The power of the CEO and environmental decoupling

Abstract

This paper examines the impact of the power of the chief executive officer (CEO) on environmental decoupling. We define environmental decoupling as a gap between firm's claims about the environmental sustainability and actual environmental sustainability performance. Based on the managerial power theory, we argue that powerful managers are more involved in environmental decoupling and use environmental reporting in a more opportunistic manner than their less powerful peers. We analyse a dataset of 4576 firm‐year observations of US‐listed firms for the period 2002–2017. We find that powerful CEOs decouple firm's environmental performance from environmental reporting. These findings are robust to a battery of analyses and show that powerful CEOs do not show true commitment towards corporate environmental sustainability. The results provide important implications for investors, policymakers and fund managers. Useful future research recommendations are also provided to guide the research in the domain of environmental sustainability.

Determinants and consequences of corporate social responsibility decoupling—Status quo and limitations of recent empirical quantitative research

“…In line with legitimacy theory, agency theory and prior literature reviews (Sauerwald & Su, 2019), most included studies found that low corporate governance quality increases CSR decoupling. This relates to international samples (e.g., Garcia‐Sanchez et al, 2020), developed countries (e.g., USA: Gull et al, 2023) and developing countries (e.g., China: Marquis & Qian, 2014). Moreover, a positive impact of low corporate governance on CSR decoupling remains for time frames before and after the financial crisis 2007–2008.…”

“…Top management may be more motivated to conduct CSR decoupling as opportunistic behavior will be observed by the board to a lower degree. Low corporate governance quality, that is linked with more CSR decoupling activities, relates to managerial entrenchment (Garcia‐Sanchez et al, 2020), CEO power (Gull et al, 2023, moderated by low corporate governance quality and environmental sensitive industries; Shahab et al, 2022), CEO overconfidence (mitigated by outside director CSR expertise and outside director ownership; Sauerwald & Su, 2019), CEOs with positions as governments officials (Marquis & Qian, 2014) and centrally owned firms (if they are headquartered in provinces with higher GDP growth priority; Luo & Wang, 2017). According to Al‐Shammari et al (2019), CEO narcissism increases externally oriented CSR practices, whereas there is no significant impact on internally oriented CSR actions.…”

“…Based on manual content analyses, Wang et al (2023) and Walker and Wan (2012) differentiated between symbolic (qualitative) and substantive (quantitative) descriptions within the environmental report. Similarly, Gull et al (2023) included the difference between external and internal environmental actions. In contrast to this, Schons and Steinmeier (2006) focused on social washing as the difference between symbolic and substantive social activities.…”

“…In more detail, corporate governance can be separated into board composition, ownership, and other stakeholder pressure. Regarding board composition , managerial entrenchment (Garcia‐Sanchez et al, 2020), sustainability board committees (Gull, Hussain, Khan, Khan, & Saeed, 2022), board gender diversity (Eliwa et al, 2023; Gull, Hussain, Khan, Nadeem, & Zalata, 2022), board independence and size (Yu et al, 2020), board network centrality (Zhao et al, 2022), CEO with positions as government officials (Marquis & Qian, 2014), CEO power (Gull et al, 2023; Shahab et al, 2022), CEO overconfidence (Sauerwald & Su, 2019), and CEO narcissism (Al‐Shammari et al, 2019) were included. Ownership structure was recognized as institutional ownership, (Yu et al, 2020), family ownership (Parra‐Dominguez et al, 2021), mutual fund investors' distraction (Liu et al, 2023) and institutional shareholder linkage to the central government and chair/CEO served as delegate to the two most important national political councils (Luo et al, 2017).…”

“…Corporate governance can be classified as a monitoring tool in line with stakeholders' interests of ethical management behavior. We expect that increased corporate governance quality is linked with lower CSR decoupling (Gull et al, 2023). To reduce CSR decoupling behavior, corporate and country-related governance tools, for example, board gender diversity or institutional ownership, should pressure top management not to carry out CSR decoupling.…”