Abstract
We theoretically discuss and empirically show how CEO power based on environmental expertise and formal influence over executives and directors, in the absence and presence of shareholder activism, spurs firms toward greener strategies. Our results support the idea that CEOs with informal power, grounded in expertise, reduce corporate environmental impact and this relationship is amplified when the CEO also enjoys formal power over the board of directors. Additionally, we found that any source of CEO power, whether informal or formal, is a good catalyst for transforming shareholder activism into corporate greening. However, in the absence of such activism, only CEOs’ informal environmental expert power acts as a determinant of firm environmental performance.
Similar content being viewed by others
Notes
We calculated two sets of R 2 for our regressions. The first was the “R 2 (within)” statistic reported in the Stata 13 program, using the -xtreg- command. For fixed-effects regressions, the ‘within’ statistic is normally the point of reference for variance explained. However, the -xtreg- command calculates the R 2 differently than other statistical programs, and for the purpose of comparability, we also used Stata’s -areg, absorp- command which includes the fixed-effects dummies in the calculation of R 2.
References
Aguilera, R. V., Desender, K., Bedner, M. K., & Lee, J. H. (2015). Connecting the dots—Bringing external corporate governance into the corporate governance puzzle. Academy of Management Annals, 9(1), 483–572.
Aiken, L. S., & West, S. G. (1991). Multiple regression: Testing and interpreting interactions. Newbury Park: Sage.
Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and firm performance: Evidence from the S&P 500. Journal of Finance, 58(3), 1301–1328.
Andersson, L. M., & Bateman, T. S. (2000). Individual environmental initiative: Championing natural environmental issues in US business organizations. Academy of Management Journal, 43(4), 548–570.
Bach, S. B., & Smith, A. D. (2007). Are powerful CEOs beneficial to post-IPO survival in high technology industries?: An empirical investigation. The Journal of High Technology Management Research, 18(1), 31–42.
Bansal, P. (2005). Evolving sustainably: A longitudinal study of corporate sustainable development. Strategic Management Journal, 26(3), 197–218.
Bansal, P., & Roth, K. (2000). Why companies go green: A model of ecological responsiveness. Academy of Management Journal, 43(4), 717–736.
Berrone, P., Cruz, C., Gomez-Mejia, L. R., & Larraza-Kintana, M. (2010). Socioemotional wealth and corporate responses to institutional pressures: Do family-controlled firms pollute less? Administrative Science Quarterly, 55(1), 82–113.
Berrone, P., Fosfuri, A., Gelabert, L., & Gomez-Mejia, L. R. (2013). Necessity as the mother of “green” inventions: Institutional pressures and environmental innovations. Strategic Management Journal, 34(8), 891–909.
Berrone, P., & Gomez-Mejia, L. R. (2009). Environmental performance and executive compensation: an integrated agency-institutional perspective. Academy of Management Journal, 52(1), 103–126.
Bowen, F., Newenham-Kahindi, A., & Herremans, I. M. (2010). When suits meet roots: The antecedents and consequences of community engagement strategy. Journal of Business Ethics, 95(2), 297–318.
Boyd, B. K. (1994). Board control and ceo compensation. Strategic Management Journal, 15(5), 335–344.
Brockmann, E. N., Hoffman, J. J., Dawley, D. D., & Fornaciari, C. J. (2004). The impact of CEO duality and prestige on a bankrupt organization. Journal of Managerial Issues, XVI(2), 178–196.
Carpenter, M. A. (2002). The implications of strategy and social context for the relationship between top management team heterogeneity and firm performance. Strategic Management Journal, 23, 275–284.
Carpenter, M. A., & Westphal, J. D. (2001). The strategic context of external network ties: Examining the impact of director appointments on board involvement in strategic decision making. Academy of Management Journal, 44(4), 639–660.
Cespa, G., & Cestone, G. (2007). Corporate social responsibility and managerial entrenchment. Journal of Economics & Management Strategy, 16(3), 741–771.
Chin, M. K., Hambrick, D. C., & Trevino, L. K. (2013). Political ideologies of CEOs: The influence of executives’ values on corporate social responsibility. Administrative Science Quarterly, 58(2), 197–232.
Clarkson, M. B. E. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of Management Review, 20(1), 92–117.
Combs, J. G., Ketchen, D. J., Perryman, A. A., & Donahue, M. S. (2007). The moderating effect of CEO power on the board composition-firm performance relationship. Journal of Management Studies, 44(8), 1299–1323.
