The Influence of the CEO´s Demographic Characteristics on the Firm´s
Corporate Social Performance taking the CEO´s International Experience
into Account
Master Thesis Franziska Harlos f.harlos@student.rug.nl
S2510111
MSc International Business and Management
21st January 2019
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ABSTRACT
The following master thesis investigates the relationship between the CEO´s demographic characteristics and firm´s corporate social performance (CSP). Special attention is paid to the mediator variable firm´s mission statement. Furthermore, the CEO´s international experience is investigated as a potential moderator of the relationship between the firm´s mission statement and firm´s CSP. Therefore, this thesis aims to specifically analyse how the CEO´s demographic characteristics, consisting of CEO´s age, CEO´s education and CEO´s gender, influence their firm´s corporate social performance while taking the potential mediating effect of the firm´s mission statement and the potential moderating effect of the CEO´s international experience into account. The research sample consists of 111 European companies by drawing on the FTSEurofirst 300 Index. The findings suggest that the impact of the CEO´s characteristics on the firm´s CSP are rather small in this particular sample. Solely the CEO´s education yields a significant result. The CEO´s education appears to have a positive impact on the firm´s CSP. The CEO´s age and the CEO´s gender do not have an impact on firm´s CSP. Moreover, a moderating effect of the firm´s mission statement or a mediating effect of the CEO´s international experience cannot be proven.
Keywords: CEO´s demographic characteristics, mission statements, CEO´s international
experience, corporate social responsibility, corporate social performance
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ACKNOWLEDGEMENT
4 TABLE OF CONTENTS ABSTRACT ... 2 ACKNOWLEDGEMENT ... 3 List of Figures ... 5 List of Tables ... 5 List of Abbreviations ... 6 1. INTRODUCTION ... 7 2. LITERATURE REVIEW ... 10
2.1 CEO´s demographic characteristics and CSR ... 10
2.2 Firm´s mission statements and CSR practice ... 13
2.3 CEO and international experience ... 15
3. HYPOTHESIS ... 17
3.1 CEO´s demographic characteristics and firm´s mission statements on CSR ... 17
3.1.1 Age and firm´s mission statements on CSR ... 17
3.1.2 Education and firm´s mission statements on CSR ... 18
3.1.3 Gender and firm´s mission statements on CSR ... 18
3.2 Firm´s mission statement and CSP ... 19
3.3 The role of international experience in the relationship between mission statement and CSP ... 19
4. METHODOLOGY ... 21
4.1 Data and sample ... 21
4.2 Variables ... 22 4.2.1 Independent variables ... 22 4.2.2 Dependent variable ... 23 4.2.3 Mediator ... 24 4.2.4 Moderator ... 25 4.2.5 Control variables ... 25 4.3 Analysis ... 27 5. RESULTS ... 28
5.1 Descriptive statistics and correlation analysis ... 28
5.2 Linear regression analysis ... 32
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6. DISCUSSION ... 39
6.1 Theoretical and practical implications ... 41
6.2 Limitations and future research ... 42
7. CONCLUSION ... 44
8. REFERENCES ... 45
APPENDICES ... 50
Appendix A: Overview of the sample ... 50
Appendix B: ESG scores ... 53
Appendix C: Keywords in the mission statements ... 55
Appendix D: Frequency tables ... 63
Appendix E: Detailed content analysis mission statements ... 64
Appendix F: Detailed overview of CEO´s international experience ... 64
List of Figures Figure 1 - Conceptual model ... 20
List of Tables Table 1 - Sample distribution based on country ... 22
Table 2 - Sample distribution based on industry ... 22
Table 3 - Descriptive statistics ... 30
Table 4 - Pairwise correlation matrix ... 31
Table 5 - Linear regression results (∆ESG score) ... 33
Table 6 - Linear regression results (∆ENV score) ... 36
Table 7 - Linear regression results (∆SOC score) ... 37
Table 8 - Linear regression results (∆CGV score) ... 38
6 List of Abbreviations
CEO Chief Executive Officer
CSR Corporate Social Responsibility CSP Corporate Social Performance
ESG Environmental, Social and (Corporate) Governance
ENV Environmental
SOC Social
CGV Corporate Governance
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1. INTRODUCTION
Much attention has been paid to the role chief executive officers (CEOs) personal characteristics play in organisations since upper echelon theory entered the stage in 1984 (Hambrick and Mason, 1984). Upper echelon theory caused researchers to divert their focus to important demographics such as age, gender, education level or the CEO´s functional background. One aspect that has been growing in importance especially due to the rise of globalisation and our interconnected world is the role of international experience in top management (Derda, 2017). However, this phenomenon is also said to be relatively young and only presented in a small number of journals so far according to Derda (2017).
Another topic that has gained considerable attention during the last years is corporate social responsibility (CSR). CSR has been defined by Carroll (1983) as the conduct of business so that it is economically profitable, law abiding, ethical and socially supportive. Most companies have realised that a successful CSR strategy actually yields many benefits for them – including a positive impact on a firm´s overall financial performance (Cochran & Wood, 1984; Margolis et al., 2009; Orlitzky et al., 2003). For instance, Porter and Kramer (2006) encourage companies to view CSR as much more than a cost, a constraint, or a charitable deed. Rather it should be viewed as a source of opportunity, innovation and competitive advantage since CSR forces companies to forge new strategies that combine the interests of both businesses and society. Furthermore, Porter and Kramer (2006) consider CSR to become increasingly important to competitive success. Thus, most companies have implemented nowadays at least some form of CSR.
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since a firm´s mission statement is considered to function as a tool for ethical reinforcement within the firm (Alegre et al., 2018) and is predominantly drafted by the CEO and top management (Baetz and Bart, 1996).
The CEO´s demographic characteristics are assumed to influence the firm´s CSP based on previous research results (Mazereeuw-van der Duijn Schouten et al., 2014; Chin et al., 2013; Waldman et al., 2006; Fabrizi et al., 2014; Manner, 2010). This thesis will consider in particular the CEO´s age, education level and gender and aims to contribute to recent research by testing whether the CEO´s international experience acts as moderating factor and the firm´s mission statement as a mediator in this relationship between the CEO´s demographic characteristics and the firm´s CSR performance. Therefore, the research questions this thesis tries to answer are:
1) Do firm´s mission statements act as a mediator between the CEO´s demographic characteristics and firm´s CSP?
