George Serafeim

Jakurski Family Associate Professor of Business Administration

George Serafeim is the Jakurski Family Associate Professor of Business Administration at Harvard Business School. He has taught courses in the MBA and doctoral programs, chaired Executive Education programs, authored more than 100 articles and business cases, and presented his research in more than 100 conferences and seminars. He has spoken at major events in over 60 countries around the world and is one of the most popular business authors, according to rankings of the Social Science Research Network.

Professor Serafeim's research interests are international, focusing on corporate valuation, governance and reporting issues. His work has been published in the most prestigious academic and practitioner journals such as the The Accounting Review, Strategic Management Journal, Journal of International Business StudiesReview of Accounting Studies, Journal of Accounting Research, Journal of Finance, Contemporary Accounting Research, Management Science, Financial Analysts Journal, MIT Sloan Management Review, Journal of Applied Corporate Finance, and Harvard Business Review. His research is regularly cited in media outlets including The New York Times, Bloomberg, Financial Times, The Wall Street Journal, Economist, The Guardian, CNN, BBC, Al Jazeera and NPR. 

Professor Serafeim has extensive experience as a senior adviser of investment managers and corporations around the world and as a board member in both the non-profit and private sectors. He is a co-founder of KKS Advisors and an advisor to Calvert Investments. He serves on the advisory board of Arabesque, on the board of directors of the High Meadows Institute, on the working group of the Coalition for Inclusive Capitalism and on the Technical Review Committee of the Global Initiative for Sustainability Ratings. He was a member of the Standards Council of the Sustainability Accounting Standards Board. 

Professor Serafeim earned his doctorate in business administration at Harvard Business School, where his dissertation was recognized with the Wyss Award for Excellence in Doctoral Research. He received a master's degree in accounting and finance from the London School of Economics and Political Science, where he was awarded the Emeritus Professors' Prize for best academic performance. He grew up in Athens, Greece.

Journal Articles

  1. ESG Integration in Investment Management: Myths and Realities

    Sakis Kotsantonis, Christopher Pinney and George Serafeim

    The authors’ aim in this article is to set the record straight on the financial performance of sustainable investing while also correcting a number of other widespread misconceptions about this rapidly growing set of principles and methods. Myth Number 1: Environmental, social, and governance (ESG) programs reduce returns on capital and long-run shareholder value. Reality: Companies committed to ESG are finding competitive advantages in product, labor, and capital markets, and portfolios that have integrated “material” ESG metrics have provided average returns to their investors that are superior to those of conventional portfolios, while exhibiting lower risk. Myth Number 2: ESG is already well integrated into mainstream investment management. Reality: The UNPRI signatories have committed themselves only to adhering to a set of principles for responsible investment, a standard that falls well short of integrating ESG considerations into their investment decisions. Myth Number 3: Companies cannot influence the kind of shareholders that buy their shares, and corporate managers must often sacrifice sustainability goals to meet the quarterly earnings targets of increasingly short-term–oriented investors. Reality: Companies that pursue major sustainability initiatives, and publicize them in integrated reports and other communications with investors, have also generally succeeded in attracting disproportionate numbers of longer-term shareholders. Myth Number 4: ESG data for fundamental analysis is scarce and unreliable. Reality: Thanks to the efforts of reporting and investor organizations such as SASB and Ceres, as well as CDP data providers like Bloomberg and MSCI, much more “value-relevant” ESG data on companies has become available in the past 10 years. Myth Number 5: ESG adds value almost entirely by limiting risks. Reality: Along with lower risk and a lower cost of capital, companies with high ESG scores have also experienced increases in operating efficiency and expansions into new markets. Myth Number 6: Consideration of ESG factors might create a conflict with fiduciary duty for some investors. Reality: Many ESG factors have been shown to have positive correlations with corporate financial performance and value, prompting ERISA in 2015 to reverse its earlier instructions to pension funds about the legitimacy of taking account of “non-financial” considerations when investing in companies.

    Keywords: ESG; sustainability; investment management; finance; corporate social responsibility; Integrated Corporate Reporting; Corporate Social Responsibility and Impact; Investment; Environmental Sustainability; Corporate Governance;

    Citation:

    Kotsantonis, Sakis, Christopher Pinney, and George Serafeim. "ESG Integration in Investment Management: Myths and Realities." Journal of Applied Corporate Finance 28, no. 2 (Spring 2016): 10–16. View Details
  2. The Scandal Effect

    Boris Groysberg, Eric Lin, George Serafeim and Robin Abrahams

    Executives with scandal-tainted companies on their résumés pay a penalty on the job market, even if they clearly had nothing to do with the trouble. Because the scandal effect is lasting, a company you left long ago could have an impact on your current and future job mobility, not to mention your compensation. Overall, executives who suffer from the effect are paid nearly 4% less than their peers. You can’t control this risk, the authors write, but you can and should plan for it. They offer three steps to help you survive a corporate scandal. 1. Be forthright. Transparency and full disclosure are key to overcoming the stigma. Executive recruiters, who do due diligence on candidates, can help you create a full, clear, and succinct narrative for hiring managers. 2. “Borrow” reputation and legitimacy from others in your network, establishing innocence by association. Executive search firms can also act as references and sponsors. 3. Take a “rehab job,” one at which you so clearly excel that it creates a persuasive story to compete with the scandal narrative.

    Keywords: Misconduct; career; career management; Career changes; Executive Compensation; executive leadership; executive development; Crime and Corruption; Executive Compensation; Personal Development and Career; Management Skills; Management Teams;

    Citation:

    Groysberg, Boris, Eric Lin, George Serafeim, and Robin Abrahams. "The Scandal Effect." Harvard Business Review 94, no. 9 (September 2016): 90–98. View Details
  3. Corporate Sustainability: First Evidence on Materiality

    Mozaffar Khan, George Serafeim and Aaron Yoon

    Using newly available materiality classifications of sustainability topics, we develop a novel dataset by hand-mapping sustainability investments classified as material for each industry into firm-specific sustainability ratings. This allows us to present new evidence on the value implications of sustainability investments. Using both calendar-time portfolio stock return regressions and firm-level panel regressions we find that firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues. In contrast, firms with good ratings on immaterial sustainability issues do not significantly outperform firms with poor ratings on the same issues. These results are confirmed when we analyze future changes in accounting performance. The results have implications for asset managers who have committed to the integration of sustainability factors in their capital allocation decisions.

    Keywords: sustainability; Investments; corporate social responsibility; accounting; corporate reporting; regulation; Corporate Social Responsibility and Impact; Integrated Corporate Reporting; Investment; Corporate Governance;

    Citation:

    Khan, Mozaffar, George Serafeim, and Aaron Yoon. "Corporate Sustainability: First Evidence on Materiality." Accounting Review (forthcoming). View Details
  4. The Effect of Target Difficulty on Target Completion: The Case of Reducing Carbon Emissions

    Ioannis Ioannou, Shelley Xin Li and George Serafeim

    Targets are an integral component of management control systems and play a significant role in achieving desirable performance outcomes. We focus on a key environmental performance objective—reduction of carbon emissions—as a setting in which to examine how target difficulty affects the degree of target completion in long-term nonfinancial performance. We use a novel dataset compiled by the Carbon Disclosure Project (CDP) and find that firms setting more difficult targets complete a higher percentage of such targets. We also find that this effect is negatively moderated by the provision of monetary incentives. We corroborate this evidence by showing that target difficulty is more effective for carbon reduction projects requiring more novel knowledge and in high-pollution industries. We discuss limitations and suggest avenues for future research.

    Keywords: sustainability; climate change; target-setting; management accounting; management accounting and control systems; control systems; sustainable development; environment; Goals and Objectives; Weather and Climate Change; Management Systems; Accounting; Environmental Sustainability;

    Citation:

    Ioannou, Ioannis, Shelley Xin Li, and George Serafeim. "The Effect of Target Difficulty on Target Completion: The Case of Reducing Carbon Emissions." Accounting Review (forthcoming). View Details
  5. An Analysis of Firms' Self-reported Anticorruption Efforts

    Paul M. Healy and George Serafeim

    We use Transparency International's ratings of self-reported anticorruption efforts for 480 corporations to analyze factors underlying the ratings. Our tests examine whether these forms of disclosure reflect firms' real efforts to combat corruption or are cheap talk. We find that the ratings are related to enforcement and monitoring, country and industry corruption risk, and governance variables. Specifically, firms with high anticorruption ratings are domiciled in countries with low corruption risk ratings and strong anticorruption enforcement, operate in high corruption risk industries, have recently faced a corruption enforcement action, employ a Big Four audit firm, and have a higher percentage of independent directors. Controlling for these effects and other ratings determinants, we find that firms with lower residual ratings have higher subsequent citations in corruption news events. They also report higher future sales growth and show a negative relation between profitability change and sales growth in high corruption geographic segments, but not in low corruption segments. The net effect on valuation from sales growth and changes in profitability is close to zero. The findings are robust to a number of sensitivity tests, including analysis of a narrower set of self-reported anticorruption efforts for a larger sample over multiple years. Given this evidence, we conclude that, on average, firms' self-reported anticorruption efforts signal real efforts to combat corruption and are not merely cheap talk.

    Keywords: corruption; Performance; Corporate performance; Growth; Sales; disclosure; disclosure strategy; sustainability; Crime and Corruption; Corporate Disclosure; Performance; Sales;

    Citation:

    Healy, Paul M., and George Serafeim. "An Analysis of Firms' Self-reported Anticorruption Efforts." Accounting Review 91, no. 2 (March 2016): 489–511. View Details
  6. The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts' Perceptions and Shifting Institutional Logics

    Ioannis Ioannou and George Serafeim

    We explore the impact of corporate social responsibility (CSR) ratings on sell-side analysts' assessments of firms' future financial performance. We suggest that when analysts perceive CSR as an agency cost, due to the prevalence of an agency logic, they produce pessimistic recommendations for firms with high CSR ratings. Moreover, we theorize that over time, the emergence of a stakeholder focus, and the gradual weakening of the agency logic, shifts the analysts' perceptions of CSR ratings and results in increasingly less pessimistic recommendations for firms with high CSR ratings. Using a large sample of publicly traded U.S. firms over 15 years, we confirm that in the early 1990s, analysts issue more pessimistic recommendations for firms with high CSR ratings. However, in more recent years analysts progressively assess these firms less pessimistically, and eventually they assess them optimistically. Furthermore, we find that more experienced analysts and analysts at higher-status brokerage houses are the first to shift the relation between CSR ratings and investment recommendation optimism. We find no significant link between firms' CSR ratings and analysts' forecast errors, indicating that learning is unlikely to account for the observed shifts in recommendations.

    Keywords: corporate social responsibility; analysts; investment recommendations; sustainability; Institutional Logics; environment; corporate governance; Corporate Social Responsibility and Impact; Investment; Corporate Governance; United States;

    Citation:

    Ioannou, Ioannis, and George Serafeim. "The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts' Perceptions and Shifting Institutional Logics." Strategic Management Journal 36, no. 7 (July 2015): 1053–1081. View Details
  7. Speaking of the Short-Term: Disclosure Horizon and Managerial Myopia

    Francois Brochet, Maria Loumioti and George Serafeim

    We study conference calls as a voluntary disclosure channel and create a proxy for the time horizon that senior executives emphasize in their communications. We find that our measure of disclosure time horizon is associated with capital market pressures and executives' short-term monetary incentives. Consistent with the language emphasized during conference calls partially capturing short-termism, we show that our proxy is associated with earnings and real activities management. Overall, the results show that the time horizon of conference call narratives can be informative about managers' myopic behavior.

