motivated to take advantage of any opportunity that increase the company’s returns, including CEP.
their company’s CSR performance. Using the consistency of firms’ CSR rankings as a measure of the firm’s CSR performance, Huang (2013) finds a positive correlation between the CEO’s educational specialisations in MBA and Master of Science (MSc), and the CSR performance of their firm. In particular, the results show that compared to the other factors, MBA and MSc are the crucial aspects which influence the firm’s CSR performance. In the conclusion, Huang (2013) explains that while it is not ensured that the education provided at university can significantly change the students’ behaviour, previous studies show that providing better knowledge about environmental issues has a positive impact on environmental sensitivity of students (Thomas, 2005). It is important to underline that in the past few years most of the universities have implemented specific courses that trait CSR as a specific topic (Huang, 2013).
3. HYPOTHESES DEVELOPMENT
3.1 CEOs’ Educational Background and CSR
Based on the logic of upper echelons theory, it is possible to claim that differences in the educational background of the CEOs will be reflected in their company’s initiatives.
In this study, I suggest that previous inconsistent findings might be due to a wrong approach in analysing the final aim of MBA programmes. The literature review shows that previous studies have obtained mixed findings in their attempt to explain the effective role of education provided by universities. Prior authors have focused on the influence of education in shaping the individuals’ perception of social obligations (Rest, & Thoma, 1985; Browning, & Zabriskie, 1983; Jones, & Gautschi, 1988; Lane et al., l988; Dubinsky, & Ingram, 1984; Kidwell et al., 1987; Serwinek, 1992). Whilst education seems to effectively play a role in in this sense (Rest et al., 1985; Browning and Zabriskie, 1983; Jones, & Gautschi, 1988), other researchers suggest that it is unable to change the personalities of students that are attending the university (Lane et al., l988; Dubinsky, & Ingram, 1984; Kidwell et al., 1987; Serwinek, 1992).
It is interesting that even though Quazi (2003) has focused on the individuals’ perceptions, his study shows that mangers with a postgraduate education perceive CSR practices as a way to reduce costs and increase the efficiency. The results of this study clearly imply that whilst ethics courses do not influence the individuals’ behaviour, these courses are able to shape the managers’ perception of corporate social commitment.
I suggest the core reason for CEOs’ sensitivity to social activities, and consequently to CSR performance of their company, should be connected with the firm’s advantages derived from these practices instead of the personal sensitivity to the social obligations for CEOs. In other words, the courses within Business Ethics provided by universities play a key role in illuminating the reasons why ethical behaviour and social commitments are a concrete issue in the field of business. Thus, the final implication of this kind of education should be explored at corporate level and not at individual level.
The criticism on MBA suggested by Goshal (2005) regarding the “Profit-First” ideology should be considered as the first step in order to recognise the real goal of business school courses. Following this perspective, the concept suggested by Goshal (2005) and applied by Slater and Dixon-Fowler (2010) to sustainability can be extended to all the social investments that companies employ to increase the firm’s performance.
(Heikkurinen, & Ketola, 2009; Mandina, et al., 2014; Margolis, & Walsh, 2001; Orlitzky et al., 2003). Consequently, according to the “Profit-First” concept, managers with an MBA will give more importance to CSR practices due to their attitude to pursue and seek out of any opportunities to obtain an advantage.
To summarise, based on the findings provided by the literature review, I suggest that the implications of ethical courses attended during the MBA should be investigated at a corporate level instead of an individual level. Moreover, the CSR performance is not the result of an ethical behaviour of the CEO, but instead it should be seen as an attempt to increase the firm performance. Despite the CSR policies are not connected to a high social commitment of the CEO, it does not mean that the company will not undertake CSR activities. Conversely, we can expect that due to their attitude to exploit all the opportunities to increase the firm’s performance, CEOs that have obtained an MBA during their educational path emphasise CSR activities more than CEOs without an MBA, thus achieving higher CSR performance.
Hypothesis 1 CEOs with an MBA obtain higher CSR performance than CEOs without an MBA.
Another aspect that should be considered is the content of the education provided by different universities in terms of Business Ethics. Whilst it is widely recognised that most of the business school programmes discuss topics concerning ethical issues (George, 1987), some universities define Business Ethics along different dimensions such as CSR, Sustainability, Leadership and others (Christensen et al., 2007). Consequently, they require specific compulsory classes in one or more subject area concerning this field.
Interviewing the deans and the directors of the top 50 MBA programmes (according to the Financial Times ranking) Christensen et al. (2007) find that the majority of the universities require that one or more classes such as Business Ethics, CSR, Leadership, and Sustainability are to be covered in the MBA programme. Analysing university requirements along these different dimensions would provide a clear picture of education’s influence on firm CSR activities.