Cordano, M., & Frieze, I. H. (2000). Pollution reduction preferences of US environmental managers: Applying Ajzen’s theory of planned behavior. Academy of Management Journal, 43(4), 627–641.
Daft, R. L., & Weick, K. E. (1984). Toward a model of organizations as interpretation systems. Academy of Management Review, 9(2), 284–295.
Dahl, R. A. (1957). The concept of power. Behavioral Science, 2(3), 201–215.
Daily, C. M., & Johnson, J. L. (1997). Sources of CEO power and firm financial performance: A longitudinal assessment. Journal of Management, 23(2), 97–117.
David, P., Bloom, M., & Hillman, A. J. (2007). Investor activism, managerial responsiveness, and corporate social performance. Strategic Management Journal, 28(1), 91–100.
Delmas, M. A. (2002). The diffusion of environmental management standards in Europe and the United States: An institutional perspective. Policy Sciences, 35, 91–119.
Delmas, M. A., & Nairn-Birch, N. S. (2011). Is the tail wagging the dog? An empirical analysis of corporate carbon footprints and financial performance. UCLA Working Paper Series #6.
Delmas, M. A., & Toffel, M. W. (2008). Organizational responses to environmental demands: Opening the black box. Strategic Management Journal, 29(10), 1027–1055.
Dietz, T., Stern, P. C., & Guagnano, G. A. (1998). Social structural and social psychological bases of environmental concern. Environment and Behavior, 30(4), 450–471.
Dowell, G. W. S., Shackell, M. B., & Stuart, N. V. (2011). Boards, CEOs, and surviving a financial crisis: Evidence from the internet shakeout. Strategic Management Journal, 32(10), 1025–1045.
Egri, C. P., & Herman, S. (2000). Leadership in the North American environmental sector: Values, leadership styles, and contexts of environmental leaders and their organizations. Academy of Management Journal, 43(4), 571–604.
Etzion, D. (2007). Research on organizations and the natural environment, 1992-present: A review. Journal of Management, 33(4), 637–664.
Fabrizi, M., Mallin, C., & Michelon, G. (2014). The role of CEO’s personal incentives in driving corporate social responsibility. Journal of Business Ethics, 124(2), 311–326.
Fanelli, A., & Misangyi, V. F. (2006). Bringing out charisma: CEO charisma and external stakeholders. Academy of Management Review, 31(4), 1049–1061.
Finkelstein, S. (1992). Power in top management teams: Dimensions, measurement, and validation. Academy of Management Journal, 35(3), 505–538.
Finkelstein, S., & Hambrick, D. C. (1990). Top-management-team tenure and organizational outcomes—The moderating role of managerial discretion. Administrative Science Quarterly, 35(3), 484–503.
French, J. R. P., & Raven, B. (1959). The bases of social power. In D. Cartwright & A. Zander (Eds.), Group dynamics: 150-167. New York: Harper & Row.
Greve, H. R., & Mitsuhashi, H. (2007). Power and glory: Concentrated power in top management teams. Organization Studies, 28(8), 1197–1221.
Hambrick, D. C. (2007). Upper echelons theory: An update. Academy of Management Review, 32(2), 334–343.
Hambrick, D. C., & Finkelstein, S. (1987). Managerial discretion: A bridge between polar views on organizations. In B. M. Staw & L. L. Cummings (Eds.), Research in organizational behavior. Greenwich: JAI Press.
Hart, S. L., & Ahuja, G. (1996). Does it pay to be green? An empirical examination of the relationship between pollution prevention and firm performance. Business Strategy and the Environment, 5(1), 30–37.
Hausman, J., Hall, B. H., & Griliches, Z. (1984). Econometric-models for count data with an application to the patents R and D relationship. Econometrica, 52(4), 909–938.
Haynes, K. T., & Hillman, A. (2010). The effect of board capital and CEO power on strategic change. Strategic Management Journal, 31(11), 1145–1163.
Hemingway, C. A. (2005). Personal values as catalysts for corporate social entrepreneurship. Journal of Business Ethics, 60(3), 233–249.
Henriques, I., & Sadorsky, P. (1999). The relationship between environmental commitment and managerial perceptions of stakeholder importance. Academy of Management Journal, 42(1), 87–99.
Herremans, I. M., Nazari, J. A., & Mahmoudian, F. (2015). Stakeholder relationships, engagement, and sustainability reporting. Journal of Business Ethics,. doi:10.1007/s10551-015-2634-0.
