Leadership,Social Responsibility

How Feeling Good Can Lead to Doing Good

• 7 mins read
Share link on Facebook
Share link on LinkedIn
Share link via Email
Copy link
CEO emotion personality csr corporate responsibility

New study finds that a CEO’s emotional profile has a notable impact on their company’s uptake of corporate social responsibility initiatives

By Lisa Kennedy

When Larry Fink, founder and CEO of BlackRock, the world’s largest asset manager, announced that the company would place environmental sustainability at the centre of its investment strategy, it sent shockwaves through corporate America. Radical measures pledged in his annual letter to CEOs included exiting from investments in coal production and requiring all client companies to publish reports on their environmental sustainability standards by the end of the year.

In a subsequent interview, Fink said: “It is the hardest letter I have ever written. And I do believe I became more emotional as I wrote about what we need to do – and more importantly the reflection on my 40-odd years of being in finance.”

CEOs are key players in the adoption of corporate social responsibility (CSR) measures by companies large and small. The decision-making processes that spur them to launch CSR initiatives have been analysed by business schools for many years.

“When CEOs make decisions for CSR, they need to be aware of the fact that their emotions may play a role in their decisions.”

Prof. Lin Ya

To date, such studies have largely focused on the rational, deliberative aspects of making decisions, but many leading psychologists today favour a dual-process approach to decision-making, which involves both emotional and deliberative mechanisms operating in parallel.

For this reason, a group of researchers at The Chinese University of Hong Kong (CUHK) and partner institutions set out to investigate the impact of CEOs’ emotional characteristics on their companies’ readiness to engage in CSR. Could it be that CEOs who are emotionally engaged in a positive way are more likely to launch CSR initiatives than those with more negative moods and emotions?

The study, Does CEO Emotion Matter? CEO Affectivity And Corporate Social Responsibility, was conducted by Lin Ya, Assistant Professor at CUHK Business School’s Department of Management, and Professor Yang Haibin, of the same department, along with Profs. Zhao Huazhong of City University of Hong Kong, Wang Linlin of Nankai University, and Jiang Wan of Tianjin University.

The researchers defined CEO affectivity as CEOs’ relatively stable and underlying tendency to experience positive and negative emotions, and categorised it into two opposite dimensions: positive affectivity and negative affectivity.

CEO-emotion-corporate-social-responsibility
CEOs with positive affectivity are more likely to engage in CSR.

“Our study shows that CEOs with positive affectivity are more likely to engage in CSR, while CEOs with negative affectivity are less likely to do so,” says Prof. Lin.

“When CEOs make decisions for CSR, they need to be aware of the fact that their emotions may play a role in their decisions,” she adds. “In other words, they may minimise the subjective influence of their emotions on their firms’ CSR decisions, and rather take a more objective view towards CSR.”

Transformative Power of Positive Emotions

The study draws on the broaden-and-build theory that was developed in the late 1990s by psychologist Barbara Fredrickson. The theory, which forms part of the positive psychology oeuvre, posits that positive affectivity expands attention to increase receptivity and openness and thereby fuels more flexible problem-solving actions, while negative affectivity narrows and constricts attention.

“Our study is one of the first to unearth the intriguing relationship between CEO affectivity and corporate social responsibility,” says Prof. Lin. “It is also among the first to draw on the ‘broaden-and-build theory’ to examine company performance, thereby contributing to the micro-foundations of CSR research.”

CEOs with high positive affectivity are more interested in observing the behaviour of others. This equips them with a clearer perception of the existence and demands of the multiple stakeholders in their environment and allows them to cater to the needs of such stakeholders.

“They also tend to embrace more inclusive social categories and use a more expansive definition of in-group members, so they are likely to implement more CSR because they include more stakeholders in their social circles,” she adds.

By contrast, the broaden-and-build theory proposes that negative affectivity will narrow people’s thought-action repertoire. The researchers predict that high negative affectivity CEOs are more likely to withdraw into a self-protective stance, care only about the organisation’s private goals, and attend less to the interests of stakeholders. They therefore posit a negative relationship between negative affectivity and the firm’s CSR engagement.

The study examined CSR data from S&P 500 firms from 2001 to 2013 and compared it with indicators of CEO affectivity from a range of executive, corporate and financial databases, including Mergent Online, ExecuComp and BoardEx. The final sample comprised 2,934 CEO-year observations.

CEO-emotion-corporate-social-responsibility
CEO social capital amplifies positive effect of positive affectivity on CSR.

CEOs’ positive and negative affectivities were measured through analysis of letters to shareholders, written annually by CEOs and typically included in companies’ annual reports. The letters were analysed using Linguistic Inquiry and Word Count software to determine the percentage of positive and negative words that each one contained.

The researchers also used data from an investment research and management firm Kinder, Lydenberg, Domini & Co, or KLD, on firms’ CSR activities in six dimensions, including community, diversity, employee relations, environment, human rights, and product quality ratings. Each of the dimensions has different categories of CSR strengths and concerns (weaknesses).

“Since we are focusing on firms’ CSR contributions, we created a weighted measure of CSR based on the ‘strengths’ category,” says Prof. Lin. “For each firm-year, we divided the score of strengths across all six CSR dimensions by the sum of the maximum possible strengths score across these six dimensions. We then summed the scaled strengths to obtain CSR engagement.”

The study found that CEO positive affectivity was positively associated with CSR, and CEO negative affectivity was negatively associated with CSR. At a practical level, going from a low level of CEO positive affectivity to a high level would result in a 7.4 percent increase in the amount of CSR taking place. Conversely, going from a low level of CEO negative affectivity to a high level, would reduce CSR activity by 7.8 percent.

Impact of Social Capital

The study also investigated whether the amount of social capital that CEOs possess has an impact on the relationship between their affectivity and the amount of CSR that their companies undertake, either strengthening or weakening it. Social capital was defined as the number of social connections gained in areas such as education, employment, professional associations and social clubs that a CEO has, as obtained through the BoardEx, which holds in-depth profiles of more than one million of the world’s business leaders.

“We propose that CEO social capital can provide critical social resources that sustain an upward spiral of the broadening effect that is elicited by CEO positive affectivity and that they help to direct expansive CEO social capital towards diverse stakeholder needs,” says Prof. Lin. “In a similar vein, we also propose that CEO social capital countervails the narrowed attention arising from CEO negative affectivity towards stakeholder needs.”

CEO social capital was found to moderate the impact of CEO affectivity on CSR. There was a strong positive relationship between CEO positive affectivity and CSR when social capital was high, but a negligible effect when social capital was low. Conversely, the effect of CEO negative affectivity on CSR was negligible when social capital was high, but there was a strong negative relationship between negative affectivity and CSR when social capital was low.

The results were shown to be robust against a battery of experimental control measures.

“In addition, our findings show that CEO social capital can boost the impact of CEO positive affectivity on CSR, as well as weakening the impact of negative affectivity,” she adds. “In this way, it has uncovered important boundary conditions for understanding how broaden-and-build theory operates in relation to CEO affectivity and CSR.”

RELATED ARTICLE

When Corporate Philanthropy Keeps Staff Happy

Prof. Lin says the study has important practical implications for CEOs. Further, if stakeholders or the board emphasise the importance of CSR, they may look for CEOs with more positive affectivity as these CEOs are more inclined to conduct such activities. Also, CEOs with better social connections are able to reach out to different stakeholders and address the needs of their stakeholders via CSR.

“To summarise, CEOs with positive affectivity, coupled with strong social capital, are better prepared for CSR activities.”