Following the perspective already discussed in the development of the first hypothesis, students that attended MBAs from universities that require compulsory classes, not only in Business Ethics, but also in other topics including CSR, Sustainability and Leadership will develop the competences necessary to recognise the potential of social activities from a wider perspective.
positively influence their capability to undertake new opportunities that could increase the company’s performance, and consequently to enhance the investments in CSR practices.
In summary, in this study I also suggest that it is possible to identify a difference in the company’s CSR performance, not only between CEOs with an MBA and CEOs without, but also within the group of CEOs with an MBA. This variance would be the result of different approaches adopted by the universities when teaching topics concerning Business Ethics. The core idea of this assumption is that universities which distinguish between specific core topics within Business Ethics (CSR, Sustainability, Leadership etc.) provide a better understanding of the themes. Thus, CEOs who have obtained an MBA from these universities are more inclined to identify opportunities connected to the CSR activities of the firm. Following the concept of “Profit-First”, compared with the CEOs with an MBA from universities that makes no differences when teaching Business Ethics, CEOs from universities that require classes in more than one subject area emphasise CSR activities more as a way to increase their firm’s performance.
Hypothesis 2 Companies led by CEOs with an MBA from universities that require classes in more
than one subject area of Business Ethics obtain higher CSR performance than companies led by CEOs with an MBA from universities that require classes only in one subject area.
3.2 The Moderating Role of Recent Financial Performance
Previous studies show that companies’ recent financial performance significantly affects ensuing investments in CSR activities (Orlitzky et al., 2003). Specifically, the findings show that firms tend to enhance CSR’s investments only when they perceive this expenditure as affordable.
Based on the literature review, and following the “Profit-First” concept previously explained in the hypotheses development, we can expect that the educational background of CEOs also plays a relevant role in shaping this sensitivity. Specifically, I suggest that CEOs with an MBA perceive the role of CSR activities as more strategic. Therefore, in the case of low financial performance, both types of CEOs are forced to spend the financial resources to cover costs without the possibility to invest in new activities. However, when previous financial performance is high, CEOs with an MBA will be more inclined to enhance CSR activities than CEOs who did not attended MBA courses.
To summarise, I suggest that previous financial performance can play a significant role in the relationship between the educational background of CEOs and their company’s CSR scores. Specifically, I propose that CEOs with an MBA perceive CSR activities as strategic. Consequently, when they have the financial resources, they emphasise their company’s CSR activities more than CEOs without an MBA. Conversely, CEOs without an MBA tend to see CSR as a cost rather than an investment, underestimating the potential returns derived from these kinds of assets. Therefore, we can expect that the higher the financial performance, the stronger the difference between each company’s CSR score.
Hypothesis 3 The relationship between CEOs MBA attainment and their company’s CSR
performance is positively moderated by the recent financial performance.
As already explained in the development of the hypothesis 2, it is possible to identify a difference in the CEOs’ perception of CSR practices also within the group of CEOs that have obtained an MBA. From this perspective, we can expect that CEOs from universities that require classes in more than one subject area are more inclined to identify a wider subset of opportunities derived from investments in diversified activities of CSR.
CEOs from these universities have studied and analysed specific issues and case studies related to different aspects of their firm’s social practices; thus, they are even more conscious of the potential advantages that may derive from the implementation of different CSR activities. Consequently, in case of high financial performance, CEOs from universities that require classes in more than one subject area are expected to emphasise CSR activities even when compared with CEOs that have still obtained an MBA, but from universities that do not provide different courses of Business Ethics.
Hypothesis 4 The relationship describing the difference in CSR performance between companies led
by CEOs with an MBA from universities that require classes in more than one subject area of Business Ethics, and companies led by CEOs with an MBA from universities that require classes only in one subject area, is positively moderated by previous financial performance.
Independent Variable MBA / No MBA Dependent Variable CSR Performance Moderator ROA H1 H3 Dependent Variable CSR Performance Independent Variable
MBA 1 Course / MBA with more than 1 Course
Moderator ROA
H2
4. METHODOLOGY
In order to empirically research potential relationships between CEOs with an MBA and their company’s CSR performance, the study must adopt a methodology based on a quantitative approach that aims to analyse secondary data collected from databases.
4.1 Sample and data collection
The data is collected from four main sources. Firstly, the sample consists of a selection of the CEOs from the Global Ranking of the Financial Times 500 firms (FT500) from 2015. On the base of the data available from the databases, the sample consists of 463 CEOs. The FT500 provides a ranking of the largest global companies defined by market capitalisation. The sample includes companies from many different countries, and thereby it extends previous studies that have focused only on the US (Slater, & Dixon-Fowler, 2010). It also includes firms operating in different sectors. In addition, even though the sample considers only large companies, the variance between companies’ size within the sample is important. Specifically, the market capitalisation of the smallest company (Devon Energy) is around 1/30 of the market capitalisation of the largest company considered (Apple).
