To what extent does executive compensation push firms into environmental law-breaking in particular and misconduct in general? This study finds that changing a CEO’s compensation from 100 percent stock to 100 percent options resulted in a 60 percent increased odds of environmental harm and close to a doubling of the magnitude of harm. We find similar results for financial accounting misconduct. A rule change making the higher powered incentives more costly for firms to provide reduced incidences.
This note is designed to help faculty embed environmental sustainability content into their core Operations Management course at the MBA or undergraduate level. It can also be used to identify cases with environmental content that can be used in operations electives such as Operations Strategy, Supply Chain Management, and Global Operations. Such integration is key to graduating students with the ability to identify and manage environmental challenges.
In January 2015, CEO Paul Polman announced Unilever's financial results for 2014--the poor performance was due to depressed growth in the developed world reinforced by shrinking demand in emerging markets. The situation was also complicated by the fact that the company was in the midst of implementing a transformational strategy driven by the Unilever Sustainable Living Plan (USLP). In order to achieve long-term positive impact, USLP's shift to a sustainability-focused strategy required significant upfront investments that could be recouped only in the longer term.
CEOs are increasingly frustrated by the short-term orientation of investors. They say markets underappreciate long-term investments and ignore issues like employee and customer welfare, while pressuring companies to make decisions that maximize short-term earnings and stock prices. CEOs are perhaps right that some investors are short-term oriented and, as a result, damage the long-term success of businesses. However, according to research by KKS Advisors and The Generation Foundation, few CEOs are providing materially relevant data to investors that encourages long-term capital allocation.
Find out about HBS' commitment to environmental stewardship and about our greenhouse gas reduction plans and broader efforts to realize cost savings through efficiency and waste reduction.