    Keywords: Short-termism; management styles; disclosure; conference calls; Investing; earnings management; Motivation and Incentives; Management Style; Forms of Communication;

    Citation:

    Brochet, Francois, Maria Loumioti, and George Serafeim. "Speaking of the Short-Term: Disclosure Horizon and Managerial Myopia." Review of Accounting Studies 20, no. 3 (September 2015): 1122–1163. View Details
  8. Integrated Reporting and Investor Clientele

    George Serafeim

    In this paper, I examine the relation between Integrated Reporting (IR) and the composition of a firm's investor base. I hypothesize and find that firms that practice IR have a more long-term oriented investor base with more dedicated and fewer transient investors. This result is more pronounced for firms with high growth opportunities, not controlled by a family, operating in 'sin' industries, and exhibiting commitment to IR. I find that the results are robust to the inclusion of firm fixed effects, controls for the quantity of sustainability disclosure, and alternative ways of measuring IR. Moreover, I show that investor activism on environmental or social issues or a large number of concerns about a firm's environmental or social impact leads a firm to practice more IR and that this investor or crisis-induced IR affects the composition of a firm's investor base. Finally, firms that report more information about the different forms of capital or follow more closely the guiding principles as described in the IR Framework of the IIRC exhibit a more long-term oriented investor base.

    Keywords: integrated reporting; sustainability reporting; long-term investing; Short-termism; corporate governance; accounting; Integrated Corporate Reporting; Environmental Sustainability; Investment; Corporate Governance;

    Citation:

    Serafeim, George. "Integrated Reporting and Investor Clientele." Journal of Applied Corporate Finance 27, no. 2 (Spring 2015): 34–51. View Details
  9. The Impact of Corporate Sustainability on Organizational Processes and Performance

    Robert G. Eccles, Ioannis Ioannou and George Serafeim

    We investigate the effect of corporate sustainability on organizational processes and performance. Using a matched sample of 180 U.S. companies, we find that corporations that voluntarily adopted sustainability policies by 1993—termed as High Sustainability companies—exhibit by 2009 distinct organizational processes compared to a matched sample of companies that adopted almost none of these policies—termed as Low Sustainability companies. The boards of directors of High Sustainability companies are more likely to be formally responsible for sustainability, and top executive compensation incentives are more likely to be a function of sustainability metrics. High Sustainability companies are more likely to have established processes for stakeholder engagement, to be more long-term oriented, and to exhibit higher measurement and disclosure of nonfinancial information. Finally, High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance.

    Keywords: sustainability; Sustainability Management; Sustainability Research; sustainability reporting; sustainability targets; corporate social responsibility; corporate accountability; reporting; corporate governance; investor clientele; investor communication; stock market; Corporate Social Responsibility and Impact; Environmental Sustainability; Performance; United States;

    Citation:

    Eccles, Robert G., Ioannis Ioannou, and George Serafeim. "The Impact of Corporate Sustainability on Organizational Processes and Performance." Management Science 60, no. 11 (November 2014): 2835–2857. View Details
  10. The Effect of Institutional Factors on the Value of Corporate Diversification

    Venkat Kuppuswamy, George Serafeim and Belen Villalonga

    Using a large sample of diversified firms from 38 countries we investigate the influence of several national-level institutional factors or 'institutional voids' on the value of corporate diversification. Specifically, we explore whether the presence of frictions in a country's capital markets, labor markets, and product markets, affect the excess value of diversified firms. We find that the value of diversified firms relative to their single-segment peers is higher in countries with less efficient capital and labor markets, but find no evidence that product market efficiency affects the relative value of diversification. These results provide support for the theory of internal capital markets that argues that internal capital allocation would be relatively more beneficial in the presence of frictions in the external capital markets. In addition, the results show that diversification can be beneficial in the presence of frictions in the labor market.

    Keywords: diversification; diversification discount; institutions; labor market; capital markets; competition; human capital; Human Capital; Diversification; Value; Capital Markets;

    Citation:

    Kuppuswamy, Venkat, George Serafeim, and Belen Villalonga. "The Effect of Institutional Factors on the Value of Corporate Diversification." Advances in Strategic Management 31 (2014). View Details
  11. Attracting Long-Term Investors Through Integrated Thinking and Reporting: A Clinical Study of a Biopharmaceutical Company

    Andrew Knauer and George Serafeim

    Faced with a large percentage of investors that chase short-term returns, companies could benefit by attracting investors with longer-term horizons and incentives that are more consistent with the long-term strategy of the company. The managers of most companies take their investor base as a "given" that cannot be changed through their actions or words. Using the case of Shire, a biopharmaceutical company with a strong commitment to the goals of improving the safety of its products and the reliability of its supply chain, the authors of this article suggest that companies have the ability and the means to change their investor base in ways that are consistent with their strategy. One of the most promising ways of attracting such investors is integrated reporting, which provides companies with a means of credibly communicating the commitment of its top leadership to diffusing integrated thinking across the organization and to building strong relationships with important external stakeholders. In the case of Shire, both a commitment to integrated thinking and the adoption of integrated reporting appear to have helped the company attract longer-term investors, which in turn has strengthened management's confidence to carry out its strategy of stakeholder engagement and investment.

    Keywords: Investing; asset management; long-term investing; Short-termism; sustainability; integrated reporting; Leadership & Corporate Accountability; pharmaceutical industry; Pharmaceuticals; Leadership; Integrated Corporate Reporting; Investment; Business and Stakeholder Relations; Corporate Finance; Biotechnology Industry; Pharmaceutical Industry;

    Citation:

    Knauer, Andrew, and George Serafeim. "Attracting Long-Term Investors Through Integrated Thinking and Reporting: A Clinical Study of a Biopharmaceutical Company." Journal of Applied Corporate Finance 26, no. 2 (Spring 2014): 57–64. View Details
  12. Corporate Social Responsibility and Access to Finance

    Beiting Cheng, Ioannis Ioannou and George Serafeim

    In this paper, we investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to a) reduced agency costs due to enhanced stakeholder engagement and b) reduced informational asymmetry due to increased transparency. Using a large cross-section of firms, we find that firms with better CSR performance face significantly lower capital constraints. Moreover, we provide evidence that both of the hypothesized mechanisms, better stakeholder engagement and transparency around CSR performance, are important in reducing capital constraints. The results are further confirmed using an instrumental variables and a simultaneous equations approach. Finally, we show that the relation is driven by both the social and the environmental dimension of CSR.

    Keywords: corporate social responsibility; sustainability; capital constraints; "ESG (environmental, social, governance) performance; stakeholder engagement; disclosure; Corporate Disclosure; Corporate Social Responsibility and Impact; Environmental Sustainability; Capital;

    Citation:

    Cheng, Beiting, Ioannis Ioannou, and George Serafeim. "Corporate Social Responsibility and Access to Finance." Strategic Management Journal 35, no. 1 (January 2014): 1–23. View Details
  13. Market Competition, Earnings Management, and Persistence in Accounting Profitability Around the World

    Paul M. Healy, George Serafeim, Suraj Srinivasan and Gwen Yu

    We examine how cross-country differences in product, capital, and labor market competition, and earnings management affect mean reversion in accounting return on assets. Using a sample of 48,465 unique firms from 49 countries, we find that accounting returns mean revert faster in countries where there is more product and capital market competition, as predicted by economic theory. Country differences in labor market competition and earnings management are also related to mean reversion in accounting returns—but the relation varies with firm performance. Country labor competition increases mean reversion when unexpected returns are positive, but dampens it when unexpected returns are negative. Accounting returns in countries with higher earnings management mean revert more slowly for profitable firms and more rapidly for loss firms. Thus, earnings management incentives to slow or speed up mean reversion in accounting returns are accentuated in countries where there is a high propensity for earnings management. Overall, these findings suggest that country factors explain mean reversion in accounting returns and are therefore relevant for firm valuation.

    Keywords: Performance; Corporate performance; valuation; Equity Valuation; Persistence; competitive advantage; institutions; earnings management; labor market; capital markets; competition; Profit; Performance; Supply and Industry; Financial Statements; Government and Politics; Globalized Markets and Industries;

    Citation:

    Healy, Paul M., George Serafeim, Suraj Srinivasan, and Gwen Yu. "Market Competition, Earnings Management, and Persistence in Accounting Profitability Around the World." Review of Accounting Studies 19, no. 4 (December 2014): 1281–1308. View Details
  14. The Stock Selection and Performance of Buy-Side Analysts

    Boris Groysberg, Paul Healy, George Serafeim and Devin Shanthikumar

    Prior research on equity analysts focuses almost exclusively on those employed by sell-side investment banks and brokerage houses. Yet investment firms undertake their own buy-side research and their analysts face different stock selection and recommendation incentives than their sell-side peers. We examine the selection and performance of stocks recommended by analysts at a large investment firm relative to those of sell-side analysts from mid-1997 to 2004. We find that the buy-side firm's analysts issue less optimistic recommendations for stocks with larger market capitalizations and lower return volatility than their sell-side peers, consistent with their facing fewer conflicts of interest and having a preference for liquid stocks. Tests with no controls for these effects indicate that annualized buy-side Strong Buy/Buy recommendations underperform those for sell-side peers by 5.9% using market-adjusted returns and by 3.8% using four-factor model abnormal returns. However, these findings are driven by differences in the stocks recommended and their market capitalization. After controlling for these selection effects, we find no difference in the performance of the buy- and sell-side analysts' Strong Buy/Buy recommendations.

    Keywords: buy-side analysts; sell-side analysts; stock recommendations; recommendation optimism; recommendation performance; investment recommendations; conflicts of interest; Financial Markets; Financial Institutions; Financial Services Industry; United States;

    Citation:

    Groysberg, Boris, Paul Healy, George Serafeim, and Devin Shanthikumar. "The Stock Selection and Performance of Buy-Side Analysts." Management Science 59, no. 5 (May 2013): 1062–1075. View Details
  15. Does Mandatory IFRS Adoption Improve the Information Environment?

    Joanne Horton, George Serafeim and Ioanna Serafeim

    We examine the effect of mandatory International Financial Reporting Standards (IFRS) adoption on firms' information environment. We find that after mandatory IFRS adoption, consensus forecast errors decrease for firms that mandatorily adopt IFRS relative to forecast errors of other firms. We also find decreasing forecast errors for voluntary adopters, but this effect is smaller and not robust. Moreover, we show that the magnitude of the forecast errors decrease is associated with the firm-specific differences between local GAAP and IFRS. Exploiting individual analyst level data and isolating settings where analysts would benefit more from either increased comparability or higher quality information, we document that the improvement in the information environment is driven both by information and comparability effects. These results are robust to variations in the measurement of information environment quality, forecast horizon, sample composition, and tests of earnings management.

