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Published in: Journal of Business Ethics 4/2022

08-01-2021 | Original Paper

Do Boards Take Environmental, Social, and Governance Issues Seriously? Evidence from Media Coverage and CEO Dismissals

Author: Jenna J. Burke

Published in: Journal of Business Ethics | Issue 4/2022

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Abstract

This study empirically investigates the dismissal of U.S. CEOs following negative media coverage of environmental, social, and governance (ESG) practices. Extending related literature on the media, ESG, and CEO dismissal, I develop a theoretical framework that considers the media as an influential third party that forms and reflects public opinion about ESG issues. In this role, the media reduces information asymmetry by providing cues on their relative salience and prompting corporate directors to attribute firm-level ESG issues to the CEO, regardless of their involvement in the misconduct. Findings confirm this framework and particularly suggest that coverage of issues in prominent media sources is more likely to result in CEO dismissal. Further, companies that have made public commitments to ESG oversight and those with stronger monitoring are more likely to dismiss the CEO following negative coverage of ESG issues. Overall, this study builds an understanding of how contemporary boards approach the uncertain CEO dismissal decision amidst media coverage of ESG- related misconduct and reflects a shifting norm towards ESG integration at the board-level.
Appendix
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Footnotes
1
Wu (2004) finds that companies are more likely to change their CEO after being publicly named by CalPERS (the largest state pension fund in the U.S., which is known for promoting good corporate governance) for having poor corporate governance practices. Similarly, Joe et al. (2009) find that firms listed on Business Week's worst board list are forced to take corrective actions, which include CEO and board chairman replacement and an increase in independent directors. Bednar (2012) detects a significant response to negative coverage of corporate governance issues (e.g., executive pay and management philosophy) in six major media outlets.
 
2
RepRisk coverage begins in 2007, so the chosen sample period represents all available data.
 
3
For example, in 2012 Best Buy's CEO Brian Dunn "resigned," which would suggest a voluntary turnover. However, the turnover was announced abruptly (i.e., the same day) and most importantly, was discussed in multiple news articles that clearly suggest that Dunn was forced out due to personal conduct issues (e.g., Bustillo 2012).
 
4
Results are consistent if variables are instead winsorized at the 5th and 95th percentile or log transformed.
 
5
The negative media count variable generally captures firm-level ESG issues, which are listed in “Appendix 2”. Generally, the CEO is not directly nor solely responsible for these issues. To ensure this interpretation is correct, I manually search for information about each dismissal. In six cases, I find evidence that the CEO may be directly responsible for the ESG issues covered (e.g., sexual harassment or inappropriate/undisclosed relationships with employees). Results are consistent if these observations are removed.
 
6
While models testing Hypothesis 1 control for industry-specific differences through the inclusion of industry fixed effects, in untabulated analysis I further explore the role of industry. The identified association holds in all industry subsamples, except for one. This provides comfort that results are not driven by industry. The one exception is the manufacturing industry, where negative media count is negatively associated with CEO dismissal. A potential explanation for this result is that negative media coverage of ESG issues does not outweigh the importance of profit maximization for manufacturing firms, and the issues that underlie coverage likely arise from a prioritization of resources towards profit maximization and away from preventing ESG risks. Future research may further consider the role of the media in this industry.
 
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Metadata
Title
Do Boards Take Environmental, Social, and Governance Issues Seriously? Evidence from Media Coverage and CEO Dismissals
Author
Jenna J. Burke
Publication date
08-01-2021
Publisher
Springer Netherlands
Published in
Journal of Business Ethics / Issue 4/2022
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-020-04715-x

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