Secondly, the information about CEOs with an MBA in the FT500 is collected from the article of Adam Palin and Steven Bernard “From MBA to CEO” (2015). In their paper, the authors list all the CEOs from the FT500 companies that have obtained an MBA during their educational path. Moreover, the article specifies the universities where the CEOs obtained their MBAs providing the information necessary to compare the effect of different MBA programmes.
Thirdly, the data concerning the different MBA programmes is provided by the paper of Christensen et al. (2007). In order to collect reliable information about different MBA programmes, the authors have interviewed the deans of the top 50 programmes rated according to the Financial Times in 2006.
Finally, the data concerning companies’ CSR and financial performance are collected from DataStream. Specifically, CSR scores are based on the Thomson Reuters Corporate Responsibility Ratings retrieved from the ASSET4 database, which provides information regarding environmental, social, and governance indicators.
4.2 Measurement of variables
4.2.1 Dependent Variable
The data concerning the companies’ CSR performance is retrieved from the Thomson Reuters ASSET4. This database is available from DataStream, and it assigns to firms a score based on the information about environmental, social, and governance (ESG) impact of the company. This data is obtained by comparing more than 250 Key Performance Indicators (KPIs), and more than 750 individual data points (Blank, 2013).
ASSET4 was founded in 2003 and acquired by the Thomson Reuters in 2009, and it is recognised as one of the most reliable sources of ESG data (Blank, 2013). The ESG data, provided by the database, tests the companies on four main pillars: social, environmental, economic and Corporate Governance (CG). These pillars act as the basis to define an overall score of the company that summarises the company’s strength in observing ESG principles (Ribando, & Bonne 2010).
All the data collected in the database is publicly available and objective, and it is retrieved typically from sources such as annual reports, CSRs, news sources, stock exchange fillings, and non-governmental organisations’ website (Ribando, & Bonne 2010). The raw data is assessed by 278 KPIs, and shared amongst eighteen categories that are considered as subsets of the four main pillars.
The database scores each category with a value from 0 to 100, where 100 is considered as the highest score, and it indicates a strong performance, while a value of 0 underlines a significant weakness in the specific category. Finally, the ASSET4 also provides the Integrated Rating, that is the result of the weighted average between the four scores of the different pillars. The latter is used in the analysis in order to assess the company’s CSR performance.
To summarise, a score from 0 to 100 is assigned to all the selected companies of the sample based on the ASSET4 Integrated Rating. This score reflects the strength of the company’s CSR performance in 2015, and it is the result of the weighted average among the four pillars that constitute the ASSET4 framework: economic, environmental, social and CG performance. It is also important to mention that ASSET4 considers the largest companies of each region, and thereby it is perfectly in line with the core criteria of the sample selected from the FT500.
4.2.2 Independent variables Educational Background
MBA to CEO” published by Adam Palin and Steven Bernard on the Financial Times from 2015. The article provides the information regarding the CEOs from the FT500 ranking of 2015 that obtained an MBA.
Within the 463 companies of the sample. There were 104 CEOs that obtained an MBA. Specifically, 22 of them studied at Harvard, 8 were from INSEAD, 7 from Stanford, 7 from Wharton, 6 from Kellogg, 6 from Columbia, 5 from Chicago, 5 from NUY Stern, 3 from Vanderbilt, 3 from University of Virginia, and 23 from other universities.
The sample is thereby divided in two groups. The companies with CEOs that have not obtained an MBA during their educational path are associated with the number 0, while companies with CEOs that have obtained an MBA during their educational path are associated with the number 1.
Content of Education
In order to evaluate the influence of the contents of education provided to the CEOs by different MBA programmes, this analysis examines whether CEOs have obtained an MBA from universities that require classes in more than one subject area among Business Ethics, CSR, Sustainability and Leadership, or whether they have obtained an MBA from universities that require classes only in one subject area.
In order to obtain a reliable measure of this parameter the data is collected from the paper by Christensen et al. (2007) which divides the universities according to the topics covered in the MBA classes. In the paper, the authors investigate the coverage and the inclusion of the topics of CSR, Business Ethics, Leadership and Sustainability in the MBA programmes of the top 50 programmes, rated according to the Financial Times in 2006. Although the article includes data concerning numerous universities, it does not cover all the business schools attended by the executives in the sample. As a result, the number of CEOs has to be reduced to 69.