    Keywords: International Accounting; Financial Reporting; Standards; Information; Quality; Earnings Management;

    Citation:

    Horton, Joanne, George Serafeim, and Ioanna Serafeim. "Does Mandatory IFRS Adoption Improve the Information Environment?" Contemporary Accounting Research 30, no. 1 (Spring 2013): 388–423. View Details
  16. The Performance Frontier: Innovating for a Sustainable Strategy

    Robert G. Eccles and George Serafeim

    By now most companies have sustainability programs. They're cutting carbon emissions, reducing waste, and otherwise enhancing operational efficiency. But a mishmash of sustainability tactics does not add up to a sustainable strategy. To endure, a strategy must address the interests of all stakeholders: investors, employees, customers, governments, NGOs, and society at large. To do that, it has to increase shareholder value while at the same time improving the firm's performance on environmental, social, and governance (ESG) dimensions. This article outlines a process that can be used to execute a sustainable strategy and extend the boundaries of The Performance Frontier.

    Keywords: sustainability; innovation; environment; governance; corporate reporting; corporate social responsibility; Governance; Strategy; Value; Corporate Social Responsibility and Impact; Performance; Environmental Sustainability; Innovation and Invention;

    Citation:

    Eccles, Robert G., and George Serafeim. "The Performance Frontier: Innovating for a Sustainable Strategy." Harvard Business Review 91, no. 5 (May 2013): 50–60. View Details
  17. A Tale of Two Stories: Sustainability and the Quarterly Earnings Call

    Robert G. Eccles and George Serafeim

    One of the challenges companies claim to face in making sustainability a core part of their strategy and operations is that the market does not care about sustainability, either in general or because the time frames in which it matters are too long. The response of investors who say they care about sustainability—and their numbers are large and growing—is that companies do a poor job in providing them with the information they need to take sustainability into account in their investment decisions. Whatever the merits of each view, the fact remains that an effective conversation about sustainability requires the participation of both sides of the market. There are two main mechanisms for companies to communicate to the market as a way of starting this conversation: mandated reporting and quarterly conference calls. In this paper, the authors argue that neither companies nor investors can be seen as taking sustainability seriously unless it is integrated into the quarterly earnings call. Until that happens, the core business and sustainability are two separate worlds, each of which has its own narrator telling a different story to a different audience. The authors illustrate their argument using the case of SAP, the German software company. SAP was the first company to host an "ESG Briefing," a conference call for analysts and investors held on July 30, 2013 in which the company discussed both its sustainability performance and how its sustainability initiatives were contributing to its financial performance. The narrative of this call was very similar to the narrative of the company's first "integrated report," which was issued in 2012 and presented the company's sustainability initiatives in the context of its operating and financial performance. However, the contents of the "ESG Briefing" and those of its traditional quarterly earnings conference calls were very different—and so were the audiences. Whereas the quarterly call was attended mainly by sell side analysts—and the words "sustainability" or "sustainable" failed to receive a single mention—the ESG briefing was delivered to an investor audience made up exclusively of the "buy side."

    Keywords: sustainability; Communication; Integrated Corporate Reporting; Investment; Environmental Sustainability;

    Citation:

    Eccles, Robert G., and George Serafeim. "A Tale of Two Stories: Sustainability and the Quarterly Earnings Call." Journal of Applied Corporate Finance 25, no. 3 (Summer 2013): 66–77. View Details
  18. Mutual Fund Trading Pressure: Firm-Level Stock Price Impact and Timing of SEOs

    Mozaffar N. Khan, Leonid Kogan and George Serafeim

    In tests of the equity market timing theory of external finance, the prior literature has used overvaluation identifiers such as high market-to-book and high prior returns that are likely correlated with other determinants of SEOs. We use price pressure resulting from purchases by mutual funds with large capital inflows to identify overvalued equity. This is a relatively exogenous overvaluation indicator as it is associated with who is buying—buyers with excess liquidity—rather than what is being purchased. Using this indicator we document that 1) inflow-driven buying pressure by mutual funds has a pronounced and persistent stock price impact, 2) the probability of an SEO increases by 59%, 3) insider sales increase by 7%, and 4) the probability of completing a stock-based acquisition increases by 20% in the four quarters following the buying pressure. These results provide new evidence that firm managers are able to identify and exploit overvalued equity.

    Keywords: Equity; Market Transactions; Valuation; Capital Structure; Market Timing; Mathematical Methods; Acquisition;

    Citation:

    Khan, Mozaffar N., Leonid Kogan, and George Serafeim. "Mutual Fund Trading Pressure: Firm-Level Stock Price Impact and Timing of SEOs." Journal of Finance 67, no. 4 (August 2012): 1371–1395. View Details
  19. Resources or Power? Implications of Social Networks on Compensation and Firm Performance

    Joanne Horton, Yuval Millo and George Serafeim

    Using a sample of 4,278 listed UK firms, we construct a social network of directorship-interlocks that comprises 31,495 directors. We use social capital theory and techniques developed in social network analysis to measure a director's connectedness and investigate whether this connectedness is associated with their compensation level and their firm's overall performance. We find connectedness is positively associated with compensation and with the firm's future performance. The results do not support the view that executive and outside directors use their connections to rent extract. Rather the company compensates these individuals for the resources these better connections provide to the firm.

    Keywords: Power and Influence; Social and Collaborative Networks; Compensation and Benefits; Performance; Relationships; Resource Allocation; United Kingdom;

    Citation:

    Horton, Joanne, Yuval Millo, and George Serafeim. "Resources or Power? Implications of Social Networks on Compensation and Firm Performance." Journal of Business Finance & Accounting 39, nos. 3-4 (April–May 2012): 399–426. View Details
  20. What Drives Corporate Social Performance? The Role of Nation-level Institutions

    Ioannis Ioannou and George Serafeim

    Based on Whitley's "National Business Systems" (NBS) institutional framework (Whitley 1997, 1999), we theorize about and empirically investigate the impact of nation-level institutions on firms' corporate social performance (CSP). Using a sample of firms from 42 countries spanning seven years, we construct an annual composite CSP index for each firm based on social and environmental metrics. We find that the political system, followed by the labor and education system, and the cultural system are the most important NBS categories of institutions that impact CSP. Interestingly, the financial system appears to have a relatively less significant impact. We discuss implications for research, practice, and policy-making.

    Keywords: environment; environmental performance; corporate social responsibility; sustainability; institutions; institutional theory; Corporate Social Responsibility and Impact; Environmental Sustainability; Corporate Governance;

    Citation:

    Ioannou, Ioannis, and George Serafeim. "What Drives Corporate Social Performance? The Role of Nation-level Institutions." Journal of International Business Studies 43, no. 9 (December 2012): 834–864. View Details
  21. How to Become a Sustainable Company

    Robert G. Eccles, Kathleen Miller Perkins and George Serafeim

    Using field and survey data we identify the characteristics of sustainable companies, and we develop a two-stage model that can help companies develop a culture of innovation, trust, and the ability for transformational change.

    Keywords: sustainability; innovation; trust; leadership; Leadership; Environmental Sustainability; Organizational Culture; Innovation and Invention; Trust; Organizational Change and Adaptation;

    Citation:

    Eccles, Robert G., Kathleen Miller Perkins, and George Serafeim. "How to Become a Sustainable Company." MIT Sloan Management Review 53, no. 4 (Summer 2012). View Details
  22. The Need for Sector-Specific Materiality and Sustainability Reporting Standards

    Robert G. Eccles, Michael P. Krzus, Jean Rogers and George Serafeim

    Even though the supply of sustainability information has increased considerably in the last decade, companies are still failing to disclose material information in a comparable format. We believe this has two downsides. On the one hand, companies are not adequately managing important business issues. On the other hand, risks to investors' portfolios, such as exposure to climate change, remain hidden. If this disclosure void continues to exist, the competitiveness of U.S. companies and its capital market will be at risk. While not a panacea, we believe that developing sector-specific guidelines on what sustainability issues are material to that sector and the Key Performance Indicators (KPIs) for reporting on them would significantly improve the ability of companies to report on their Environmental, Social and Governance (ESG) performance.

    Keywords: sustainability; reporting; accounting; standard setting; regulation; Environmental Sustainability; Accounting; Standards; Integrated Corporate Reporting; Corporate Disclosure; Competitive Advantage; Capital Markets; Accounting Industry; United States;

    Citation:

    Eccles, Robert G., Michael P. Krzus, Jean Rogers, and George Serafeim. "The Need for Sector-Specific Materiality and Sustainability Reporting Standards." Journal of Applied Corporate Finance 24, no. 2 (Spring 2012): 65–71. View Details
  23. Information Risk and Fair Value: An Examination of Equity Betas

    Edward J. Riedl and George Serafeim

    Using a sample of U.S. financial institutions, we exploit recent mandatory disclosures of financial instruments designated as fair value level 1, 2, and 3 to test whether greater information risk in financial instrument fair values leads to higher cost of capital. We derive an empirical model allowing asset-specific estimates of implied betas and find evidence that firms with greater exposure to level 3 financial assets exhibit higher betas relative to those designated as level 1 or level 2. We further find that this difference in implied betas across fair value designations is more pronounced for firms with ex ante lower-quality information environments: firms with lower analyst following, lower market capitalization, higher analyst forecast errors, or higher analyst forecast dispersion. Overall, the results are consistent with a higher cost of capital for more opaque financial assets, but also suggest that differences in firms' information environments can mitigate information risk across the fair value designations.

    Keywords: Forecasting and Prediction; Assets; Cost of Capital; Financial Institutions; Financial Instruments; Corporate Disclosure; Information; Risk and Uncertainty; Value; United States;

    Citation:

    Riedl, Edward J., and George Serafeim. "Information Risk and Fair Value: An Examination of Equity Betas." Journal of Accounting Research 49, no. 4 (September 2011): 1083–1122. View Details
  24. What Factors Drive Analyst Forecasts?

    Boris Groysberg, Paul Healy, Nitin Nohria and George Serafeim

    A firm's competitive environment, its strategic choices, and its internal capabilities are considered important determinants of its future performance. Yet there is little evidence on whether analysts' forecasts of firm performance actually reflect any of these factors and which are considered most important. We use survey data from 967 analysts ranking 837 companies to judge how their forecasts are related to evaluations of firms' industry competitiveness, strategic choices, and internal capabilities. Forecasts are generally associated with many of the factors that money managers rate as important in their assessments of analyst contributions, including industry growth and competitiveness, low-price strategy, strategy execution, top management quality, innovation, and performance-driven culture. We also find wide variation across variables for ratings consistency among analysts covering the same firm. On average, consistency is higher for sell-side than buy-side analysts, consistent with sell-side analysts facing greater incentives to herd.