2) How does the CEO´s international experience affect their firm´s CSP?
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The findings suggest a limited influence of the CEO´s demographic characteristics on firm´s CSP. Merely, the CEO´s educational level impacts firm´s CSP. A positive relationship between the CEO´s educational level and firm´s CSP can be proven. The age and gender of the CEO do not yield any significant results. Moreover, the mediating role of the firm´s mission statement between CEO´s demographic characteristics and firm´s CSP cannot be confirmed. The assumption that the CEO´s international experience influences the relationship between firm´s mission statement and firm´s CSP can also not be proven.
Regarding the theoretical relevance of this thesis, the aim is to fill the gap in recent research on whether a firm´s mission statement acts a mediator between the CEO´s demographic characteristics and firm´s CSP. Hence, it will become clearer if firms which actively commit themselves to CSR in their mission statements also exhibit higher CSP levels. Secondly, the moderating influence a CEO´s international experience might have on the relationship between the CEO´s demographic characteristics and their firm´s CSP will be analysed in order to contribute to research on how the CEO´s international experience impacts the firm.
The practical relevance this paper has to offer is that boards and companies will know whether its pays off CSR speaking-wise to look for a CEO that has international experience when staffing this position. Meaning that, a CEO with international experience could result in the firm exhibiting greater CSP. Moreover, when developing future leaders inside the company, firms may consider to include an international assignment or global posting as part of their professional development process, if they know it contributes positively to the firm´s future CSP.
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2. LITERATURE REVIEW
One significant debate regarding CSP concerns whether the CSP of a company is driven externally or intrinsically. Many researchers argue CSP is mainly determined externally by factors such as self-regulation pressures due to globalisation. This ongoing development increases institutional and customer pressures on firms to surpass local requirements (Christmann & Taylor, 2001). Others advance that regulatory pressures from the government play a central role in the CSP of a company (Campbell, 2005). Furthermore, demands made by consumers who are becoming more conscious themselves force pressures on corporations to act more ethically according to Maignan (2001). Even the local community in which firms operate and whose resources they use can be a driving factor in forcing companies to become more socially responsible in their operations (Marquis et al., 2007). However, intrinsic determents of CSR (Petrenko et al., 2016; McCarthy et al., 2017; Mazereeuw-van der Duijn Schouten et al., 2014; Chin et al., 2013; Fabrizi et al., 2014; Manner, 2010; McGuire et al., 2003) are playing an increasing role in recent research as well. This view is anchored in upper echelon theory which advocates that organisational outcomes, in the sense of strategic choice and performance levels, are partially predicted by demographic characteristics of top management (Hambrick & Mason, 1984). Therefore, this thesis has its theoretical foundations in upper echelon theory by setting its focus on the CEO level.
2.1 CEO´s demographic characteristics and CSR
CEO´s demographic characteristics and their influence on CSR have been investigated from several perspectives. Mazereeuw-van der Duijn Schouten et al. (2014), for instance, look into the relationship between Christian religiosity, attitudes towards CSR behaviour and strategies of executives. In their research, they find a positive relationship between executives’ intrinsic religiosity and the attitude to CSR as an ethical responsibility and, moreover, a positive relationship between executives’ extrinsic religious orientation and their attitude to CSR as a philanthropic responsibility.
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between a CEO’s political ideology and CSR is increased by a CEO’s relative power. Thirdly, liberal CEOs emphasise CSR even when recent financial performance is low as opposed to conservative CEOs who will pursue CSR initiatives only when their companies´ performance allows. Thus, it seems that conservative CEOs view CSR initiatives as optional acts of corporate citizenship that can be selectively undertaken as financial conditions permit.
Moreover, Fabrizi et al. (2014) investigate the role of CEO´s personal incentives on CSR. Apparently, both, monetary and non-monetary incentives have an influence on CSR. Monetary incentives, such as bonus payments and value changes in the CEO´s stock portfolio, have a negative impact on CSR. Fabrizi et al. (2014) assume that when the CEO´s private interests are intertwined with those of the shareholders, the CEO is less likely to invest in CSR. On the other hand, non-monetary incentives (e.g., career concerns or power motives) are said to have a positive influence on CSR. According to Fabrizi et al. (2014), when a CEO has low career concerns, they are more likely to engage in CSR. Additionally, the more power a CEO possesses, the more likely it is, that they will invest in CSR. Other studies (Manner, 2010; McGuire et al., 2003), look at how the CEO´s salary and their CSR efforts and firm´s CSP are related. A firm´s CSR is negatively related with the CEO´s level of short-term compensation, however, the same results could not be found for long-term compensation (Manner, 2010). Based on McGuire et al. (2003), the CEO´s salary and long-term incentives are positively related to weak social performance.
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charismatic or not, are still confronted with financial constraints and the demands of the stakeholders and their respective views on CSR (Waldman et al., 2006).
This thesis looks in particular at a CEO´s age, education and gender and their effect on a firm´s CSR. Firstly, it is already well known that young consumers, specifically the so called generation Y (born between 1978 and 1994), tend to be more socially, economically and environmentally conscious (Hume, 2010). Thus, one could assume that similar results hold for executives, meaning that, for instance, the younger they are the more sustainable and responsible their business endeavours might be. Wiersema and Bantel (1992) show that age has indeed an effect on strategic decision-making in the sense that younger managers are more open to change and less risk-averse. Considering that CSR is also part of strategic decision-making it could be expected that there is indeed some effect. Moreover, Borghesi et al. (2016) find that younger CEOs invest more in CSR. However, others (Huang, 2013; Petrenko et al., 2016) do not find any evidence for the CEO´s age affecting firm´s CSP. Fabrizi et al. (2014) arrive at the same result stating that younger CEOs tend to invest less in CSR as compared to older CEOs. They reasoned that younger CEOs are more focused on short-term performance, whereas older CEOs are said to be less focused on market pressures since they are closer to retirement. Thus, older CEOs experience lower career concerns and do not feel pressured to prove their capabilities anymore. Therefore, they are, according to Fabrizi et al. (2014), more likely to invest in CSR. In summary, it can be concluded, that the state of research on the relation between CEO age and CSR remains ambiguous.