4.2.3 Moderator
Previous financial performance
In order to measure the recent financial performance of the firm, the analysis considers the companies’ Return On Assets (ROA) obtained in 2014. As it shows, the earnings generated from the capital invested, this value is usually recognised as one of the most significant indicators to define the profitability of a company (Bear, Rahman, & Post, 2010). The financial indicator is obtained by dividing the annual “Net Income” by the “Total Assets” of the company. The values have been provided by the ASSET4 database.
4.2.4 Control Variables
In line with previous studies, the research is verified by a set of control variables that have been found to significantly affect the companies’ CSR performance. In order to reduce the possible influence of other external factors, three main control variables are introduced. First, the role played by the different countries where companies operate in is taken into account. Specifically, a previous study has argued that CSR activities are implemented differently in developing and developed countries (Dobers, & Halme, 2009). Thus, following the classification provided in the report from the United Nations (2016), the analysis is checked on the base of the geographic location where the company resides.
The second control variable that is taken into account is the industry sector. This variable is considered due to the fact that firms operating in specific industries could put more efforts into enhancing CSR practices. Previous studies have found that some sectors tend to emphasise company investments in CSR more than others (Wanderley, Lucian, Farache, & de Sousa Filho, 2008). Thereby, the sector where companies operate in is also a crucial factor that has to be taken into account. The study follows the differentiation of industry sectors provided by the FT500.
4.3 Estimation Method
The estimation method is based on two main regressions. The first regression has the objective to test whether there is a significant effect between the MBA of the CEOs and their company’s CSR performance (H1), while the second regression tests whether there is a significant effect between the required classes at the universities attended by the CEOs and their company’s CSR performance (H2). In order to verify the hypotheses, the methodology used consists in an ordinary least squares regression analysis (OLS) that has been conducted through the use of the software SPSS.
In the first case the sample consists of 463 CEOs of the FT500 ranking. As the presence or the absence of the MBA in the CEOs curricula is a dichotomous variable, the regression is developed on the basis of a dummy variable. Thus, CEOs that have obtained an MBA during their educational path are associated at the number 1, while CEOs without the MBA are assigned to the number 0.
To test whether there is a difference in the CSR performance due to the content of education provided to the CEOs, in the second regression the sample has to include only the CEOs that have obtained an MBA. Similar to the first set of analyses, type of education is a dichotomous variable, therefore the regression is developed on the base of a dummy variable. Thus, CEOs that have obtained the MBA from universities that require classes in more than one subject area among Business Ethics, CSR, Sustainability and Leadership, are associated with the number 1, while CEOs that have obtained the MBA from universities that require classes only in one subject area are associated with the number 0.
4.4 Preliminary Analysis
Before performing the regressions, it is necessary testing some assumption. Specifically, linearity, multicollinearity, heteroskedasticity, and normality tests are required.
Therefore, I confirmed the linear relationships between the dependent and independent variables thanks to the scatterplots.
The multicollinearity test assumes that the values are uncorrelated with each other, and therefore in the model no-correlations between the given variables is required. In order to test the potential multicollinearity, I initially performed the Pearson correlation test for both the independent variables (Appendix, Table 10.1 and 10.2). In addition, I checked that values of the Variance Inflation Factor (VIF) were under 10 and consequently considerable as acceptable (Baum, 2006). The results obtained for all the variables never exceed 10, confirming the absence of multicollinearity with a mean of 1,194 for MBA and 1,696 for Courses (Appendix, Table 10.3 and 10.4).
The Breusch-Pagan test has been conducted for both the relationships in order to test the assumption of heteroskedasticity. As can be seen in the table 10.5 and 10.6 (Appendix) the outcome shows a significance level above the 0,05. According to Breusch and Pagan (1979) the results suggest that the models can be considered not affected by heteroskedasticity.
5. RESULTS
5.1 Test of Hypotheses
The hypotheses are tested through the use of an OLS regression analysis. The results are reported in table 5.1.1. Models 1 to 3 test the hypotheses H1 and H3 examining the effect of a CEO’s MBA on their company’s CSR score. Model 1 analyses the effect of the control variables on the dependent variable; model 2 examines the direct effect of a CEO’s MBA on CSR performance of the firm; finally, model 3 reports the moderation effect of ROA on the direct relationship.