    Keywords: Competition; Forecasting and Prediction; Industry Growth; Judgments; Performance; Valuation; Price; Quality; Innovation and Invention; Organizational Culture; Competency and Skills; Surveys;

    Citation:

    Groysberg, Boris, Paul Healy, Nitin Nohria, and George Serafeim. "What Factors Drive Analyst Forecasts?" Financial Analysts Journal 67, no. 4 (July–August 2011). View Details
  25. Consequences and Institutional Determinants of Unregulated Corporate Financial Statements: Evidence from Embedded Value Reporting

    George Serafeim

    I analyze Embedded Value (EV) reporting by firms with life insurance operations to assess the impact of unregulated financial reporting on transparency and to examine the institutional characteristics that promote unregulated reporting. Under EV accounting the present value of future cash flows from in-force contracts is included in shareholders' equity, and profit is calculated as the change in equity between two periods. In contrast to Generally Accepted Accounting Principles (GAAP), this approach produces higher shareholder's equity and recognizes income at contract inception. I find firms that adopt EV reporting exhibit a decline in information asymmetry, with the decline increasing as EV reporting evolves to address methodological deficiencies and to permit more comparability across firms. The decrease in information asymmetry is contingent on providing an audit certification, and larger for firms that commit to providing EV reports. Moreover, I document that EV reporting is more widespread in countries with more hostile takeovers, managers that do not avoid volatile income measures, regulators that are less likely to intervene in the product market, and analysts that believe EV disclosure to increase the value of their information intermediation function.

    Keywords: Financial Statements; Mergers and Acquisitions; Financial Reporting; Cash Flow; Contracts; Equity; Profit; Value; Corporate Disclosure; Governing Rules, Regulations, and Reforms; Business and Shareholder Relations; Business Earnings;

  26. 'Deprival Value' vs. 'Fair Value' Measurement for Contract Liabilities: How to Resolve the 'Revenue Recognition' Conundrum

    Joanne Horton, Richard H. Macve and George Serafeim

    Revenue recognition and measurement principles can conflict with liability recognition and measurement principles. We explore here under different market conditions when the two measurement approaches coincide and when they conflict. We show that where entities expect to earn "super profits" (residual income) the conceptual conflict is exacerbated by the adoption of "fair value" (FV) as the measurement basis for assets and liabilities rather than the more theoretically grounded approach of "deprival value/relief value" (DV/RV), which better reflects the impact of, and rational management response to, varying market conditions. However, while the problems of balance-sheet liability and revenue recognition, and the related problems of income statement presentation, can be resolved by the application of DV/RV reasoning, this is not sufficient fully to resolve issues of the appropriate timing of profit recognition. Performance measurement issues still need to be addressed directly. The standard setters' current projects on "recognition," "insurance contracts," and "measurement" therefore need broadening to consider the pervasive issue of accounting for internally generated intangibles.

    Keywords: Fair Value Accounting; Measurement and Metrics; Profit; Revenue; Conflict and Resolution; Assets; Performance Evaluation; Projects; Contracts;

    Citation:

    Horton, Joanne, Richard H. Macve, and George Serafeim. "'Deprival Value' vs. 'Fair Value' Measurement for Contract Liabilities: How to Resolve the 'Revenue Recognition' Conundrum." Accounting and Business Research 41, no. 5 (2011): 491–514. View Details
  27. Market Interest in Nonfinancial Information

    R. G. Eccles, Michael P. Krzus and George Serafeim

    Market interest in nonfinancial (e.g., Environmental, Social, and Governance [ESG]) information, including data produced by the Carbon Disclosure Project (CDP), is growing. Using data from Bloomberg we analyze this interest from a variety of different perspectives, and in doing so are able to provide a level of granularity about market interest in nonfinancial information that has not yet been provided.

    Keywords: Markets; Data and Data Sets; Perspective; Environmental Sustainability; Social Issues; Corporate Disclosure; Projects; Interests;

    Citation:

    Eccles, R. G., Michael P. Krzus, and George Serafeim. "Market Interest in Nonfinancial Information." Journal of Applied Corporate Finance 23, no. 4 (Fall 2011): 113–127. View Details
  28. The Impact of Corporate Social Responsibility on Investment Recommendations

    Ioannis Ioannou and George Serafeim

    Using a large sample of publicly traded U.S. firms over 16 years, we investigate the impact of corporate socially responsible (CSR) strategies on security analysts' recommendations. Socially responsible firms received more favorable recommendations in recent years relative to earlier ones, documenting a changing perception of such strategies by the analysts. Moreover, we find that higher visibility firms receive more favorable recommendations for their CSR strategies. We also find that analysts with more experience, broader CSR awareness, or those with more resources at their disposal, are more likely to perceive CSR strategies favorably. Our results show how CSR strategies can affect value creation in public equity markets through analyst recommendations.

    Keywords: Public Ownership; Corporate Social Responsibility and Impact; Strategy; Experience and Expertise; Value Creation; Public Equity; Markets; Investment; Perception; United States;

    Citation:

    Ioannou, Ioannis, and George Serafeim. "The Impact of Corporate Social Responsibility on Investment Recommendations." Academy of Management Annual Meeting Proceedings (2010). View Details
  29. Market Reaction to and Valuation of IFRS Reconciliation Adjustments: First Evidence from the UK

    Joanne Horton and George Serafeim

    We investigate the market reaction to, and the value-relevance of, information contained in the mandatory transitional documents required by International Financial Reporting Standards (IFRS) 1 (2005). We find significant negative abnormal returns for firms reporting negative earnings reconciliation. Although the informational content of the positive earnings adjustments is value-relevant before disclosure, for negative earnings adjustments it is value-relevant only after disclosure. This finding is consistent with managers delaying the communication of bad news until IFRS compliance. A finer model shows that adjustments attributed to impairment of goodwill, share-based payments, and deferred taxes are incrementally value-relevant but that only the impairment of goodwill and deferred taxes reveal new information. Our results indicate that mandatory IFRS adoption alters investors' beliefs about stock prices.

    Keywords: Valuation; Markets; Information; International Finance; Earnings Management; Stock Shares; Taxation; Goodwill Accounting; Price; Financial Reporting; Standards; Corporate Disclosure; United Kingdom;

    Citation:

    Horton, Joanne, and George Serafeim. "Market Reaction to and Valuation of IFRS Reconciliation Adjustments: First Evidence from the UK." Review of Accounting Studies 15, no. 4 (December 2010). View Details

Op-eds

  1. Moving Forward

    George Serafeim

    Commerce, the synthesis of entrepreneurship and business, has been one of the most powerful institutions the world has ever seen. Commerce unlocks the highest human potential for creativity, innovation, and discovery.

    Keywords: Change; change management; leadership; Europe; turnaround; Management Practices and Processes; Leadership; Change Management; Management Practices and Processes; Entrepreneurship; Europe;

    Citation:

    Serafeim, George. "Moving Forward." Business Partners 15, no. 82 (January–February 2016): 38–39. View Details
  2. How to Turn Around a Country

    Paul Kazarian and George Serafeim

    Change is hard. Especially trying to change an entire country and its public sector that consists of more than 650,000 employees and has an annual budget of approximately 80 billion euros. This is the case of Greece, once the fastest-growing eurozone country, which has experienced devastating value destruction in the past seven years because of bad management.

    Keywords: Greece; Europe; European Union; turnaround; accounting; accountability; economic growth; leadership; Change; Sovereign Finance; Leadership; Corporate Accountability; Public Sector; Accounting; Economic Growth; Change; European Union; Greece;

    Citation:

    Kazarian, Paul, and George Serafeim. "How to Turn Around a Country." Kathimerini (January 19, 2016). View Details
  3. Corporate Reporting in the Big Data Era

    George Serafeim

    Advancements in information technology can improve corporate communication with shareholders, but not through incessant data dumps. Instead, companies will more likely be poised for continued success if they use digital platforms for long-term oriented engagement and communication in the context of our changing global economy. This is characterized by increased demand for corporate transparency, heightened global competition leading to customer mobility, and resource scarcity that raises the importance of innovation in sourcing, production, and delivery processes. Quality of communication, not quantity will yield important benefits.

    Keywords: integrated reporting; big data; corporate reporting; corporate accountability; sustainability; corporate social responsibility; corporate governance; accounting; reporting; Organizational Change and Adaptation; Corporate Accountability; Data and Data Sets; Information Technology; Communication; Financial Reporting; Business and Shareholder Relations;

    Citation:

    Serafeim, George. "Corporate Reporting in the Big Data Era." IIRC Blog (April 29, 2014). View Details
  4. Is There an Optimal Degree of Sustainability?

    Robert G. Eccles, Ioannis Ioannou and George Serafeim

    Corporate sustainability is not a one size fits all concept. A successful strategy balances all business pressures.

    Keywords: Corporate Social Responsibility and Impact; Strategy;

    Citation:

    Eccles, Robert G., Ioannis Ioannou, and George Serafeim. "Is There an Optimal Degree of Sustainability?" Ethical Corporation (February 2, 2012), 39–43. View Details
  5. Companies and Investors Should See More of Each Other

    Robert G. Eccles and George Serafeim

    Company executives and institutional asset managers are increasingly working sustainability into their strategy and operations. Similarly, institutional asset managers are doing the same in constructing their portfolios. Yet both groups are doing this relatively independently of each other. These two groups should and will be seeing more of each other as sustainability matures.

    Keywords: sustainability; Environmental Sustainability; Growth and Development Strategy;

    Citation:

    Eccles, Robert G., and George Serafeim. "Companies and Investors Should See More of Each Other." Bloomberg.com (July 23, 2012). View Details
  6. Short Termism: Don't Blame the Investors

    Francois Brochet, George Serafeim and Maria Loumioti

    The article presents research on executives and corporation investor relations. A study is conducted of the language used by executives in conference calls discussing earnings with investors and financial analysts. A correlation was found between the use of language indicating a short-term focus by those executives and both their company's financial management practices and the company's stockholders, who were more likely to hold stock for short periods of time compared to other stocks.

    Keywords: Financial Management; Business Earnings; Managerial Roles; Investment; Agency Theory; Communication Strategy; Business and Shareholder Relations;

    Citation:

    Brochet, Francois, George Serafeim, and Maria Loumioti. "Short Termism: Don't Blame the Investors." Harvard Business Review 90, no. 6 (June 2012). View Details
  7. The Role of The Board in Creating a Sustainable Strategy

    Robert G. Eccles, Ioannis Ioannou and George Serafeim

    While conceptually elegant, the belief that a corporation's role is to maximize value for shareholders is under increasing challenge as society's expectations for companies change. An equally elegant new concept that takes account of these dual pressures has yet to emerge, but terms such as "corporate social responsibility," "shared value," "theory," and "sustainability" are being heard more and more. The high-level rhetorical gloss that good performance on environmental, social, and governance (ESG) dimensions results in good financial performance and value creation for shareholders is too simplistic. Sometimes this is indeed the case but often these decisions require tradeoffs, at least in the short-term. Moreover, these decisions involve great uncertainty due to the lack of information and an understanding of costs and benefits. We argue that it is now essential for companies to have a deliberate process for making the tough decisions that involve short- and long-term tradeoffs involving shareholders and other stakeholders and that it is the responsibility of the board of directors to ensure that this process exists, and it is effective.

    Keywords: Value Creation; Business and Stakeholder Relations; Corporate Strategy; Business and Shareholder Relations; Corporate Social Responsibility and Impact; Performance Expectations; Governing and Advisory Boards; Management Practices and Processes; Decisions; Risk and Uncertainty; Cost vs Benefits; Information;

    Citation:

    Eccles, Robert G., Ioannis Ioannou, and George Serafeim. "The Role of The Board in Creating a Sustainable Strategy." TrustLaw (November 29, 2011). View Details
  8. Leading and Lagging Countries in Contributing to a Sustainable Society

    Robert G. Eccles and George Serafeim

    To determine the extent to which corporate and investor behavior is changing to contribute to a more sustainable society, researchers Robert Eccles and George Serafeim analyzed data involving over 2,000 companies in 23 countries. One result: a ranking of countries based on the degree to which their companies integrate environmental and social discussions and metrics in their financial disclosures.