Hines, J. M., Hungerford, H. R., & Tomera, A. N. (1987). Analysis and synthesis of research on responsible environmental behavior: A meta-analysis. The Journal of Environmental Education, 18(2), 1–8.
Hirsch, P. M., & Lounsbury, M. (1997). Ending the family quarrel—Toward a reconciliation of “old” and “new” institutionalisms. American Behavioral Scientist, 40(4), 406–418.
Hoffman, A. J. (2001). From Heresy to Dogma: An institutional history of corporate environmentalism. Stanford: Stanford University Press.
Hoffman, A. J. (2003). Reconciling professional and personal values systems. In A. J. Hoffman, R. A. Giacalone, & C. L. Jurkiewicz (Eds.), Handbook of workplace spirituality and organizational performance (pp. 193–208). Armonk: ME Sharpe.
Hoskisson, R. E., Hitt, M. A., Johnson, R. A., & Grossman, W. (2002). Conflicting voices: the effects of institutional ownership heterogeneity and internal governance on corporate innovation strategies. Academy of Management Journal, 45(4), 697–716.
House, R. J. (1988). Power and personality in complex organizations. In L. L. Cummings & B. M. Staw (Eds.), Research in organizational behavior (Vol. 10, pp. 305–357). Greenwich: JAI Press.
Howard-Grenville, J. A., & Hoffman, A. J. (2003). The importance of cultural framing to the success of social initiatives in business. Academy of Management Executive, 17(2), 70–84.
Jizi, M. I., Salama, A., Dixon, R., & Stratling, R. (2014). Corporate governance and corporate social responsibility disclosure: Evidence from the US banking sector. Journal of Business Ethics, 125(4), 601–615.
Kiesler, S., & Sproul, L. (1982). Managerial response to changing environments: Perspectives and problem sensing from social cognition. Administrative Science Quarterly, 37, 548–570.
King, A. A., & Lenox, M. J. (2000). Industry self-regulation without sanctions: The chemical industry’s responsible care program. Academy of Management Journal, 43(4), 698–716.
King, A., & Lenox, M. (2002). Exploring the locus of profitable pollution reduction. Management Science, 48(2), 289–299.
Klein, G. A. (1998). Sources of power: How people make decisions. Boston: MIT Press.
Kudisch, J. D., Poteet, M. L., Dobbins, G. H., Rush, M. C., & Russell, J. E. A. (1995). Expert power, referent power, and charisma—Toward the resolution of a theoretical debate. Journal of Business and Psychology, 10(2), 177–195.
Lewis, B. D., Walls, J. L., & Dowell, G. W. S. (2014). Difference in degrees: CEO characteristics and firm environmental disclosure. Strategic Management Journal, 35(5), 712–722.
Lines, R. (2007). Using power to install strategy: The relationship between expert power, position power, influence tactics and implementation success. Journal of Change Management, 7(2), 143–170.
Manner, M. H. (2010). The impact of CEO characteristics on corporate social performance. Journal of Business Ethics, 93(1), 53–72.
Margolis, J. D., & Walsh, J. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative Science Quarterly, 48(2), 268–305.
Marquis, C., & Toffel, M. W. (2011). The globalization of environmental disclosure: Accountability or greenwashing?. Harvard Business School Working Paper 11–117.
McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecification. Strategic Management Journal, 21(5), 603–609.
Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. Academy of Management Review, 22(4), 853–886.
Norburn, D. (1989). The chief executive—A breed apart. Strategic Management Journal, 10(1), 1–15.
Ocasio, W. (1997). Towards an attention-based view of the firm. Strategic Management Journal, 18, 187–206.
Oliver, C. (1991). Strategic responses to institutional processes. Academy of Management Review, 16(1), 145–179.
Peiró, J. M., & Meliá, J. L. (2003). Formal and informal interpersonal power in organisations: Testing a bifactorial model of power in role-sets. Applied Psychology-an International Review-Psychologie Appliquee-Revue Internationale, 52(1), 14–35.
Porter, M. E., & van der Linde, C. (1995). Green and competitive: Ending the stalemate. Harvard Business Review, 73(5), 120–134.
Rego, A., Cunha, M. P., & Polónia, D. (2015). Corporate sustainability: A view from the top. Journal of Business Ethics,. doi:10.1007/s10551-015-2760-8.
Rehbein, K., Logsdon, J. M., & Van Buren, H. J. (2013). Corporate responses to shareholder activists: Considering the dialogue alternative. Journal of Business Ethics, 112(1), 137–154.