As can be seen in table 5.5.1, model 1 shows a significant negative relationship between two industry types, specifically financial services and travel industry. Both of these industries influence negatively the CSR score (financial services p < 0,01; travel p < 0,05). Moreover, in line with the expectations, there is a significant positive effect of developed markets and firm’s size on the company’s CSR score (Developed/Developing, p < 0,01; Market Value, p < 0,05). However, interestingly the positive effect of the company’s size on the CSR performance is very weak. Model 2 reports the result of the direct effect that a CEO’s MBA has on the dependent variable. Although the regression shows a positive effect between the variables the result cannot be considered significant. While the CSR score is still significantly influenced by all the previous control variables, model 2 also shows a significant positive effect of another industry, namely chemical industry (p < 0,1). Finally, model 3 analyses the moderation effect presented in hypothesis H3. Similar to the previous case, despite the result showing a weak positive effect of the ROA on the direct relationship, the value is not significant.
the previous models the dependent variable is still influenced by some industries; however, there is no significant result concerning the moderation role of the ROA on the main relationship.
Table 5.5.1 OLS regression results
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
Constant 62,484*** (3,522) 62,580*** (3,527) 60,850*** (3,786) 54,176** (21,830) 56,741** (21,889) 60,485** (23,050)
Significant Sectors Included: - - - - -
- Travel Industry -13,389 ** (5,260) -13,369** (5,263) -13,951** (5,280) -27,789* (14,156) -30,404** (14,307) -29,289* (14,555)
- Financial Services -17,169*** (4,676) -17,526*** (4,708) -17,196*** (4,712)
- Chemical Industry 10,189* (6,093) 10,061* (6,090)
- Banks 24,265*** (8,333) 25,166*** (8,349) 22,008** (10,313)
- Beverages 23,455** (10,998) 25,206** (11,078) 24,377** (11,261)
- Software & computer services 24,224* (12,241) 23,507* (12,224) 23,610* (12,319)
- Pharmaceuticals & biotechnology 24,045** (9,851) 24,296** (9,826) 23,654** (9,968)
- Life Insurance 23,933* (14,156) 24,261* (14,120)
Developed / Developing Market 16,728*** (2,882) 16,373*** (2,930) 16,704*** (2,940) 13,711 (20,913) 7,833 (21,503) 7,224 (21,696)
Size: Market Capitalization $m 3,195E-5** (0,00) 3,030E-5* (0,00) 2,858E-5* (0,00) -2,509E-6 (0,00) -1,744E-6 (0,00) 5,038E-6 (0,00)
H1: MBA / No MBA 1,727 (2,530) 1,738 (2,528)
H3: ROA MBA 0,202 (0,161)
H2: 1 Course / More than 1 Course 5,891 (5,254) 5,677 (5,308)
H4: ROA Courses -37,806 (67,561)
R Square 0,174 0,175 0,178 0,397 0,413 0,417
5.2 Post-Hoc Analysis
In order to inspect whether the MBAs or the number of courses attended by CEOs can influence specific aspects of the CSR performance index, I conduct an additional analysis on all four indicators that constitute the CSR score: CG, economic, social, and environmental performance. Therefore, this analysis provides four new outcomes for each independent variable (MBAs and Courses).
Table 5.5.2 reports the results of the Post-Hoc analysis which assesses the effect of CEOs’ MBA on the four indicators. The models 1 to 3 examine the relationship between MBAs and CG, considering the moderation role of ROA. These models show a significant negative effect between two industries and CG (Automobile p < 0,01; Real Estate p < 0,1). In line with the expectations, CG performance is significantly positive influenced by developed markets (p < 0,01). However, even though the CG performance is significantly affected by the size of the company (p < 0,05; p < 0,1) its score becomes insignificant when considering the moderation effect of ROA (model 3).
The results which emerges from the analysis on the effects of CEOs’ MBA on the CG score is particularly interesting. Indeed, models 2 and 3 show that, not only is there a significant positive effect of the CEO’s MBA on the CG performance (p < 0,01), but also this relationship is significantly positively moderated by the ROA (p < 0,1).
The following models test the effect of a CEO’s MBA on the three other indicators, respectively models 4 to 6 test the effect on economic performance; models 7 to 9 examine the effect on social performance; finally, models 10 to 12 analyse the effect on companies’ environmental performance. Although, these models confirm that CSR indicators are significantly influenced by some industries (e.g. Financial services p < 0,01) and by the developing markets (p < 0,01), no significant effect of CEOs’ MBA, and ROA on CSR performance indicators has been found.