    Keywords: Change; Society; Corporate Disclosure; Natural Environment; Rank and Position; Social Issues; Financial Statements; Behavior;

    Citation:

    Eccles, Robert G., and George Serafeim. "Leading and Lagging Countries in Contributing to a Sustainable Society." Harvard Business School Working Knowledge (May 23, 2011). View Details
  9. The Growing Power of Non-financial Reports

    Ioannis Ioannou and George Serafeim

    We are exploring the value of forcing corporations to issue sustainability reports, which provide information about corporate performance in terms of social, environmental and governance issues. In a breakthrough study they asked, what is the effect of mandatory sustainability reporting on management practices across the world?

    Keywords: Value; Reports; Performance; Management Practices and Processes; Globalization; Power and Influence; Natural Environment; Governance; Social Issues;

    Citation:

    Ioannou, Ioannis, and George Serafeim. "The Growing Power of Non-financial Reports." Business Strategy Review (May 2011). View Details
  10. The Rise and Consequences of Corporate Sustainability Reporting

    Ioannis Ioannou and George Serafeim

    For many decades the cornerstone of corporate reporting has been financial information that is presented in a company's annual, semi-annual, and quarterly reports. These comprehensive financial reports—required by law for public companies in most countries worldwide—have provided shareholders as well as other interested stakeholders with rather elaborate information on the company's operations and strategic activities during the preceding fiscal year. However, in the last two decades and in addition to these financial reports, a growing number of companies across sectors and geographies are communicating to their stakeholders their initiatives and performance within the environmental, social, and governance (ESG) domains. Disclosure of non-financial reports has generated heated debates about whether such information is useful for stakeholders, whether disclosure along ESG dimensions should be mandated by regulation, and if yes, what form such regulation should take. The underlying debate, of course, relates to the broader issue of the role of the business organization within civil society and whether it may contribute toward the world's acute problems via some form of corporate social responsibility (CSR) through a sustainable business model that also generates superior financial performance.

    Keywords: Governing Rules, Regulations, and Reforms; Annual Reports; Operations; Strategy; Business and Shareholder Relations; Business and Stakeholder Relations; Performance; Geography; Civil Society or Community; Business Model; Corporate Social Responsibility and Impact; Corporate Disclosure;

    Citation:

    Ioannou, Ioannis, and George Serafeim. "The Rise and Consequences of Corporate Sustainability Reporting." European Business Review (September–October 2011). View Details
  11. The Role of the Board in Accelerating the Adoption of Integrated Reporting

    Robert G. Eccles and George Serafeim

    This report examines the concept of integrated reporting and its current state of adoption around the globe. It also discusses the benefits to both companies and society and recommends ways boards can help their organizations accelerate the implementation of integrated reporting.

    Keywords: Cost vs Benefits; Governing and Advisory Boards; Corporate Social Responsibility and Impact; Integrated Corporate Reporting; Social Issues; Global Range; Adoption;

    Citation:

    Eccles, Robert G., and George Serafeim. "The Role of the Board in Accelerating the Adoption of Integrated Reporting." Director Notes (The Conference Board) (November 2011). View Details

Books

  1. An Experiment in Fair Value Accounting? The State of the Art in Research and Thought Leadership on Accounting for Life Assurance in the UK and Continental Europe

    Joanne G Horton, Richard H. Macve and George Serafeim

    "Fair value" is currently the central topic of debate in the development of accounting standards. While it has now been defined to mean an exit price in US GAAP, the IASB is still considering its own definition, and some commentators are arguing for versions of entry price, or for differing prices in different circumstances or for different types of asset and liability. The FASB and IASB are aiming to achieve full fair value accounting for financial instruments, and both have already made this optional in many circumstances. But both theoretical and practical challenges still remain to a mandatory requirement. And whether fair values (exit or entry) should be used in revenue recognition and in presenting performance; and how far changes in fair value should be recognised as gains and losses in income or earnings when markets are not deep and active, remain hotly contested areas of dispute. Such measurement issues are likely to prove the most controversial stage in the current revision and convergence of the FASB's and IASB's conceptual frameworks. One industry where practical experiments in wholesale fair value accounting have been developing in the UK and elsewhere since the 1990s is life insurance. Standard setters have also taken up the challenge of determining the most appropriate accounting. The latest proposals from IASB, under "Phase II" of its project on insurance contracts, that are currently out for discussion now contemplate requiring a form of fair value accounting by insurers. While insurance is often regarded as the technical preserve of industry specialists and the actuarial profession, most of the issues of principle are common to accounting for all kinds of assets and liabilities in all kinds of businesses. The life insurance experiments and related debates can therefore help to illuminate the wider discussion of the future role of fair value accounting. And what is decided as the standard for life insurance may in turn change the way accounting is done more generally—or alternatively fear of such a consequence may end up inhibiting the adoption of the best alternative for insurance. So the arguments about life insurance accounting are too important to be left to those directly involved in it.

    Keywords: Transition; Financial Instruments; Framework; Market Entry and Exit; Insurance; Revenue Recognition; Fair Value Accounting; Standards; United Kingdom;

    Citation:

    Horton, Joanne G., Richard H. Macve, and George Serafeim. An Experiment in Fair Value Accounting? The State of the Art in Research and Thought Leadership on Accounting for Life Assurance in the UK and Continental Europe. London, UK: Institute of Chartered Accountants in England and Wales, Centre for Business Performance, 2007. View Details

Book Chapters

  1. Corporate and Integrated Reporting: A Functional Perspective

    Robert G. Eccles and George Serafeim

    In this chapter, we present the two primary functions of corporate reporting (information and transformation) and why currently isolated financial and sustainability reporting are not likely to effectively perform these functions. We describe the concept of integrated reporting and why integrated reporting could be a superior mechanism to perform these functions. We will also argue that integrated reporting can contribute to more effective corporate stewardship. Moreover, we discuss, through a series of case studies, what constitutes an effective integrated report (Coca-Cola Hellenic Bottling Company) and the role of regulation in integrated reporting (Anglo-American).

    Keywords: Information; Integrated Corporate Reporting; Transformation;

    Citation:

    Eccles, Robert G., and George Serafeim. "Corporate and Integrated Reporting: A Functional Perspective." In Corporate Stewardship: Achieving Sustainable Effectiveness, edited by Susan Albers Mohrman, James O'Toole, and Edward E. Lawler. Sheffield, UK: Greenleaf Publishing, 2015. View Details
  2. Promoting Corporate Sustainability through Integrated Reporting: The Role of Investment Fiduciaries and the Responsibilities of the Corporate Board

    Robert G. Eccles, J. Herron and George Serafeim

    This book is a comprehensive reference work exploring recent changes and future trends in the principles that govern institutional investors and fiduciaries. A wide range of contributors offer new perspectives on dynamics that drive the current emphasis on short-term investment returns. Moreover, they analyze the forces at work in markets around the world, which are bringing into sharper focus the systemic effects that investment practices have on the long-term stability of the economy and the interests of beneficiaries in financial, social, and environmental sustainability. This volume provides a global and multi-faceted commentary on the evolving standards governing institutional investment, offering guidance for students, researchers, and policy makers interested in finance, governance, and other aspects of the contemporary investment world. It also provides investment, business, financial media, and legal professionals with the tools they need to better understand and respond to new financial market challenges of the twenty-first century.

    Keywords: Governance; Integrated Corporate Reporting; Institutional Investing; Financial Services Industry;

    Citation:

    Eccles, Robert G., J. Herron, and George Serafeim. "Promoting Corporate Sustainability through Integrated Reporting: The Role of Investment Fiduciaries and the Responsibilities of the Corporate Board." Chap. 31 in Cambridge Handbook of Institutional Investment and Fiduciary Duty, edited by James P. Hawley, Andreas G.F. Hoepner, Keith L. Johnson, Joakim Sandberg, and Edward J. Waitzer, 403–415. Cambridge University Press, 2014. View Details
  3. Capturing the Link between Non-financial and Financial Performance in One Space

    Robert G. Eccles, Jess Schulschenk and George Serafeim

    Keywords: integrated reporting; sustainability; Integrated Corporate Reporting;

    Citation:

    Eccles, Robert G., Jess Schulschenk, and George Serafeim. "Capturing the Link between Non-financial and Financial Performance in One Space." In Making Investment Grade: The Future of Corporate Reporting, edited by Cornis van der Lugt and Daniel Malan, 43–48. United Nations Environment Programme, 2012. View Details
  4. Accelerating the Adoption of Integrated Reporting

    Robert G. Eccles and George Serafeim

    This chapter describes the concept of integrated reporting, provides a brief history of its development, reviews the current state of practice, presents a strategy for institutional change that will accelerate the adoption of integrated reporting in order to meet the five-year objective, and concludes with a call to the reader to do whatever he or she can to speed the adoption of integrated reporting.

    Keywords: Integrated Corporate Reporting; Business History; Organizational Change and Adaptation; Practice; Adoption;

    Citation:

    Eccles, Robert G., and George Serafeim. "Accelerating the Adoption of Integrated Reporting." Chap. 2.2 in CSR Index, edited by Francesco de Leo and Matthias Vollbracht, 70–92. InnoVatio Publishing Ltd., 2011. View Details
  5. The Analyst Recommendation and Earnings Forecast Anomaly

    George Serafeim

    Keywords: Business Earnings; Forecasting and Prediction;

    Citation:

    Serafeim, George. "The Analyst Recommendation and Earnings Forecast Anomaly." Chap. 3 in The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies, edited by Len Zacks, 63–91. John Wiley & Sons, 2011. View Details
  6. Drivers of Corporate Sustainability and Implications for Capital Markets: An International Perspective

    Ioannis Ioannou and George Serafeim

    Keywords: Capital Markets; International Finance;

    Citation:

    Ioannou, Ioannis, and George Serafeim. "Drivers of Corporate Sustainability and Implications for Capital Markets: An International Perspective." In The Landscape of Integrated Reporting, edited by Robert G. Eccles, Beiting Cheng, and Daniela Saltzman, 13–17. Boston: Harvard Business School, 2010. (Ebook, © by the Presidents and Fellows of Harvard College.) View Details

Teaching Cases

  1. Should I Stay or Should I Go? (B)

    Boris Groysberg, George Serafeim, Eric Lin and Robin Abrahams

    A sequel to HBS No. 515-069. Alexi has been hired as CFO for a medical start-up, despite the controversy over his former company. The (B) cases focuses on how to introduce new, high-profile leaders to stakeholders inside and outside the organization.

    Keywords: Business and Stakeholder Relations;

    Citation:

    Groysberg, Boris, George Serafeim, Eric Lin, and Robin Abrahams. "Should I Stay or Should I Go? (B)." Harvard Business School Supplement 116-060, May 2016. View Details
  2. Should I Stay or Should I Go? (A)

    Boris Groysberg, George Serafeim, Eric Lin and Robin Abrahams

    Financial executive Alexi is considering a job change. Will his long-ago association with a company currently embroiled in a scandal hurt his chances in the job market? In the (A) case, Alexi and executive search consultant Marguerite strategize about career opportunities.

