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The Power of One to Make a Difference: How Informal and Formal CEO Power Affect Environmental Sustainability

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.

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Notes

  1. 1.

    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.

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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.

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Correspondence to Judith L. Walls.

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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

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Keywords

  • CEO power
  • CEO influence
  • Environmental performance
  • Behavioral strategy
  • Sustainability