Table 5.5.2 OLS regression results Post-Hoc Analysis MBA
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9 Model 10 Model 11 Model 12 Constant 40,496*** (4,585) 41,068*** (4,540) 37,942*** (4,864) 68,634*** (3,432) 68,545*** (3,438) 66,341*** (3,685) 67,346*** (3,622) 67,376*** (3,629) 64,662*** (3,885) 66,835*** (4,069) 66,787*** (4,077) 64,957*** (4,378)
Significant Sectors Included: - - - -
- Automobile -25,672*** (7,001) -26,957***(6,938) -26,170***(6,935) 14,776** (6,231) 14,884** (6,230) 15,344** (6,230)
- Real Estate -16,317* (8,905) -15,450* (8,896)
- Financial Services -18,824***(4,557) -18,492*** (4,589) -18,072*** (4,586) -21,215***(4,808) -21,327***(4,844) -20,802***(4,835) -21,391*** (5,402) -21,214*** (5,442) -20,865*** (5,448)
- Aerospace & defence -16,910** (6,722) -16,878** (6,727) -16,911** (6,713)
- Bank 5,519* (3,304) 7,193** (3,452) - Travel Industry -8,556* (5,140) -14,510*** (5,049) -14,504*** (5,890) -15,440*** (5,418) - General retailers -11,318** (5,689) -11,203* (5,723) -12,020**(4,835) -10,914* (6,392) -11,097* (6,429) -11,624* (6,444) - Health care -13,224* (6,768) -13,332* (6,796) -13,026* (6,775) -25,671*** (7,605) -25,500*** (6,429) -25,290*** (7,635) - Life Insurance -19,708*** (6,786) -19,763*** (6,795) -17,610** (6,860) -13,984* (7,624) -13,914* (7,634) - Chemical 12,316* (6,244) 12,417* (6,270) 12,231* (6,249) - Non-Life Insurance -17,778*** (6,041) -17,787*** (6,049) -16,297*** (6,077) - Real Estate -16,401** (7,095) -16,495** (7,117) -15,731** (7,104)
- Software & computer services -12,713** (5,883) -12,711** (5,883) -14,075** (5,912) -12,691* (6,610) -12,693* (6,618) -13,599** (6,662)
- Media -10,554* (6,381) -10,636* (6,391)
Developed / Developing
Market 29,736*** (3,752) 27,635*** (3,772) 28,234*** (3,777) 11,024*** (2,809) 11,354*** (2,856) 11,776*** (2,862) 13,739*** (2,963) 13,628*** (3,015) 14,155*** (3,017) 11,728*** (3,329) 11,905*** (3,387) 12,255*** (3,400)
Size: Market Capitalization
$m 4,344E-5** (0,00) 3,364E-5* (0,00) 3,055E-5 (0,00) -2,605E-6 (0,00) -1,062E-6 (0,00) -3,242E-6 (0,00) -9,468E-7 (0,00) -1,465E-6 (0,00) -4,191E-6 (0,00) 2,659E-5 (0,00) 2,741E-5 (0,00) 2,560E-5 (0,00)
MBA / Corporate Governance 10,221*** (3,257) 10,240*** (3,249)
ROA / Corporate Governance 0,365* (0,207)
Table 5.5.3 OLS regression results Post-Hoc Analysis Courses
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9 Model 10 Model 11 Model 12
Constant 50,225* (25,800) 52,620** (26,005) 50,871* (27,478) 71,608*** (24,204) 75,291*** (24,038) 87,740*** (24,567) 63,136** (23,562) 65,699*** (23,672) 64,951** (25,014) 44,349 (27,411) 46,326 (27,724) 47,945 (29,287)
Significant Sectors Included: - - - -
- Technology hardware & equipment -25,971* (14,622) -29,969* (14,697) -33,118* (14,486)
- Bank 18,799** (8,995) 19,700** (9,029) 20,133* (10,994) 29,038*** (10,464) 29,733*** (10,575) 28,367** (12,872)
- Pharmaceuticals & biotechnology 19,187* (10,632) 19,438* (10,626) 19,566* (10,817) 25,458** (12,369) 25,651** (12,445) 25,374* (12,665)
- Automobile 29,370** (13,665) 28,490** (13,805) 27,817* (14,396)
- Software & computer services 28,712* (15,371) 28,159* (15,482) 28,204* (15,652)
Developed / Developing Market 27,722 (24,716) 22,232 (25,547) 22,517 (25,854) 2,855 (23,187) -5,587 (23,615) -7,611 (23,124) 7,986 (22,572) 2,110 (23,255) 2,232 (23,545) 19,607 (26,260) 15,076 (27,235) 14,813 (27,566)
Size: Market Capitalization $m 2,730E-5 (0,00) 2,801E-5 (0,00) 2,485E-5 (0,00) -1,429E-5 (0,00) -1,319E-5 (0,00) 9,395E-6 (0,00) -1,401E-5 (0,00) -1,325E-5 (0,00) -1,460E-5 (0,00) -6,572E-6 (0,00) -5,983E-6 (0,00) -3,050E-6 (0,00)
Courses / Corporate Governance 5,502 (6,242) 5,602 (6,325)
ROA / Corporate Governance 17,666 (80,508)
6. DISCUSSION
The review of previous academic literature shows that the relationship between CEOs’ educational background and their company’s outcome is still unclear. In this research, I suggest that during their MBA, CEOs attended courses such as Business Ethics, CSR, Leadership and Sustainability. Therefore, their better knowledge in this specific field of study might positively influence their propensity to undertake opportunities from the implementation of CSR strategies thus increasing their company’s CSR performance.