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Lastly, considering the gender of the CEO evidence is quite clear. According to Hyun et al. (2016), female directors are more likely to express their concerns about CSR, and such concerns will gain more support from other members of the organisation. This effect becomes even more apparent when the company is operating in markets where the reputation for CSR matters for market and financial success. Moreover, Manner (2010) suggests that having a female CEO is positively and significantly related to having a proactive corporate social performance. Additionally, Haski-Leventhal et al. (2015) find that female business students already place a higher value on the firm´s ethical responsibilities than their fellow male class-mates. Additionally, Borghesi et al. (2016) also observe that female CEOs are more likely to invest in CSR.
2.2 Firm´s mission statements and CSR practice
The mission statement of a firm, also called value statement, serves as a tool to outline an organisation´s uniqueness and identity (Alegre et al., 2018). Alegre et al. (2018) argue that the norms and values of the company are written down in order to guide the employees while they are working on achieving the purpose of the company. Generally speaking, mission statements promote the establishment of accepted behaviour standards, help employees to identify with the organisation, and create a set of shared values. Thus, the mission statement is seen as a tool for ethical reinforcement within the firm. Baumgartner (2014), for instance, considers mission statements as part of normative management since they encompass the vision of the company.
Regarding the creation of the mission statement, Baetz and Bart (1996) find that the top management team is the group most involved in drafting the mission statement. The CEO is said to be the second most involved figure. Beyond these two categories, there is a noticeable decrease in participation rates concerning the mission statement. Therefore, it is evident that the CEO and the top management team play vital roles in determining the content of a firm´s mission statements.
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those universities achieved better results in sustainability ratings. Moreover, their research findings indicate that private universities and non-religious affiliated universities are more likely to include sustainability concerns in their mission statements than public universities or schools with a religious background. A second study arrives at similar conclusions. Bartkus and Glassman (2008) analyse how mission statements and stakeholder management are possibly linked. Based on their findings, firms which include social issues in their mission statements such as the environment or diversity are more likely to exhibit behaviour regarding these issues. Even though social issues are said to be included less often, once they are included, it usually results in greater performance in these areas. Therefore, it seems that mission statements could exercise a mediating effect between the intention to commit to CSR and actually also exercising those CSR commitments.
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2.3 CEO and international experience
The existing literature regarding international experience in the context of upper echelon theory is mostly based on North American multinational companies (Derda, 2017). Hence, Derda (2017) advises being cautious in transferring the study results to European firms since small and medium-sized companies are making up an existential part of the economies of the European Union. Considering that this thesis uses a sample that consists of the biggest European multinationals Derda´s (2017) concerns should apply only on a minor scale in this specific thesis.
Different studies show that a CEO´s international experience has an impact on an array of areas. Firstly, Rivas (2012) looks at the impact of the international experience of CEOs and top management teams on the degree of internationalisation of the firm. The results are clear – there exists indeed a positive relationship (Rivas, 2012). The more international experience the CEO and top management possess, the more likely it is that the firm will internationalise (Rivas, 2012),
Furthermore, based on Le and Kroll (2017), a CEO´s international experience is positively influencing a firm´s performance and strategic change. They argue that these positive effects are due to the enhancement of the CEO´s international knowledge and general competence that the CEO has gained while being abroad.
Moreover, Rodenbach and Brettel (2012) find that CEO´s international experience has a positive influence on the use of dynamic marketing and R&D capabilities in firms. According to Rodenbach and Brettel (2012), dynamic capabilities involve adaptation and change in the sense that organisations are able to react to changing environments. They reason that international experience plays a role in developing these dynamic capabilities.
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3. HYPOTHESIS
3.1 CEO´s demographic characteristics and firm´s mission statements on CSR
Based on the literature, it is evident that the CEO´s demographic characteristics seem to play a significant role regarding a firm´s CSP, such as religion (Mazereeuw-van der Duijn Schouten et al., 2014), political ideologies (Chin et al., 2013), compensation (Fabrizi et al., 2014; Manner, 2010) or leadership styles (Waldman et al., 2006). For this study, the CEO´s age, education and gender are considered in particular when investigating a CEO´s demographic characteristics. Moreover, a firm´s mission statement is primarily drafted by the top management teams and CEOs (Baetz & Bart, 1996) and is intended to outline the norms and values of the company (Alegre et al., 2018). Therefore, it is assumed that the CEO´s age, education level, and gender will play a determining role in whether and how firms express their commitment to CSR in and through their mission statements. Thus, the mission statement is hypothesised to function as a mediator between the CEO´s demographic characteristics and firm´s CSP. It is suspected that the influence of the CEO´s demographic characteristics on firm´s CSP will be reflected firstly in the mission statement.
3.1.1 Age and firm´s mission statements on CSR
Wiersema and Bantel (1992) imply that age has an effect on strategic decision-making in the sense that younger managers are more open to change and less risk-averse. Borghesi et al. (2016) also find that younger CEOs are more likely to invest in CSR. Nevertheless, many others reject the notion that the CEO´s age and the firm´s CSP are significantly correlated (e.g., Huang, 2013; Petrenko et al., 2016). Fabrizi et al. (2014) arrive at the same result stating that younger CEOs tend to invest less in CSR as compared to older CEOs due to differing career concerns. Even though previous research results deliver contradicting findings, it is assumed that the older CEOs are, the more likely they are to value CSR by expressing its importance in the firm´s mission statement.
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3.1.2 Education and firm´s mission statements on CSR
Manner (2010) advocates that depending on the degree a CEO holds, their CSP level differs. According to Manner (2010), holding a bachelor´s degree in economics results in lower levels of CSP, whereas, holding a bachelor´s degree in humanities or any other social science results in higher levels of corporate social performance. Huang (2013) offers similar findings since according to Huang (2013) a firm´s CSP is related to the CEO´s educational specialisation. Holding an MBA or MS degree is associated with a higher CSP performance, whereas, holding a BS, BA, MA, and a Ph.D. degree or a high school diploma does not appear to have an influence on CSP. Moreover, Armon and Dawson (1997) propose that education levels and moral reasoning are positively correlated. Hence, one might assume that the higher the education level of CEOs is the higher their commitment to expressing CSR in the firm´s mission statement will be.
H2: A CEO´s education level is positively related to the emphasise of CSR in the firm´s mission statement.