Reid, E. M., & Toffel, M. W. (2009). Responding to public and private politics: Corporate disclosure of climate change strategies. Strategic Management Journal, 30(11), 1157–1178.
Rijsenbilt, A., & Commandeur, H. (2013). Narcissus enters the courtroom: CEO narcissism and fraud. Journal of Business Ethics, 117(2), 412–429.
Roome, N. (1992). Developing environmental management strategies. Business Strategy and the Environment, 1(1), 11–24.
Russo, M. V., & Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 40(3), 534–559.
Sharma, S. (2000). Managerial interpretations and organizational context as predictors of corporate choice of environmental strategy. Academy of Management Journal, 43(4), 681–697.
Siegel, D. (2014). From the editor: Responsible leadership. The Academy of Management Perspectives, 28(3), 221–223.
Singh, A. (2009). Organizational power in perspective. Leadership and Management in Engineering, 9(4), 165–176.
Smith, A., Houghton, S. M., Hood, J. N., & Ryman, J. A. (2006). Power relationships among top managers: Does top management team power distribution matter for organizational performance? Journal of Business Research, 59(5), 622–629.
Spekman, R. E. (1979). Influence and information—Exploratory investigation of the boundary role persons basis of power. Academy of Management Journal, 22(1), 104–117.
Starbuck, W. H., & Milliken, F. J. (1988). Executives’ perceptual filters: What they notice and how they make sense. In D. C. Hambrick (Ed.), The executive effect: Concepts and methods for studying top managers (pp. 35–65). Greenwich: JAI Press.
Stevens, J. M., Steensma, H. K., Harrison, D. A., & Cochran, P. L. (2005). Symbolic or substantive document? The influence of ethics codes on financial executives’ decisions. Strategic Management Journal, 26(2), 181–195.
Surroca, J., & Tribo, J. A. (2008). Managerial entrenchment and corporate social performance. Journal of Business Finance & Accounting, 35(5–6), 748–789.
Thomas, S., Repetto, R., & Dias, D. (2007). Integrated environmental and financial performance metrics for investment analysis and portfolio management. Corporate Governance-an International Review, 15(3), 421–426.
Vredenburgh, D., & Brender, Y. (1998). The hierarchical abuse of power in work organizations. Journal of Business Ethics, 17(12), 1337–1347.
Waldman, D. A., & Siegel, D. (2008). Defining the socially responsible leader. Leadership Quarterly, 19(1), 117–131.
Walls, J. L., Berrone, P., & Phan, P. H. (2012). Corporate governance and environmental performance: Is there really a link? Strategic Management Journal, 33, 885–913.
Walls, J. L., & Hoffman, A. J. (2013). Exceptional boards: Environmental experience and positive deviance from institutional norms. Journal of Organizational Behavior, 34, 253–271.
Walsh, J. P. (1988). Selectivity and selective perception: An investigation of managers’ belief structures and information processing. Academy of Management Journal, 31, 873–896.
Werbel, J. D., & Carter, S. M. (2002). The CEO’s influence on corporate foundation giving. Journal of Business Ethics, 40(1), 47–60.
Westphal, J. D., & Zajac, E. J. (1995). Who shall govern—CEO/board power, demographic similarity, and new director selection. Administrative Science Quarterly, 40(1), 60–83.
Wu, L. Z., Kwan, H. K., Yim, F. H. K., Chiu, R. K., & He, X. (2015). CEO ethical leadership and corporate social responsibility: A moderated mediation model. Journal of Business Ethics, 130(4), 819–831.
Zajac, E. J., & Westphal, J. D. (1996a). Director reputation, CEO-board power, and the dynamics of board interlocks. Administrative Science Quarterly, 41(3), 507–529.
Zajac, E. J., & Westphal, J. D. (1996b). Who shall succeed? How CEO board preferences and power affect the choice of new CEOs. Academy of Management Journal, 39(1), 64–90.
Acknowledgments
The authors would like to thank Dev Bhave, Ray Paquin, Eugene Kang, Will Mitchell, Mike Russo, and seminar attendees from INSEAD, NTU, NUS, and SMU, and several anonymous reviewers for their comments and suggestions. The second author is indebted to the Schneider-Electric Sustainability and Business Strategy Chair and to the Spanish Ministry of Economy and Competitiveness (ECO2012-33018) for providing financial support.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Walls, J.L., Berrone, P. The Power of One to Make a Difference: How Informal and Formal CEO Power Affect Environmental Sustainability. J Bus Ethics 145, 293–308 (2017). https://doi.org/10.1007/s10551-015-2902-z
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10551-015-2902-z