    Keywords: Personal Development and Career; Financial Services Industry;

    Citation:

    Groysberg, Boris, George Serafeim, Eric Lin, and Robin Abrahams. "Should I Stay or Should I Go? (A)." Harvard Business School Case 116-059, May 2016. View Details
  3. Turnaround at Norsk Gjenvinning

    George Serafeim and Shannon Gombos

    Erik Osmundsen, CEO of Norsk Gjenvinning (NG), had initiated a program to eliminate corruption and improve compliance, and as a result the company had experienced a turnover of almost half of its top 70 line managers and strained relations with several competitors and the waste management industry association. Osmundsen had relentlessly pushed an agenda that involved transforming and professionalizing the waste management industry to mitigate instances of corruption and other crimes. Osmundsen was convinced that his turnaround strategy would be effective. Having brought employees on board, he was planning to relentlessly engage customers, regulators, and security agencies. It was still unclear though how fast customer demand for robust compliance programs would affect the competitive dynamics. How should NG go about convincing its customers? What could NG learn from companies in other industries that have relied on customer support to shift to responsible business practices? Did competitors that maintain non-compliant practices have an Achilles heel that NG could exploit? To what degree should NG drive change on its own in order to achieve customer differentiation vs. cooperate with competitors to bring the whole industry on board? What other mechanisms existed to level the playing field if NG did not succeed in convincing the customers?

    Keywords: Leading Change; Change Management; Crime and Corruption; Governance Compliance; Wastes and Waste Processing;

    Citation:

    Serafeim, George, and Shannon Gombos. "Turnaround at Norsk Gjenvinning." Harvard Business School Case 116-012, August 2015. (Revised December 2015.) View Details
  4. Greece's Debt: Sustainable?

    George Serafeim

    The case "Greece's Debt: Sustainable?" describes the Greek economic crisis, bailout from the European Union and the International Monetary Fund (IMF), and the debt restructuring that followed. Because of a lack of trust in Greece's ability to repay its debt, two programs were organized that provided financial assistance to Greece. This was followed by a debt restructuring that provided debt relief to Greece through a combination of lowering interest rates, lengthening debt maturity, and rebates on interest and principal. The case outlines how International Financial Reporting Standards (IFRS), U.S. GAAP, and International Public Sector Accounting Standards (IPSAS) define accounting for debt and describes the controversy that existed around the proper valuation of Greece's debt. Because Greece had not adopted accrual accounting, its debt was reported in face value terms, according to the Maastricht treaty. This was in contradiction to accounting practices that prescribed fair valuation of debt in line with market prices or present value techniques. The case ends with a series of questions that steer the discussion towards the importance of accrual accounting and valuation of debt. Did Greece have too much debt and as a result a solvency problem? Should Greece push lenders to take a haircut on the debt? Were the austerity measures really necessary? Or did Greece have too little debt, therefore allowing the country to avoid austerity measures, increase spending, and spark growth?

    Citation:

    Serafeim, George. "Greece's Debt: Sustainable?" Harvard Business School Case 115-063, June 2015. View Details
  5. Accor: Designing an Asset-Right Business and Disclosure Strategy

    Mozaffar Khan and George Serafeim

    Sebastien Bazin was now in charge of Accor, the world's largest French hotelier, a CAC 40 company with 3,600 hotels in 92 countries and a market cap of €10 billion. Previously as the European head of Colony Capital, one of the largest private equity groups and the largest shareholder of Accor, Bazin had since 2005 relentlessly pushed an asset-lite strategy from his perch on the Accor Board in the face of vigorous opposition from employees, senior management, and some Board members. Accor's stock price underperformance and the continuous fight over the strategic direction of the company had created turmoil and turnover in the C-suite and on the Board. After multiple CEO exits, and a failure by the Board to identify the next CEO in 2013, Bazin's offer to resign from Colony and assume the CEO position at Accor was met with incredulity from friends, alarm from Accor employees, and applause from the stock market. But would Bazin be able to deliver on his promises to investors and employees to pursue an asset-right strategy? Was an asset-heavy hotelier viable in today's economic environment? Could the market understand and appropriately value such a firm and what could be its disclosure strategy to ensure a fair valuation of the stock? How long would it be before he could deliver on his promises and show fruit from the restructuring?

    Citation:

    Khan, Mozaffar, and George Serafeim. "Accor: Designing an Asset-Right Business and Disclosure Strategy." Harvard Business School Case 115-036, April 2015. View Details
  6. Statoil: Transparency on Payments to Governments

    George Serafeim, Paul M. Healy and Jérôme Lenhardt

    The Statoil case describes the challenge of increasing transparency, in extractive industries, around host county government payments. The case describes Statoil's reasoning behind voluntarily disclosing host country government payments, and the events that led to this decision. It also articulates how both management and the board were thinking about difficult trade-offs in terms of costs and benefits in making this decision.
    The case also describes self-regulatory and regulatory efforts to increase transparency. The first was the Extractive Industries Transparency Initiative (EITI), which is a set of reporting standards published by a coalition of companies, governments and non-governmental organizations (NGOs). The second was legislation enacted in the United States under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which requires certain disclosures by natural resource extractive companies that are subject to the reporting requirements of the US Securities and Exchange Commission (SEC). The SEC issued a final rule implementing the Dodd-Frank Act in 2013 but that rule had most recently been vacated by the US District Court and is now subject to being re-written by the SEC.
    Therefore, the case allows for a discussion of firm-specific voluntary, industry self-regulatory and regulatory efforts in increasing transparency in extractive industries.

    Keywords: corruption; disclosure; disclosure strategy; regulation; industry self-regulation; corporate governance; corporate accountability; bribery; sustainability; corporate social responsibility; Government Legislation; Cost vs Benefits; Corporate Disclosure; Mining; Mining Industry; United States;

    Citation:

    Serafeim, George, Paul M. Healy, and Jérôme Lenhardt. "Statoil: Transparency on Payments to Governments." Harvard Business School Case 115-049, March 2015. View Details
  7. Shanghai: GDP Apostasy

    George Serafeim, Rebecca Henderson and Shannon Gombos

    The case describes Shanghai's decision to abandon growth of Gross Domestic Product (GDP) as its primary metric of measuring success. Within this context, the case presents the historical roots of GDP and how the measure is calculated. Moreover, the case discusses the prominence of GDP as a measure of economic success. After a discussion of China's and Shanghai's use of GDP growth targets, the case discusses Shanghai's past successes and failures. Specifically, the case describes the enormous economic growth that Shanghai has experienced alongside significant economic, social, and environmental failures such as the inefficient use of resources, pollution, and growing inequality. The case concludes with the decision to abandon GDP growth as a measure of success and opens questions about what this means for Shanghai and China. Moreover, the case raises the question of what alternative metrics measuring success might look like.

    Keywords: China; gdp; measurement; measurement and metrics; measurement problems; accountability; accounting; sustainability; sustainable development; corporate governance;

    Citation:

    Serafeim, George, Rebecca Henderson, and Shannon Gombos. "Shanghai: GDP Apostasy." Harvard Business School Case 115-042, March 2015. View Details
  8. Omar Selim: Building a Values-Based Asset Management Firm (B)

    George Serafeim, Rebecca Henderson and Shannon Gombos

    The case describes the decision of Omar Selim to set up Arabesque as an independent organization and how he organized Arabesque to use both financial and environmental, social and governance (ESG) data in order to deliver performance for its clients.

    Keywords: social enterprise; social entrepreneurship; Investing; investment management; ESG; sustainability; investment banking; leadership; Leadership & Corporate Accountability; Leadership Style; Business Model; Asset Management; Business Startups;

    Citation:

    Serafeim, George, Rebecca Henderson, and Shannon Gombos. "Omar Selim: Building a Values-Based Asset Management Firm (B)." Harvard Business School Supplement 115-035, February 2015. (Revised June 2016.) View Details
  9. Omar Selim: Building a Values-Based Asset Management Firm (A)

    George Serafeim, Rebecca Henderson and Shannon Gombos

    At Barclays Capital, Omar Selim had spearheaded the development of Arabesque—a new socially responsible asset management firm designed to appeal to all investors wishing to invest according to broadly held environmental and social values, as well as to investors wishing to align their investments with their faith. Should Selim give up a very successful career to compete in a highly competitive business, in which it could be very hard to build a differentiated offering? Could Arabesque be something different in the world of asset management? And what role, if any, should values and religious faith play in shaping the firm's products and conduct?

    Keywords: sustainability; ESG; social business; social entrepreneurship; social enterprise; entrepreneurs; scaling; emerging market entrepreneurship; not for profit; entrepreneurial finance; mentoring; business networks; hybrid nonprofit funding; Investing; investment management; Asset Management; Values and Beliefs; Religion; Personal Development and Career; Business Startups;

    Citation:

    Serafeim, George, Rebecca Henderson, and Shannon Gombos. "Omar Selim: Building a Values-Based Asset Management Firm (A)." Harvard Business School Case 115-021, January 2015. (Revised June 2016.) View Details
  10. Chevron Under Fire

    George Serafeim, Rebecca Henderson and Christine Snively

    Oil giant, Chevron, faced numerous challenges on environmental, social and governance (ESG) grounds in the first decade of the 21st century, including some major lawsuits and actions by NGOs. The case describes those challenges and raises questions about what is the optimal response on the part of the company in order to ensure future growth and profitability, and how those challenges are going to affect the future competitiveness of not only Chevron but of the whole oil and gas sector.

    Keywords: carbon tax; oil and gas; environment; drilling; Energy Industry;

    Citation:

    Serafeim, George, Rebecca Henderson, and Christine Snively. "Chevron Under Fire." Harvard Business School Case 115-031, January 2015. View Details
  11. Integrated Reporting in South Africa

    Robert G. Eccles, George Serafeim and Pippa Armbrester

    This case presents a 20-year history of the evolution of corporate governance and corporate reporting in South Africa starting in 1992 with a focus on the three King codes of corporate governance (King I in 1994, King II in 2000, and King III in 2009). From a reporting perspective these reforms culminated in the "apply to explain why not" mandate for integrated reporting by all companies listed on the Johannesburg Stock Exchange.

    Keywords: integrated reporting; sustainability reporting; stock exchanges; South Africa; corporate governance; corporate reporting; regulation; nonfinancial performance; History; Corporate Disclosure; Markets; Integrated Corporate Reporting; Performance; Corporate Governance; South Africa;

    Citation:

    Eccles, Robert G., George Serafeim, and Pippa Armbrester. "Integrated Reporting in South Africa." Harvard Business School Case 413-038, September 2012. (Revised November 2012.) View Details
  12. GoodGuide

    George Serafeim, Robert G. Eccles and Tiffany A. Clay

    GoodGuide, a high-technology start-up company, founded by University of California Professor at Berkley Dara O'Rourke is at a critical junction. The venture capital funded company has yet to find the business model to monetize a very promising product that provides consumers and manufacturers with information about the sustainability of a product.