3.1.3 Gender and firm´s mission statements on CSR
Evidence of the influence of the CEO´s gender on CSR is clear. According to Hyun et al. (2016), female directors are more likely to express their concerns about CSR, and such concerns will gain more support from other members of the organisation. Additionally, Manner (2010) confirms that having a female CEO is positively and significantly related to having a proactive corporate social performance. Borghesi et al. (2016) observe as well that female CEOs are more likely to invest in CSR. Haski-Leventhal et al. (2015) show that these differences already exist among students since the authors suggested that female business students already place a higher value on the firm´s ethical responsibilities than their fellow male class mates. Thus, it is assumes that a CEO of female gender is more likely to emphasise CSR in the firm´s mission statement.
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3.2 Firm´s mission statement and CSP
Relying on the work of Baetz and Bart (1996), who propose that the top management teams and the CEO are the two parties who are the most involved in drafting the mission statement, it is evident that these two have a huge influence on the content of the firm´s mission statement. Hence, it can be assumed that their demographic characteristics and convictions play a pivotal role in drafting the mission statement and its content. Moreover, Lopez and Martin (2018) show that universities, which include sustainability in their mission statements, are more likely to receive higher ratings in sustainability ratings. Secondly, Bartkus and Glassman (2008) suggest as well that there is evidence for a positive relationship between including social issues in a mission statement and excelling in these areas. Therefore, it is proposed that the firm´s mission statement serves as a mediator between the CEO´s personal characteristics and the actual CSP of the firm. The more CSR is being emphasised in the mission statement, the higher the firm´s CSP will be.
H4: The firm´s mission statement acts as a mediator and positively influences the firm´s CSP.
3.3 The role of international experience in the relationship between mission statement and CSP
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Thus, it is assumed that the international experience of the CEO affects the relationship between the firm´s mission statement and the firm´s CSP. The more international experience a CEO possesses, the stronger this relationship will be and the higher the firm´s CSP will be.
H5: The CEO´s international experience has a moderating effect on the relationship between the firm´s mission statement and their CSP, so that the precedence of the CEO´s international experience results in greater CSP.
Figure 1 presents the conceptual model. It is based on the assumption that the CSP of the firm is influenced by the CEO´s demographic characteristics. It is assumed that an increase in the independent variables education and age has a positive impact on the firm´s CSP. The independent variable gender is assumed to have a positive effect when the CEO is of female gender. Furthermore, the firm´s mission statement is thought to function as a mediator between the CEO´s characteristics and the firm´s CSP. Moreover, the relationship between the mediator firm´s mission statement and the dependent variable firm´s CSP is potentially positively influenced by the moderator variable CEO´s international experience. Meaning, the more international experience a CEO possesses, the stronger this relationship will be.
Individual level Firm level
CEO´s demographic characteristics H1 + + H2 + H4 H3 + H5 + CEO´s age CEO´s education CEO´s gender
Firm´s mission statement Firm´s corporate social performance
CEO´s international experience
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4. METHODOLOGY
4.1 Data and sample
The data used in the analysis are of quantitative nature. The aim is to analyse the relationship the CEO´s demographic characteristics and firm´s CSP while taking the CEO´s international experience as a possible moderating factor into account. Moreover, the firm´s mission statement is considered to function as a mediator.
22 Austria 1 Netherlands 10 Belgium 2 Norway 3 Denmark 4 Portugal 1 Finland 3 Spain 1 France 21 Sweden 10 Germany 16 Switzerland 11 Ireland 3 UK 23 Italy 1 Total 111 Luxembourg 1
Table 1 - Sample distribution based on country
Basic materials 13 Oil and gas 6
Consumer goods 24 Technology 6
Consumer services 11 Telecommunications 6
Industrials 27 Utilities 8
Health care 10 Total 111
Table 2 - Sample distribution based on industry
4.2 Variables
4.2.1 Independent variables
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4.2.2 Dependent variable
The dependent variable firm´s CSP is measured by using the Thomson Reuters ESG score that is available via DataStream (Appendix B). Thomson Reuters ESG score is the replacement of the well-known Asset4 database which has been used in other studies on CSR (Aouadi & Marsat, 2018; Cheng et al., 2012; Chollet & Sandwidi, 2018; Luo et al., 2015). The ESG score is intended to measure a company´s relative environmental, social and corporate governance performance, commitment and effectiveness (Thomson Reuters, 2018). The score is aggregated based on company-reported data and consists of three pillars - the environment, social and corporate governance. These three pillars are made up of ten categories in total. The environmental pillar assesses a company´s impact on the environment by considering its use of resources, emission level and rate of innovativeness when reducing the environmental costs while developing new technologies and products (Thomson Reuters, 2018). The social pillar looks at the treatment of the workforce, respect for human
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4.2.3 Mediator
The mediator variable firm´s mission statement is analysed qualitatively and quantitively by conducting a content analysis (Appendix C). The aim is to collect information on if and how CSR is being emphasised in the firm´s mission statement. Based on Berkus and Glassmann (2008) who concluded that the terms mission statement, vision, philosophy, value and goals are interchangeably used in theory and practice I will also follow a broader definition of the term mission statement when collecting and analysing the firm´s individual mission statements. Hence, statements that include some of the following elements: mission, value, vision, purpose, goal, aim, ambition and philosophy are included in the analysis. These statements are collected via the official websites of the investigated firms. Secondly, the frequency of certain keywords is counted. Bartkus and Glassman (2008) included keywords such as community/society/world, environment, diversity, employees, and customers. Lopez and Martin (2018) took a more elaborate approach. They collected the frequency of the following key words from universities´ mission statements: sustainability, sustainable, sustained, sustaining, socially responsible, social responsibility, environmental, justice, equity and stewardship. This thesis counts the following keywords when assessing the firm´s mission statements on their CSR intentions:
• Sustainability, sustainable, sustain • Responsibility, responsible
• (Corporate) social responsibility, social, socially • Environment, environmental
• Community, society • Renewable
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4.2.4 Moderator
The moderator variable CEO´s international experience is acquired by checking the CV of said CEO which is usually provided by the corporate website. In some cases, the corporate website only outlines some very limited information on the CEO. In that case, the personal profiles of the CEOs on Bloomberg and LinkedIn fill in the missing information. As opposed to Slater and Dixon-Fowler (2009), who only look at international assignment experience when measuring the international experience of a CEO, this thesis takes a broader perspective by also considering other ways of gaining international experience. Thus, one point is allocated for each occasion when the CEO gained international experience. Finally, the points are summed up to create a final value for the variable CEO´s international experience. The CEO´s international experience is collected in the form of:
• Dual nationality • Study abroad • Job postings abroad
4.2.5 Control variables
The following control variables are used that could serve as an alternative explanation for the observed study results. On the individual level, it is inquired whether the CEO has been promoted to their CEO position from within or outside the firm, their annual compensation and their nationality are used as control variables.
