In recent years, many popular consultancies have been pushing the idea that CEOs should embrace political partisanship. A Forbes article argues that taking sides on socio-political issues is a form of “courageous leadership.” In a Boston Consulting Group article, Alexis Williams, chief brand officer of Stagwell, the parent company of The Harris Poll argues that “stakeholders don’t have to agree with you all the time…it is critical that companies earn their respect by living their values and staying consistent.”
But new research suggests a troubling reality: when CEOs become too politically partisan, their companies are at a much higher risk of engaging in corporate misconduct.
Research Study
The study examined 831 Fortune 500 CEOs from 498 firms for a total of 3,950 data points between 2010-2018. The researchers quantified the degree of partisanship of CEOs using their political donations. The study then tracked corporate-misconduct incidents related to competition, consumer protection, employment, environment, financial reporting, government contracting, and workplace health and safety.
The study controlled for a variety of confounding factors like CEO’s age, gender, narcissism, industry experience, and firm’s size, debt ratio, cash, net income, board size, among others. This enabled the researchers to draw unambiguous conclusions about the relationship examined.
Main Results
- Highly partisan CEOs, whether liberal or conservative, are more likely to engage in corporate misconduct compared to their moderate counterparts. Specifically, CEOs with extreme political views—on both ends of the spectrum—are far more likely to engage in corporate misconduct than moderate CEOs.
- There was no difference in the type of misconduct between liberal and conservative CEOs.
Key Takeaways
For boards, this study provides a crucial lesson: instead of being a mark of courageous leadership, CEOs’ political partisanship is a harbinger of corporate misconduct. Board size or composition cannot control the misconduct of highly partisan CEOs.
While consultants may encourage CEOs to lead “courageously” by following their political partisanship, it comes with significant risks. Boards should be very cautious of hiring highly partisan CEOs, easily measurable through their past political donations.
Citation:
Fewer, T. J., & Tarakci, M. (2024). CEO Political Partisanship and Corporate Misconduct. Academy of Management Journal. https://mtarakci.shinyapps.io/PartisanMisconduct.
References:
Forbes (2023), Courageous Leadership: Why CEOs Should Take A Stand. https://www.forbes.com/councils/forbescoachescouncil/2023/06/22/courageous-leadership-why-ceos-should-take-a-stand/.
Boston Consulting Group (2024), How Leaders Can Navigate a Polarized World. https://www.bcg.com/publications/2024/how-leaders-can-navigate-a-polarized-world.