Hypothesis 1 shows a non-significant result, and consequently the outcomes fail in supporting the direct relationship between MBAs and CSR performance. Although this outcome comes partly as a surprise, the results need to be carefully interpreted. Many studies claim that when analysing CSR strategic decisions, several aspects can influence the managers’ choices.
Firstly, new-institutional theory can provide an explanation to the results of the analysis. Inertial and isomorphic pressures can constraint managers leaving them with only a minor influence over their organisational outcomes (DiMaggio, & Powell, 1983). Thereby, even though CEOs with MBAs perceive CSR as a potential profitable investment, it is possible that CEOs without an MBA also invest in CSR due to institutional pressures. In other words, when analysing companies’ social commitment, it is necessary to understand to what extent the CEOs choice is actually free, and what role is played by external agents. Whilst stakeholders in developed countries can require companies to implement higher sustainable standards, in developing countries the company’s social commitment can be perceived as less relevant or even inefficient (Gjølberg, 2009). This argument is also in line with the significant effect retrieved in the control variables (Developed / Developing market p < 0,01). Moreover, in contrast with the strategic perspective, institutional theory suggests that CSR implementation is the result of the isomorphic pressures derived from three main sources: government coercion, communities and mental constraints (DiMaggio, & Powel, 1983). Some authors have argued that instead of adopting a strategic approach in the CSR decision making process, it is possible that firms simply apply the organisational logic pertinent to their product market to CSR (Husted, & Allen, 2006).
In this study, I consider CEOs with an MBA more inclined to undertake profitable opportunities connected with CSR activities. Therefore, on the basis of previous studies, I suggest that due to their greater knowledge of ethical issues, they are more conscious about the importance of companies’ social commitment, and consequently they tend to place an emphasis on CSR activities. However, what I did not consider is the possibility that due to their lack of competences in the field of companies’ social commitment, CEOs without an MBA might adopt imitating behaviours to reduce uncertainty, thus increasing their CSR activities.
To summarise, new-institutional economies can provide a first explanation as to the reason why the results reported in the analysis depict a non-significant relationship between CEOs’ with an MBA and their company’s CSR performance. Firstly, institutional pressures can constrain managers by reducing their influence over their firm’s outcome. Consequently, CEOs without an MBA might implement CSR activities only to increase their legitimacy. Moreover, according to institutional theorists, this phenomenon can be strengthened by a higher level of uncertainty that CEOs without an MBA have to tackle when investing in CSR practices. An increased level of uncertainty might lead CEOs without MBAs to adopt imitating patterns increasing their CSR activities.
Besides the argumentations underlined in the new institutional economies, another aspect that has to be taken into account when interpreting the results of the research is connected to the nature of the sample considered, namely the size of the company. Despite the significant difference between the size of the companies included in the sample, these firms were selected within the 500 companies which had the highest market capitalisation.
Many authors have identified firm size as a key variable that is able to significantly influence the firm’s implementation of CSR activities (Lima Crisostomo et al., 2014; McElroy, & Siegfried 1985; Adams, & Hardwick, 1998). Specifically, larger companies have access to broader financial resources and infrastructures, and therefore they are facilitated when implementing CSR activities (Lima Crisostomo et al., 2014). However, another aspect that has to be considered is that larger companies are also more likely to be highly visible and therefore to be more exposed to stakeholder pressures. The concept of business exposure has been introduced by Miles (1987) to explain the greater attention that more exposed companies have to pay on external environmental pressures.
Particularly, the study conducted by Saiia (2000) examines 126 American companies and discovers that companies with high exposure, not only are more interested in undertaking philanthropic donation, but they are also highly motivated from a strategic perspective.
All these studies suggest that a company size plays a crucial role in defining a company’s implementation of CSR activities. In line with previous scholars, in this research, a firm’s size results appears to be significantly correlated with the CSR performance; however, this effect is very weak (3,030E-5).
Selecting a sample among the world’s largest companies might influence the significance of the direct relationship between CEOs with MBA and companies’ CSR performance. Specifically, even though some CEOs did not attend an MBA programmes, it is possible that they enhance the social commitment of their company only because they are more exposed to stakeholder pressures.
Another point that has to be considered is the possibility that even if the CEOs are more inclined to undertake CSR activities, the strategic decisions are delegated to other executives in the Top Management Team (TMT), leading to a significant reduction of the direct relationship’ effect.