Outside or inside recruitment is included since outsiders might feel more inclined to depart from previous strategies and forge their path by changing firm direction (Herrmann and Datta, 2002). Whether a CEO has previously fulfilled a position within the company or was externally recruited for the position as CEO can be found by consulting BoardEx or alternatively by looking into their CV. This variable is coded as a dummy variable with 0 for outside recruitment and 1 for inside recruitment. Furthermore, the compensation of the CEOs has an influence on CSR (Manner, 2010). Hence, it will be controlled for in the analysis. The compensation of the CEOs is listed in the FTSEurofirst 300 Index or alternatively on Bloomberg.com for which the information is provided by S&P Global Market Intelligence.
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Europe is utilised with 0=outside Europe and 1=inside Europe. The underlying assumption is that a CEO of European origin might feel more committed to CSR when he is holding a position in his home region.
On the firm level, firm size, firm age, industry, return on equity (ROE) and the percentage of foreign sales in relation to total sales are used as control variables.
The firm size of each company is measured by employee number. The data is retrieved from DataStream. Based on Hyun et al. (2016), firm size could be related to CSR because larger firms are more prominent and thus, might face more attention from consumers, the media and the general public which leads them to engage more in CSR in order to look good. Hence, firm size will be included as a control variable on the firm level.
The firm´s age and industry are standard control variables and have been used in many other studies on which this thesis is building on such as Manner (2010) who also includes them as control variables because Manner (2010) reasoned that these variables have been found to be associated with the level of corporate social performance and the characteristics of the CEO. The founding year, implying the firm´s age is provided by the database Orbis. The industry a company operates in is mentioned in the FTSEurofirst 300 Index from which the sample is drawn. The industry is coded as a categorical variable with 1=basic materials; 2=consumer goods; 3=consumer services; 4=industrial; 5=health care; 6=oil and gas; 7=technology; 8=telecommunications and 9=utilities. As stated earlier, the financial sector is being disregarded in the analyses since it is not considered to be a polluting sector.
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4.3 Analysis
The research approach is a deductive one since a theory has been developed and hypotheses have been derived from this theory. Hence, these hypotheses are now being tested in order to confirm or reject them. An inductive approach would not be suitable for this study since the goal is not to form a theory out of hypotheses by making observations first.
The study draws on quantitative data. By following the outlined methodology, it should be ensured that the research design and the earlier proposed theoretical framing fit. Firstly, all elements of the conceptual model are being integrated in order to test the derived hypotheses. Thus, the theory should be thoroughly reflected in the intended research design. Additionally, procedures that have been proven successful in other studies such as the ESG score to measure CSP (Aouadi & Marsat, 2018; Cheng et al., 2012; Chollet & Sandwidi, 2018; Luo et al., 2015) are being used again. Stata/SE 15.0 is the statistics software that is used for analysing the descriptive statistics, the correlation matrix and conducting the linear regression analysis.
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5. RESULTS
The results of the statistical analysis are structured the following way. Firstly, the descriptive statistics are presented after which a pairwise correlation analysis follows. Thereafter, continues the regression analysis.
5.1 Descriptive statistics and correlation analysis
Table 3 provides the descriptive statistics of the variables used in the study. Firstly, the independent variables are analysed. The mean CEO age is 51.05 (SD=5.69). The mean of the variable CEO gender yields 0.05 (SD=0.23) highlighting the fact that, based on the frequency table (Appendix C), only six out of the 111 CEOs in this study are of female gender. The average CEO´s education level amounts to 2.98 (SD=0.60) implying that the average CEO in the sample holds a Master´s degree. When looking at the frequency table one can see that out of 111 CEOs, 77 hold a master´s degree (Appendix D).
The dependent variable firm´s CSP which is measured by looking at the change in the ESG score from the year of the CEO´s appointment and the year prior to that yields a mean of -0.32 (SD=15.54). This indicates that, on average, the ESG score actually went down after the CEO´s appointment.
The mean CEO´s international experience is 1.13 (SD=0.74). Considering that the minimum for international experience is zero and the maximum three, one could say, that the average CEO possesses moderate international experience (Appendix D). According to the sample, 8 CEOs hold dual nationality, 28 have been abroad for study purposes, and 88 have had international job postings (Appendix F).
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statements. Most often mentioned are sustainability, sustainable, sustain (33 times), after which
responsibility, responsible and environment, environmental follow which are both included 23
times. Community, society is counted 22 times, whereas (corporate) social responsibility,
social, socially amounts to 15 times. The least frequent keyword that is included in the mission
statements is renewable (twice).