    Keywords: Entrepreneurship; Growth and Development Strategy; Strategic Planning; Venture Capital; Goods and Commodities; Business Model; Technology; Knowledge; Education Industry; California;

    Citation:

    Serafeim, George, Robert G. Eccles, and Tiffany A. Clay. "GoodGuide." Harvard Business School Case 112-031, September 2011. (Revised May 2012.) View Details
  13. Aviva Investors

    George Serafeim, Robert G. Eccles and Kyle Armbrester

    The Aviva Investors case describes the challenge of integrating sustainability considerations into the strategy and business practices of companies and into the decision making process of the investment community. Steve Waygood, Chief Responsible Investment Officer at Aviva, was tasked with convincing the business community to incorporate material environmental and social factors, and a longer-term view in business decisions. To achieve this ambitious goal, Aviva and Waygood focused on transforming the accounting and auditing concept of materiality, the definition of which Aviva expanded to include environmental, social, and governance (ESG) information. Further, Aviva engaged directly with portfolio companies when their ESG performance was lagging and severe concerns existed about the management's and the board's ability to lead the organization. When portfolio companies resisted or ignored Aviva's approach, Waygood and his team used proxy voting to initiate change in the target company.
    Aviva utilized the proxy voting approach in its campaign against Vedanta—a U.K.-based diversified mining company—which had come under intense scrutiny for multiple human rights and ethical violations. In response, Vedanta ultimately hired a chief sustainability officer and promised to incorporate sustainability into its strategy and business practices.
    To broaden Aviva's reach and influence in the business world, Waygood focused on stock exchanges and the inclusion of sustainability metrics in public companies' reporting practice. Waygood and a coalition of investors had made progress with this approach as more stock exchanges were requiring companies to disclose sustainability metrics. The case closes with Waygood contemplating a series of questions about how Aviva could improve its engagement activities and improve the information environment, using stock exchanges as the lever for change.

    Keywords: Investing; investment management; shareholder activism; disclosure; stock exchanges; sustainability; sustainable development; sustainability reporting; Investment; Business and Shareholder Relations; Environmental Sustainability; United Kingdom;

    Citation:

    Serafeim, George, Robert G. Eccles, and Kyle Armbrester. "Aviva Investors." Harvard Business School Case 112-047, December 2011. (Revised May 2015.) View Details
  14. Allied Electronics Corporation Ltd: Linking Compensation to Sustainability Metrics

    Robert G. Eccles, George Serafeim, Shelley Xin Li and Alan Knight

    Robert Venter, second-generation Chief Executive (CE) of family-owned Allied Electronics Corporation Ltd (Altron), considered the pros and cons of more clearly linking the firm's compensation system to sustainability performance. In June 2011, Altron, a conglomerate headquartered in Johannesburg, South Africa, controlled more than 200 companies in Africa, Europe, the US, the UK, Australia, and the Far East. More than 14,000 employees designed, developed, manufactured, and marketed a range of telecommunications, electronics, power electronics, and information technology systems and products. Having made a clear commitment to sustainable development, Venter was confident that the commitment was shared across the senior management team. However, there appeared to be more acceptance in the operating units for meeting financial targets than for meeting sustainability targets. Did the existing incentive structure send the correct message about the sustainability-oriented corporate strategy? Looking at the reshaped strategic themes, Venter considered the pros and cons of more clearly linking the firm's compensation system to sustainability performance.

    Keywords: Compensation and Benefits; Motivation and Incentives; Environmental Sustainability;

    Citation:

    Eccles, Robert G., George Serafeim, Shelley Xin Li, and Alan Knight. "Allied Electronics Corporation Ltd: Linking Compensation to Sustainability Metrics." Harvard Business School Case 412-075, November 2011. (Revised June 2013.) View Details
  15. Tough Decisions at Marks and Spencer

    Robert G. Eccles, George Serafeim and Kyle Armbrester

    In 2007, under the leadership of CEO Stuart Rose, the iconic British retailer Marks and Spencer, with great fanfare, announced its "Plan A" initiative. Based on the five essential pillars of climate change, waste, sustainable materials, fair partnership, and health, the plan sought to transform the company's practices. By 2012, the program's aim was to ensure that M&S was carbon neutral and sent no waste to landfill. It also aimed to help its customers and employees achieve a healthier lifestyle, and to improve the lives of all involved in the company's supply chain with fair wages, as well as improved working hours and conditions. Called Plan A "because there is no Plan B," the company identified 180 projects to improve the sustainability of its operations and business practices in anticipation of the need for a very different business model in the future. Key aspects of Plan A included more sustainable sourcing and influencing the business practices of the company's supply chain; communication to employees, customers and investors; and employee engagement. The case concludes with the tradeoffs involved in the decision of whether or not to install refrigerator doors in the grocery section of its stores. While the energy savings and reduced carbon emissions are relatively clear and easy to measure, the impact on customers and revenues is harder to assess.

    Keywords: Decision Making; Environmental Sustainability; Corporate Social Responsibility and Impact; Corporate Strategy; Retail Industry;

    Citation:

    Eccles, Robert G., George Serafeim, and Kyle Armbrester. "Tough Decisions at Marks and Spencer." Harvard Business School Case 112-062, January 2012. (Revised September 2015.) View Details
  16. Oddo Securities―ESG Integration

    George Serafeim, Paul M. Healy and Aldo Sesia

    The case describes the process of integrating environmental, social, and governance issues into valuation models and research analyst recommendations.

    Keywords: Financial Strategy; Mathematical Methods; Integration; Valuation; Environmental Sustainability; Social Issues; Governance Controls; Investment;

    Citation:

    Serafeim, George, Paul M. Healy, and Aldo Sesia. "Oddo Securities―ESG Integration." Harvard Business School Case 111-085, June 2011. (Revised January 2013.) View Details
  17. Hassina Sherjan

    Robert G. Eccles, George Serafeim and Pippa Eccles

    Hassina Sherjan was born in Afghanistan but grew up and was educated in the United States. A trip to Afghanistan when she was an adult inspired her to move back to her home country with two missions. The first was to educate young women through a non-profit organization she started called Aid Afghanistan for Education and a for-profit company, Boumi, that manufactures and distributes products for the home such as curtains, cushion covers, tea cozies, coasters, bedclothes, and bathroom accessories. The mission of Boumi is to create jobs in Afghanistan, especially for women, based on traditional Afghani designs and using only locally grown cotton. Sherjan wants to grow Boumi so that it can be a substantial, if not major, funding source for Aid Afghanistan for Education. In order to grow Boumi, Sherjan must confront a number of challenges including funding, finding and managing skilled workers, and getting distribution for Boumi products in major markets such as Europe and the United States.

    Keywords: Environmental Accounting; Non-Governmental Organizations; Nonprofit Organizations; Corporate Social Responsibility and Impact; Social Entrepreneurship; Leadership; Innovation Leadership; Development Economics; Growth and Development; Problems and Challenges; Retail Industry; Afghanistan; United States;

    Citation:

    Eccles, Robert G., George Serafeim, and Pippa Eccles. "Hassina Sherjan." Harvard Business School Case 112-029, September 2011. (Revised September 2015.) View Details
  18. Dow Chemical: Innovating for Sustainability

    Robert G. Eccles, George Serafeim and Shelley Xin Li

    Dow Chemical is one of the few major American industrial corporations that was founded in the late 19th century that is still in existence. From its origins producing bromine out of the brine underneath Midland, Michigan, the company has evolved from a diversified commodity chemical company to an advanced materials company whose products and services can make its clients more sustainable. During the 1960s and 1970s the company received a series of external shocks in the form of negative public opinion for some of its activities. These challenged the company's perception as being a "good company" and made it realize it needed to more proactively seek outside perspectives on how the company was viewed and what it should do. This led to the formation of the Corporate Environmental Advisory Council in 1992 which was renamed the Sustainability External Advisory Council (SEAC) in 2008. With substantial input from the SEAC, the company set two ambitious sets of ten-year goals: 1996-2005 and 2006-2015 and was largely successful in meeting them or on the way to doing so. In 2011, Neil Hawkins, Vice President of Sustainability and EH&S (Environmental, Health and Safety) is trying to decide what the content and format of the next ten-year goals should be to ensure the company's viability on its 200th birthday. Should they be incremental goals like the ones for 2005 or ambitious stretch targets like the ones for 2015? Or should they be broad statements of principles that encourage innovating for sustainability throughout the company? A further challenge facing the company is that it was rapidly globalizing with a large portion of its workforce outside its Midland, Michigan headquarters, making it even more difficult to preserve a common culture and commitment to sustainability.

    Keywords: Innovation Strategy; Environmental Sustainability; Chemical Industry;

    Citation:

    Eccles, Robert G., George Serafeim, and Shelley Xin Li. "Dow Chemical: Innovating for Sustainability." Harvard Business School Case 112-064, January 2012. (Revised June 2013.) View Details
  19. KKR: Leveraging Sustainability

    Robert G. Eccles, George Serafeim and Tiffany A. Clay

    The case describes KKR's Green Portfolio Program, one of the firm's environmental initiatives, which has achieved $160 million in cost savings. While pleased with its progress in achieving greater energy efficiency and reduced carbon emissions, the firm is looking for other ways to expand its sustainability initiatives, such as in its supply chain and incorporating sustainability into its due diligence and deal making processes.

    Keywords: Private Equity; Investment Portfolio; Energy Conservation; Cost Management; Supply Chain Management; Risk Management; Social Enterprise; Growth and Development; Performance Efficiency; Financial Services Industry;

    Citation:

    Eccles, Robert G., George Serafeim, and Tiffany A. Clay. "KKR: Leveraging Sustainability." Harvard Business School Case 112-032, September 2011. (Revised March 2012.) View Details
  20. First Quantum Minerals vs. Eurasian Natural Resources

    George Serafeim and Andrew Knauer

    The case describes the battle between First Quantum Mineral (FQM) and Eurasian Resources over mines in Democratic Republic of Congo (DRC). After FQM's license to operate was revoked by the government of the DRC, Eurasian bought the rights over the mines that were previously under FQM's control raising questions about the effectiveness of corporate governance at Eurasian.

    Keywords: Governing and Advisory Boards; Business and Government Relations; Corporate Governance; Natural Environment; Risk and Uncertainty; Government and Politics; Mining Industry; Congo, Democratic Republic of the;

    Citation:

    Serafeim, George, and Andrew Knauer. "First Quantum Minerals vs. Eurasian Natural Resources." Harvard Business School Case 112-083, February 2012. View Details
  21. Natura Cosméticos, S.A.

    Robert G. Eccles, George Serafeim and James Heffernan

    Rodolfo Guttilla, Director of Corporate Affairs for Natura Cosméticos S.A. (Natura), prepared for a meeting with key stakeholders to discuss the future of integrated reporting at Natura. A cosmetics company with a strong brand, robust growth in international and domestic markets, and premium price and margins, Natura was consistently rated as one of the preferred places to work in Brazil. Its focus on social and environmental responsibility was a source of innovation; strong employee motivation contributed to the company's superior productivity and market share gain in Brazil's cosmetics, fragrances, and toiletries (CF&T) industry. By 2009, Natura's direct sales business model generated income for over 1 million people in Brazil and Latin America. Natura was the first organization in Brazil to produce an integrated report. Senior leadership was convinced that Natura's success over the years had been aided by its corporate responsibility and strategy to continuously seek improvements in both financial and nonfinancial (e.g., environmental, social, and governance) performance. As he prepared for the meeting, Guttilla considered the future of integrated reporting for Natura. What should the future of integrated reporting be like at Natura? How could the organization increase society's participation in the collaborative effort to develop new solutions to today's most challenging problems? How could the report provide a clearer representation of the organization's strategy and its ability to create and sustain value over the long term? And finally, how could web-based technologies be used to promote the organization's integrated reporting and sustainable development objectives?

