CEO Characteristics and Firm Responses to Pressures for Disclosure

In the paper, Difference in Degrees: CEO Characteristics and Firm Responses to Pressures for Disclosure, which was recently made publicly available on SSRN, we extend existing theory by examining how managerial attributes influence firm’s strategic responses to environmental issues. We argue that the characteristics of the CEO play an important role in the extent to which external environmental pressures are attended to and how they are interpreted and acted upon (Hoffman, 2001). As top managers, CEOs strongly influence whether stakeholder groups are considered salient (Delmas & Toffel, 2008; Eesley & Lenox, 2006) and how environmental issues should be addressed (Sharma, 2000).

Specifically, our research examines how firms respond to requests to disclose their environmental performance. Because the costs and benefits of disclosure are often uncertain, decisions about firm response may be subject to managerial interpretation. We therefore argue that CEO characteristics play an important role in determining whether the disclosure of environmental information is perceived as an opportunity or a threat (Sharma et al., 1999).

In addition to theorizing about why firms respond to requests to disclose their environmental performance, we also investigate whether and when disclosure leads to subsequent performance improvement. While stakeholder groups seek to pressure firms to disclose information about their environmental activities in order to motivate improved performance (Fung, Graham, & Weil, 2007), it is well known that firms can symbolically comply to pressures (Oliver 1991) without making substantive changes to organizational routines and procedures. We contend that the release of environmental information leads to performance improvement by raising the legitimacy of environmental issues within the firm (Sharma, 2000) and by generating external accountability. When firms are faced with direct pressures from salient and legitimate stakeholders, however, the pressures may affect some firms more than others. Because CEOs have the power to shape organizational outcomes (Hambrick & Fukutomi, 1991; Hambrick & Mason, 1984), we also expect this disclosure-performance relationship to be moderated by the characteristics of the CEO.

We make several important theoretical and empirical contributions. First our study speaks to a recent body of literature that has sought to explain why firms that face similar institutional pressures pursue different strategies (Delmas & Toffel, 2012). While several authors have explored the influence of other organizational factors (Delmas & Toffel, 2008; Doshi, Dowell, & Toffel, 2011), our study is among the first to explain and identify how managers’ personal characteristics and experiences influence a firm’s susceptibility to institutional pressures. Our work also complements prior research that demonstrates how firms’ receptivity to pressures varies by the source and type of pressure employed (Eesley & Lenox, 2006). Delmas and Toffel (2008), for example, found that firms with influential legal departments were more receptive to pressure from regulatory bodies. We find that firms led by lawyers are less receptive to requests emanating from shareholders.

Together, these results suggest that scholars must consider both the source of the pressure and characteristics of top management when examining why firms respond to institutional pressures. In addition to these findings, we also contribute to the literature on environmental disclosure by showing that the disclosure can lead to improved environmental performance. Extant research has paid limited attention to the performance effects of disclosure. Our results demonstrate that disclosure is associated with improved environmental performance, but that this relationship depends, at least in part, on the background characteristics of the firm’s CEO.

The full paper is available for download here.