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Variable Obs Mean Std. Dev. Min Max
CEO age CEO gender CEO education ∆ESG score
CEO intl. experience 111 111 111 111 111 51.0450 0.0540 2.9819 -0.3219 1.1261 5.6927 0.2271 0.6027 15.5397 0.7399 34 0 1 -40.45 0 66 1 4 48.42 3 Mission statement CEO promotion CEO compensation CEO nationality Industry 111 111 111 111 111 1.0630 0.8018 2986523 0.9549 4.0540 1.5032 0.4004 2047923 0.2083 2.3503 0 0 63000 0 1 7 1 9820000 1 9 Firm age ∆Firm size ∆Foreign sales ∆ROE 111 111 111 111 1924.198 -1045.955 2.8937 7.9327 60.6623 7663.57 14.8460 53.5765 1665 -52766 -20.54 -130.21 2006 11508 120.35 381.12
Table 3 - Descriptive statistics
Note: Variable CEO gender is measured as a dummy, variable CEO education is measured in 4 categories, variable CEO international experience is measured on a scale from 0-3,
variable mission statement is measured by counting keywords with 0 being the minimum observed and 7 the maximum, CEO promotion and CEO nationality are counted as dummy variables, industry is measured in 9 categories, firm age is collected by looking at the founding year, the values for the ESG score, firm size, foreign sales and ROE are the differences between the year of the CEO´s appointment and the year prior to that
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Table 4 - Pairwise correlation matrix Note: N=111, **p<0.01,*p<0.05 Variable 1 2 3 4 5 6 7 8 9 10 11 12 13 14 1.∆ESG score 1.0000 2.CEO age 0.0932 1.0000 3.CEO gender -0.0806 -0.2198* 1.0000 4.CEO education 0.1466 0.1910* -0.0592 1.0000
5.CEO intl. exp. -0.0036 -0.0747 -0.1491 0.1886* 1.0000
32
5.2 Linear regression analysis
33
Table 5 - Linear regression results (∆ESG score)
Note: N=111, standard errors in parentheses, ***p<0.01,**p<0.05, *p<0.10
Variable Model 1 ∆ESG score Model 2 ∆ESG score Model 3 Mission statement Model 4 ∆ESG score Model 5 ∆ESG score Model 6 ∆ESG score Independent variables CEO age 0.16(0.26) -0.01(0.02) 0.12(0.27) CEO gender -6.89(6.75) 0.24(0.67) -7.29(6.84) CEO education 5.25(2.59)** 0.80(0.26) 5.62(2.64)** Mediator Mission statement -0.71(1.02) -0.75(1.02) 0.53(2.61) Moderator
CEO international experience -1.50(2.13) 0.07(2.66)
Interaction
Mission statement X CEO international experience
34
5.3 Additional analysis
Further tests are being conducted in order to investigate the statistical robustness of the findings. Therefore, the change in the values of the individual pillars of the ESG ratings, namely the environmental pillar (∆ENV score), social pillar (∆SOC score), and the corporate governance pillar (∆CGV score) are used to replace the Combined ESG score. For the test of robustness the same approach is deployed that has been utilised in the previous analysis. Thus, the change in the respective pillar scores is used in order to detect any changes in firm´s CPS over the period of two years.
Table 6 shows the results for the regression analysis when the change in the environmental pillar (∆ENV score) of the ESG score is used as a dependent variable. Model 1 examines the influence of the control variables on the change in the ENV score. Only CEO compensation is significant (β=-2.96, p<0.10). R2 amounts to 0.0436. Model 2 looks at the influence of the dependent variables on the change in the environmental score. Only the control variable CEO´s compensation shows statistical significance (β=-2.94, p<0.10). The overall fit of the model yields a result of R2=0.0449. Model 3 uses the mission statement as a dependent variables, hence, the results are not affected by replacing the ESG score. Therefore, the results for Model 3 remain the same throughout the entire test of robustness and are identical with the previous analysis. Model 4 tests the relationship between the firm´s mission statement and firm´s CSP. No significant results can be reported apart from the control variable CEO compensation (β=-3.06, p<0.10). R2 yields a result of 0.0482.Model 5 tests the overall conceptual model including all variables. Solely CEO compensation is significant (β=-2.99, p<0.10). The overall fit of the model amounts to R2=0.0497.Lastly, Model 6 examines the influence of the moderator CEO´s international experience on the relationship between firm´s mission statement and firm´s CSP. None of the variables shows statistical significance. R2 amounts to 0.0522.
Table 7 exhibits the results for the regression analysis when the change in the social pillar score (∆SOC score) is used as the dependent variable. No significant results can be reported for Model 1. In Model 2, CEO compensation shows significance (β=-5.83, p<0.10). R2 amounts to 0.0884. Furthermore, CEO compensation also shows significance in Model 5 (β=-6.54,
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Table 8 outlines the results for the regression analysis with the change in the corporate governance pillar (∆CGV score) being the dependent variable. The results of Model 1 report firm age (β=-0.03, p<0.10) and constants (β=59.73, p<0.10) as significant. Moreover, Model 1 shows an R2 of 0.0489. Model 2 shows significance for the constants (β=69.60, p<0.10) and an R2 of 0.0697. Firm age (β=-0.03, p<0.10) and the constants (β=59.65, p<0.10) are significant in Model 4. R2 for Model 4 is 0.0527. For Model 5 the constants can be reported as significant (β=69.93, p<0.05). R2 yields 0.0742. Lastly, Model 6 shows significance for firm age (β=-0.03,
p<0.10) and the constants (β=59.36, p<0.10). For R2 a value of 0.0532 can be reported.
36
Table 6 - Linear regression results (∆ENV score)
Note: N=111, standard errors in parentheses, ***p<0.01,**p<0.05, *p<0.10
Variable Model 1 ∆ENV score Model 2 ∆ENV score Model 3 Mission statement Model 4 ∆ENV score Model 5 ∆ENV score Model 6 ∆ENV score Independent variables CEO age 0.01(0.06) -0.01(0.02) 0.01(0.06) CEO gender -0.27(1.63) 0.24(0.67) -0.29(1.66) CEO education -0.17(0.63) 0.80(0.26) -0.13(0.64) Mediator Mission statement -0.17(0.24) -0.17(0.25) 0.16(0.61) Moderator
CEO international experience -0.12(0.52) 0.09(0.62)
Interaction
Mission statement X CEO international experience
37
Table 7 - Linear regression results (∆SOC score)
Note: N=111, standard errors in parentheses, ***p<0.01,**p<0.05, *p<0.10
Variable Model 1 ∆SOC score Model 2 ∆SOC score Model 3 Mission statement Model 4 ∆SOC score Model 5 ∆SOC score Model 6 ∆SOC score Independent variables CEO age 0.18(0.12) -0.01(0.02) 0.19(0.12) CEO gender -4.10(3.03) 0.24(0.67) -3.60(3.05) CEO education 0.86(1.16) 0.80(0.26) 0.67(1.18) Mediator Mission statement -0.45(0.46) -0.35(0.45) -0.60(1.16) Moderator
