Corporate Governance and the Rise of Integrating Corporate Social Responsibility Criteria in Exacutive Compensation: Effectiveness and Implications for Firm Outcomes

Authors

Caroline Flammer, Boston University
Bryan Hong, Ivey Business School
Dylan Minor, Northwestern University

Document Type

Article

Publication Date

9-2017

Volume

40

Issue

7

Journal

Strategic Management Journal

First Page

1097

URL with Digital Object Identifier

https://doi.org/10.1002/smj.3018

Last Page

1122

Abstract

This study examines the integration of corporate social responsibility (CSR) criteria in executive compensation, a relatively recent practice in corporate governance. We construct a novel database of CSR contracting and document that CSR contracting has become more prevalent over time. We further find that the adoption of CSR contracting leads to i) an increase in long-term orientation; ii) an increase in firm value; iii) an increase in social and environmental performance; iv) a reduction in emissions; and v) an increase in green innovations. These findings are consistent with our theoretical arguments predicting that CSR contracting helps direct management’s attention to stakeholders that are less salient but financially material to the firm in the long run, thereby enhancing corporate governance.

Notes

This is the authors' version of the paper published at https://doi.org/10.1002/smj.3018