Recent studies have underlined a new emergent trend, namely the implementation of TMT positions specifically dedicated to the development of the CSR strategy. These executives, commonly known as “Chief Sustainability Officers”, have replaced the CEOs in the strategic realisation of CSR policies along the upper echelons of some of the largest world corporations. The reason behind the introduction of these positions has been connected to the increased pressure that stakeholders exert on companies when requiring sustainable standards (Strand, 2013; Wiengarten, Lo, & Lam, 2015).
Studying the effects of the introduction of Chief Sustainability Officers, Wiengarten et al. (2015) find hiring executives that specifically work to develop a CSR strategies is an effective way to improve a company’s financial performance. Particularly, the addition of a Chief Sustainability Officer to the TMT can significantly improve the value of firm’s ROA. Hiring a chief officer of CSR is a way for the company to show its sustainable and social commitments to the stakeholders. Therefore, this practice can positively affect the image of the firm and act as a signal for employees, customers and other stakeholders. The direct effect on the ROA is derived from the fact that this positive image can subsequently materialise in an increasing number of the sales. Moreover, this direct positive effect on the company’s financial performance acts as an incentive for the other TMT’s executive to increase the importance of CSR strategy and consequently to enhance the role of Chief Sustainability Officer (Wiengarten et al., 2015).
important to specify that this practice is not in contrast with the argumentations proposed in the theoretical part, as the CEOs are still able to inject their values and competences in companies’ strategic choices. However, when another executive directly works on the development of CSR strategy, this effect can be mitigated.
Finally, I suggest another possible explanation that would explain the non-significant results reported in this research. Many years after their MBA, it is possible that CEOs no longer apply the concepts they acquired during their educational path. In other words, even though CEOs might be more inclined to invest and undertake CSR activities after their MBA, this propensity might decrease overtime.
A previous study has also supported this phenomenon; specifically, in the paper of Barkema and Shvyrkov (2007). They justify the non-significant effect between TMT educational diversity and their company’s likelihood of investing in new foreign markets, by claiming that this could be related to the experience that executives gained during their job’s career. Managers that reach the highest echelon in their multinational companies have usually expanded their experiences working in several different setting and positions, growing their working skills. Consequently, it is possible that after decades the competences acquired during their MBA programmes are not a good proxy to assess the perception that CEOs have of CSR activities (Barkema, & Shvyrkov, 2007).
The moderation effect of previous financial performance on the relationship between CEOs’ MBA and their company’s CSR score explained in Hypothesis 3, also shows a non-significant result. Similar to the previous case, this outcome needs to be carefully interpreted.
In line with the earlier considerations, the CSR activities undertaken by CEOs might be the result of external environmental pressures and isomorphic behaviour of companies within a specific institution. Therefore, the decision of enhancing CSR expenditures might be perceived by companies as something necessary and consequently not dependent on the firms’ financial performance. Despite CEOs without an MBA may consider CSR as something inefficient, they might be forced by governments, stakeholders, and other institutions to achieve specific standards. Consequently, this practice can significantly influence the moderation role of the ROA on the direct relationship.
Hypotheses 2 and 4 also show non-significant results. All the considerations that have been previously analysed can be applied in order to explain the factors that could have influenced the research’s outcome. Therefore, institutional pressures, companies’ highly exposure, delegation of the CSR strategies’ implementation to Chief Sustainability Officers, and experience gained by CEOs can influence the relationship between CEOs educational background and CSR’s score. These effects lead to a decrease in the significance of the content provided by universities when teaching ethical issues. Moreover, these practices can also reflect on the moderation role that previous financial performance play in the direct relationship.
Finally, it is necessary to spend some time discussing the results of the Post-Hoc analysis. The examination has been conducted in order to understand whether the independent variables can significantly affect at least one of the four indicators that create the ASSET4 CRS index. All the tests conducted to investigate the relationship between the number of the ethical courses included in the MBA programmes and the scores of the four CSR indicators show a non-significant effect. However, a significant positive effect has been found between CEOs with MBAs and the CG indicator (p < 0,01).
This result is actually quite interesting, and it can be considered in line with the argumentations presented in the first part of the discussion. ASSET4 defines the CG score on the base of several indicators that evaluate practices and systems which ensure that boards and executives act in the interest of shareholders. These indicators evaluate the capabilities of the company to develop managerial practices that increase shareholders’ values through the use of incentives, and transparency (Blank, 2013).
These practices that aim to enhance incentives and transparency can motivate new shareholders to invest in the company, thus increasing the firm’s financial resources. Therefore, implementing these kinds of policy can be considered as a strategic choice. The results of the Post-Hoc analysis shows that CEOs with an MBA may be more capable of acquiring new investors through the implementation of a sustainable corporate governance.