CEO international experience 1.03(0.95) 0.90(1.18)
Interaction
Mission statement X CEO international experience
38
Table 8 - Linear regression results (∆CGV score)
Note: N=111, standard errors in parentheses, ***p<0.01,**p<0.05, *p<0.10
Variable Model 1 ∆CGV score Model 2 ∆CGV score Model 3 Mission statement Model 4 ∆CGV score Model 5 ∆CGV score Model 6 ∆CGV score Independent variables CEO age -0.21(0.17) -0.01(0.02) -0.21(0.18) CEO gender 0.00(4.49) 0.24(0.67) 0.11(4.56) CEO education -1.12(1.72) 0.80(0.26) -1.08(1.76) Mediator Mission statement -0.43(0.67) -0.46(0.68) -0.10(1.70) Moderator
CEO international experience -0.01(1.42) 0.26(2.48)
Interaction
Mission statement X CEO international experience
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6. DISCUSSION
This thesis has its theoretical foundations in upper echelon theory which advocates that the CEO´s characteristics play a determining factor in organisational outcomes (Hambrick & Mason, 1984). The influence of the CEO´s demographic characteristics on firm´s CSP has been analysed from a variety of angles. For instance, Mazereeuw-van der Duijn Schouten et al. (2014) see a positive link between Christian religiosity and attitudes on CSR. The impact of the CEO´s political ideologies has been investigated as well (Chin et al., 2013) and depending on whether a CEO is liberal or conservative the firm´s CSP changes. Furthermore, the CEO´s compensation (Manner, 2010; McGuire et al., 2003) and personal incentives (Fabrizi et al., 2014) play a determining role in firm´s CSP as well. Moreover, Waldman et al. (2006) find that a CEO´s transformational leadership style leads to an increased tendency to engage in CSR. The demographic characteristics in this thesis, namely, age, gender, and, education have been previously associated with firm´s CSP. The influence of the CEO´s age has yielded conflicting results. Whereas Borghesi et al. (2016) state that younger CEOs will invest more in CSR, others (Huang, 2013; Petrenko et al., 2016; Fabrizi et al., 2014) reject that notion. Evidence on the effect of the CEO´s gender on CSP is clear. A CEO of female gender can be expected to place higher importance on CSR (Hyun et al., 2016; Manner, 2010; Haski-Leventhal et al., 2015; Borghesi et al., 2016). Thirdly, a CEO´s education is assumed to have a positive impact on CSP levels based on findings of Manner (2010), Huang (2013), and Armon and Dawson (1997). Additionally, the CEO´s international experience is expected to positively influence CSP since Slater and Dixon-Fowler (2009) linked the CEO´s international assignment experience with an increase in CSP. Finally, the firm´s mission statement is thought to function as a mediator between the CEO´s characteristics and firm´s CSP. According to Baetz and Bart (1996), the CEO and top management primarily draft the mission statement. Furthermore, Lopez and Martin (2018) and Bartkus and Glassman (2008) show that including CSR in the mission statement increases CSP. Hence, the firm´s mission statement is assumed to have a mediating role between the CEO´s demographic characteristics and firm´s CSP.
40
by employing the Combined ESG score. The CEO´s demographic characteristics are collected in years (age), as a dummy variable (gender) and categories (education). The firm´s mission statements are analysed by counting the frequency of keywords related to CSR. Eventually, the CEO´s international experience is measured by allocating points to different kinds of international experience.
The results of the analysis were not able to confirm any of the five hypotheses. None of the three independent variables CEO´s age, CEO´s educational level or CEO´s gender appear to have an influence on the firm´s mission statement. Hence, hypothesis 1, 2 and 3 have to be rejected. Furthermore, the mediating role of the firm´s mission statement between the CEO´s demographic characteristics and firm´s CSP cannot be confirmed which rejects hypothesis 4. Moreover, the assumed moderating influence of the CEO´s international experience on the relationship between the firm´s mission statement and the firm´s CSP could not be proven. Thus, hypothesis 5 cannot be confirmed.
However, one independent variable, the CEO´s educational level, did yield significant results. Based on the findings, the CEO´s educational level has a positive influence on firm´s CSP. The higher the educational level of the CEO, the higher the firm´s CSP will be. Therefore, it can be concluded that the educational level of the CEO has an influence on CSP as the findings of other studies imply (Huang, 2013; Manner, 2010; Armon & Dawson, 1997).
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6.1 Theoretical and practical implications
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McGuire et al., 2003; Waldman et al., 2006), this thesis investigates European firms and employes the Combined ESG score.
The practical implications of the findings could be used in the recruitment process for CEOs in the sense that firms do not necessarily need to pay attention to the prospective CEO´s age and gender when recruiting for a CEO who is supposed to have a positive impact on firm´s CSP. The CEO´s educational level, on the other hand, could be taken into consideration. Hence, recruiting a CEO with a higher educational level could lead to higher CSP ratings for the firm. Furthermore, based on the findings, it seems that firm´s mission statements do not act as a significant tool in archiving higher CSP ratings. Therefore, firms should direct their means on other approaches in order to enhance CSP. Finally, a CEO´s international experience does not play a vital role in fostering higher CSP levels. Hence, firm´s do not need to use international experience as an essential criteria in selecting candidates for the role as CEO.
6.2 Limitations and future research
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7. CONCLUSION
The aim of this thesis is to analyse the relationship between a CEO´s demographic background, consisting of CEO´s age, CEO´s educational level and CEO´s gender, and firm´s CSP. In particular, the firm´s mission statement is assumed to act as a mediator in this relationship. Moreover, the CEO´s international experience is suspected to have a positive influence on the relationship between a firm´s mission statement and firm´s CSP. This leads to the following two research questions:
1) Do firm´s mission statements act as a mediator between the CEO´s demographic characteristics and firm´s CSP?
2) How does the CEO´s international experience affect their firm´s CSP?
