Events

Prof. Guoli Chen
Professor of Strategy
INSEAD

We examine the implications of chief executive officer (CEO)’s initial contract length for corporate social responsibility (CSR). We posit that, faced with greater time pressure to demonstrate their abilities, CEOs with shorter initial contract lengths are more likely than other CEOs to engage in impression management by making CSR efforts to impress their boards of directors. While CSR engagement generally enhances the probability of the CEO’s contract renewal, this effect is particularly strong for CEOs with shorter contracts. Nevertheless, firms with less busy boards are less likely than firms with busy boards to renew CEO contracts based on CSR efforts. Using a sample of U.S. firms with new CEO appointments between 1990 and 2017, we provide empirical evidence to support our theory and hypotheses. Our results are robust to a series of additional analyses, including using the U.K.’s Corporate Governance Code reform as an exogenous shock to address potential endogeneity issues. We also find that CEOs with shorter initial contracts are more likely to mention CSR key words in conference calls and engage in more visible CSR. We discuss our contribution to the CEO employment contract, CSR and corporate governance literature.