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APPENDICES
Appendix A: Overview of the sample
Firm ISIN code Country Industry
1 ABB Ltd CH0012221716 Sweden Industrials
2 adidas AG DE000A1EWWW0 Germany Consumer goods
3 Air Liquide FR0000120073 France Basic materials
4 Akzo Nobel NV NL0000009132 Netherlands Basic materials 5 Alfa Laval AB SE0000695876 Sweden Industrials
6 Alstom SA FR0010220475 France Industrials
7 ArcelorMittal LU1598757687 Luxembourg Basic materials 8 ASML Holding NV NL0010273215 Netherlands Technology
9 Atlas Copco AB SE0011166610 Sweden Industrials
10 BAE Systems PLC GB0002634946 UK Industrials
11 Bayer AG DE000BAY0017 Germany Health care
12 Bayerische Motoren
Werke AG DE0005190003 Germany Consumer goods
13 Beiersdorf AG DE0005200000 Germany Consumer goods
14 BHP Group PLC GB0000566504 UK Basic materials
15 BP PLC GB0007980591 UK Oil & Gas
16 British American
Tobacco PLC GB0002875804 UK Consumer goods
17 BT Group GB0030913577 UK Telecommunications
18 Burberry Group PLC GB0031743007 UK Consumer goods
19 Capgemini SE FR0000125338 France Technology
20 Carlsberg A/S DK0010181759 Denmark Consumer goods
21 Centrica PLC GB00B033F229 UK Utilities
22 Christian Dior SE FR0000130403 France Consumer goods
23 Coloplast A/S DK0060448595 Denmark Health care
24 Compagnie de Saint
Gobain SA FR0000125007 France Industrials
25 Compagnie Generale des Etablissements
Michelin SCA FR0000121261 France Consumer goods
26 Continental AG DE0005439004 Germany Consumer goods
27 CRH PLC IE0001827041 Ireland Industrials
28 Daimler AG DE0007100000 Germany Consumer goods
29 Danone SA FR0000120644 France Consumer goods
30 Dassault Systemes SE FR0000130650 France Technology 31 Deutsche Lufthansa AG DE0008232125 Germany Consumer services 32 Deutsche Post AG DE0005552004 Germany Industrials
33 Deutsche Telekom AG DE0005557508 Germany Telecommunications
34 Diageo PLC GB0002374006 UK Consumer goods
51
36 Ems Chemie Holding
AG CH0016440353 Switzerland Basic materials
37 Engie SA FR0010208488 France Utilities
38 Eni SpA IT0003132476 Italy Oil & Gas
39 Equinor ASA NO0010096985 Norway Oil & Gas
40 Experian PLC GB00B19NLV48 Ireland Industrials
41 Ferguson Plc JE00BFYFZP55 Switzerland Industrials
42 Fortum Oyj FI0009007132 Finland Utilities
43 Geberit AG CH0030170408 Switzerland Industrials
44 Getinge AB SE0000202624 Sweden Health care
45 Givaudan SA CH0010645932 Switzerland Basic materials 46 GlaxoSmithKline PLC GB0009252882 UK Health care 47 H & M Hennes &
Mauritz AB SE0000106270 Sweden Customer goods
48 Heineken NL0000009165 Netherlands Consumer goods
49 Henkel AG & Co KgaA DE0006048408 Germany Consumer goods
50 Imperial Brands PLC GB0004544929 UK Consumer goods
51 Industria de Diseno
Textil SA (INDITEX) ES0148396007 Spain Consumer goods
52 Intertek Group PLC GB0031638363 UK Industrials
53 Jeronimo Martins SGPS
SA PTJMT0AE0001 Portugal Consumer services
54 Johnson Matthey PLC GB00BZ4BQC70 UK Basic materials
55 Kering SA FR0000121485 France Consumer services
56 Kerry Group PLC IE0004906560 Ireland Consumer goods
57 Kingfisher PLC GB0033195214 UK Consumer services
58 Koninklijke Ahold
Delhaize NV NL0011794037 Netherlands Consumer services 59 Koninklijke DSM NV NL0000009827 Netherlands Basic materials 60 Koninklijke KPN NV NL0000009082 Netherlands Telecommunications 61 Kuehne und Nagel
International AG CH0025238863 Switzerland Industrials
62 L´Oreal SA FR0000120321 France Consumer goods
63 Lafargeholcim Ltd CH0012214059 Switzerland Industrials
64 Linde AG DE0006483001 Germany Basic materials
65 Merck KGaA DE0006599905 Germany Health care
66 National Grid PLC GB00BDR05C01 UK Utilities
67 Nestle SA CH0038863350 Switzerland Consumer goods
68 NOKIA FI0009000681 Finland Technology
69 Norsk Hydro ASA NO0005052605 Norway Basic materials 70 Novo Nordisk A/S DK0060534915 Denmark Health care
71 Novozymes A/S DK0060336014 Denmark Health care
72 OMV AG AT0000743059 Austria Oil & Gas
73 Orange SA FR0000133308 France Telecommunications
74 Pearson GB0006776081 UK Consumer services
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78 Reckitt Benckiser
Group PLC GB00B24CGK77 UK Consumer goods
79 Relx PLC GB00B2B0DG97 UK Consumer services
80 Roche Holding AG CH0012032048 Switzerland Health care 81 Rolls-Royce Holdings
PLC GB00B63H8491 UK Industrials
82 Royal Dutch Shell PLC GB00B03MLX29 Netherlands Oil & Gas 83 Royal Philips NL0000009538 Netherlands Health care
84 RWE AG DE0007037129 Germany Utilities
85 Safran SA FR0000073272 France Industrials
86 Sandvik AB SE0000667891 Sweden Industrials
87 SAP SE DE0007164600 Germany Technology
88 Schindler Holding AG CH0024638212 Switzerland Industrials 89 Schneider Electric SE FR0000121972 France Industrials
90 SGS SA CH0002497458 Switzerland Industrials
91 Siemens AG DE0007236101 Germany Industrials
92 Smiths Group PLC GB00B1WY2338 UK Industrials
93 Solvay BE0003470755 Belgium Basic materials
94 SSE PLC GB0007908733 UK Utilities
95 Svenska Cellulosa SCA
AB SE0000112724 Sweden Basic materials
96 Swisscom AG CH0008742519 Switzerland Telecommunications 97 Telefonaktiebolaget
LM Ericsson SE0000108656 Sweden Technology
98 Telia Company AB SE0000667925 Sweden Telecommunications
99 Tesco PLC GB0008847096 UK Consumer services
100 Thales SA FR0000121329 France Industrials
101 Total SA FR0000120271 France Oil & Gas
102 UCB SA BE0003739530 Belgium Health care
103 Unilever NV NL0000009355 Netherlands Consumer goods 104 United Utilities Group
PLC GB00B39J2M42 UK Utilities
105 Valeo SA FR0013176526 France Consumer goods
106 Vinci SA FR0000125486 France Industrials
107 Vivendi SA FR0000127771 France Consumer services
108 Volvo AB SE0000115446 Sweden Industrials
109 Wartsila Oyj Abp FI0009003727 Finland Industrials
110 Whitbread PLC GB00B1KJJ408 UK Consumer services