    Keywords: Beauty and Cosmetics Industry;

    Citation:

    Eccles, Robert G., George Serafeim, and James Heffernan. "Natura Cosméticos, S.A." Harvard Business School Case 412-052, November 2011. (Revised June 2013.) View Details
  22. Caesars Entertainment: CodeGreen

    George Serafeim, Robert G. Eccles and Tiffany A. Clay

    The case describes the development of Caesar's sustainability initiative program, the effect of the initiative on employee engagement and motivation, and on customer satisfaction.

    Keywords: Customer Satisfaction; Employees; Corporate Social Responsibility and Impact; Environmental Sustainability; Motivation and Incentives; Accommodations Industry; Entertainment and Recreation Industry;

    Citation:

    Serafeim, George, Robert G. Eccles, and Tiffany A. Clay. "Caesars Entertainment: CodeGreen." Harvard Business School Case 111-115, March 2011. (Revised August 2012.) View Details
  23. Foxconn Technology Group (A)

    Robert G. Eccles, George Serafeim and Beiting Cheng

    The case describes the challenges that Foxconn faced after a series of suicides took place at its plants. The response of Foxconn's management is presented and the associated implications for Foxconn's stock price are discussed.

    Keywords: Employee Relationship Management; Leadership; Stocks; Social Issues; Corporate Social Responsibility and Impact; Capital Markets; Supply Chain Management; Environmental Accounting; Human Capital; Human Resources; Electronics Industry; Manufacturing Industry; China;

    Citation:

    Eccles, Robert G., George Serafeim, and Beiting Cheng. "Foxconn Technology Group (A)." Harvard Business School Case 112-002, July 2011. (Revised June 2013.) View Details
  24. Ultimate Fighting Championship: License to Operate (A)

    George Serafeim and Kyle Welch

    The case describes the challenges that Ultimate Fighting Championship faced as a result of regulatory opposition and loss of the license to operate. The genesis of the business idea, the subsequent growth, and the fall of the UFC are described. The case concludes with Lorenzo Fertitta deciding whether to invest in the company.

    Keywords: Governance Compliance; Ethics; Judgments; Investment; Sports Industry; Entertainment and Recreation Industry;

    Citation:

    Serafeim, George, and Kyle Welch. "Ultimate Fighting Championship: License to Operate (A)." Harvard Business School Case 112-011, July 2011. (Revised November 2012.) View Details
  25. Ultimate Fighting Championship: License to Operate (B)

    George Serafeim and Kyle Welch

    The case describes the financial performance and business development of UFC after the change in ownership that happened in 2000, until 2004, when the owners are considering exiting the business.

    Keywords: Sports; Sports Industry;

    Citation:

    Serafeim, George, and Kyle Welch. "Ultimate Fighting Championship: License to Operate (B)." Harvard Business School Supplement 112-081, January 2012. (Revised November 2012.) View Details
  26. Wealth Management Crisis at UBS (A)

    Paul M. Healy, George Serafeim and David Lane

    The case describes the challenges that UBS faced as a result of the U.S. Department of Justice (DOJ) investigation for tax fraud, that claimed that UBS had helped some 52,000 U.S. residents hide billions of dollars in untaxed assets in secret Swiss accounts between 2000 and 2007, depriving the U.S. Treasury of hundreds of millions of dollars in taxes.

    Keywords: Misleading and Fraudulent Advertising; Competitive Strategy; Taxation; Risk Management; Global Strategy; Asset Management; Emerging Markets; Ethics; Problems and Challenges; Governing Rules, Regulations, and Reforms; Financial Services Industry; United States; Switzerland;

    Citation:

    Healy, Paul M., George Serafeim, and David Lane. "Wealth Management Crisis at UBS (A)." Harvard Business School Case 111-082, March 2011. (Revised October 2011.) View Details
  27. Leasing Decision at Magnet Beauty Products, Inc.

    Krishna G. Palepu and George Serafeim

    A fast-growing retailer is facing two different leasing options for its stores. In choosing between the two options, management is considering the potential impact of the two options on the company's financial statements, in light of the proposed new accounting standard for leases.

    Keywords: Financial Statements; Decision Choices and Conditions; Growth and Development Strategy; Standards; Leasing; Beauty and Cosmetics Industry; Retail Industry;

    Citation:

    Palepu, Krishna G., and George Serafeim. "Leasing Decision at Magnet Beauty Products, Inc." Harvard Business School Case 111-039, September 2010. (Revised September 2011.) View Details
  28. Mandatory Environmental, Social, and Governance Disclosure in the European Union

    Robert G. Eccles, George Serafeim and Phillip Andrews

    In 2011, the European Commission was deciding on how to best modify the existing European Union policy on corporate disclosure of environmental, social, and governance (ESG) information. Previous directives had recommended that European companies report ESG information, but now the EC was deciding if organizations should be required to disclose nonfinancial information. The EC had to determine what types of organizations would be required to disclose, which international framework would serve as a standard reporting guideline, and if ESG disclosure would be integrated with financial material in one annual report. This case outlines the history and trends of corporate social responsibility reporting to encourage a discussion around the decision points and implications of reporting regulations.

    Keywords: Integrated Corporate Reporting; Corporate Strategy; Corporate Disclosure; Environmental Accounting; Competitive Strategy; International Accounting; Financial Reporting; Corporate Social Responsibility and Impact; Governing Rules, Regulations, and Reforms; Debates; Europe;

    Citation:

    Eccles, Robert G., George Serafeim, and Phillip Andrews. "Mandatory Environmental, Social, and Governance Disclosure in the European Union." Harvard Business School Case 111-120, June 2011. (Revised February 2013.) View Details
  29. Wealth Management Crisis at UBS (B)

    Paul M. Healy, George Serafeim and David Lane

    The case describes the resolution of the U.S. Department of Justice (DOJ) investigation for tax fraud and the increasing pressure on the wealth management business.

    Keywords: Wealth; Taxation; Crime and Corruption; Ethics; Governance; Competitive Advantage; Business and Government Relations; Asset Management; Globalization; United States;

    Citation:

    Healy, Paul M., George Serafeim, and David Lane. "Wealth Management Crisis at UBS (B)." Harvard Business School Supplement 111-090, March 2011. View Details
  30. Urban Water Partners (A) (CW)

    Karthik Ramanna and George Serafeim

    The case explores a new venture to bring clean water to Tanzanians who otherwise cannot access or afford it. Management has enough money to get their company through August 2010, but needs more capital. An HBS alum is interested in investing in the company; consequently management needs to revisit their early assumptions, decide on the incentive structure for water vendors in Tanzania, and put together a pro-forma income statement, cashflow statement, and balance sheet in anticipation of their meeting with the potential investor.

    Keywords: Human Needs; Accrual Accounting; Financial Statements; Health Industry; Utilities Industry; Dar es Salaam;

    Citation:

    Ramanna, Karthik, and George Serafeim. "Urban Water Partners (A) (CW)." Harvard Business School Spreadsheet Supplement 111-701, August 2010. (Revised December 2010.) View Details
  31. Urban Water Partners (A) Spreadsheet Solutions (CW)

    Karthik Ramanna and George Serafeim

    Teaching Note for Spreadsheet (111701).

    Keywords: Performance Evaluation; Accrual Accounting; Financial Statements; Health Industry; Utilities Industry; Dar es Salaam;

    Citation:

    Ramanna, Karthik, and George Serafeim. "Urban Water Partners (A) Spreadsheet Solutions (CW)." Harvard Business School Spreadsheet Supplement 111-705, December 2010. View Details
  32. Urban Water Partners (A)

    Karthik Ramanna, George Serafeim and Aldo Sesia

    The case explores a new business venture to bring clean water to residents of Dar es Salaam, Tanzania, who otherwise cannot afford it. Management has enough money to get the company through August 2010 but needs more capital thereafter. An HBS alumnus is interested in investing in the company. Management needs to revisit its financial assumptions; decide on an incentive structure for its proposed network of local water vendors; and put together a pro-forma income statement, cashflow statement, and balance sheet in anticipation of meeting with the investor.

    Keywords: Accrual Accounting; Financial Statements; Business Startups; Social Entrepreneurship; Investment; Performance Evaluation; Dar es Salaam; Massachusetts;

    Citation:

    Ramanna, Karthik, George Serafeim, and Aldo Sesia. "Urban Water Partners (A)." Harvard Business School Case 111-016, August 2010. (Revised January 2013.) View Details
  33. Urban Water Partners (B)

    Karthik Ramanna, George Serafeim and Aldo Sesia

    The case explores a new business venture to bring clean water to residents of Dar es Salaam, Tanzania, who otherwise cannot afford it. Management has enough money to get their company through August 2010, but needs more capital thereafter. An HBS alumnus is interested in investing in the company. Management needs to revisit their financial assumptions, decide on an incentive structure for their proposed network of local water vendors, and put together a pro-forma income statement, cashflow statement, and balance sheet in anticipation of their meeting with the investor.

    Keywords: Human Needs; Accrual Accounting; Financial Statements; Health Industry; Utilities Industry; Dar es Salaam;

    Citation:

    Ramanna, Karthik, George Serafeim, and Aldo Sesia. "Urban Water Partners (B)." Harvard Business School Supplement 111-029, August 2010. (Revised January 2013.) View Details
  34. Subprime Crisis and Fair-Value Accounting

    Paul M. Healy, Krishna G. Palepu and George Serafeim

    This case examines the challenges in implementing fair value accounting for mortgage instruments, the role of accounting in the sub-prime crisis, and proposals for revising accounting standards given the crisis.

    Keywords: Fair Value Accounting; Financial Crisis; Debt Securities; Mortgages; Standards;

    Citation:

    Healy, Paul M., Krishna G. Palepu, and George Serafeim. "Subprime Crisis and Fair-Value Accounting." Harvard Business School Case 109-031, October 2008. (Revised August 2009.) View Details
  35. Developing the Materiality Matrix at Telefónica

    Robert G. Eccles, George Serafeim and Asun Cano-Escoriaza

    Telefónica, one of the largest telecommunication companies in the world and headquartered in Spain, has been issuing a corporate sustainability report since 2002. In its 2011 Sustainability report, the company included a "materiality matrix," and was one of only five of the 97 companies in Spain that produced a sustainability report that year. The case describes the purpose of the materiality matrix, how it was developed, and the opportunities the company sees for improving it.

    Keywords: sustainability; sustainability reporting; sustainable strategy; CSR; corporate social responsibility; Communication Technology; Environmental Accounting; Corporate Social Responsibility and Impact; Environmental Sustainability; Telecommunications Industry; Spain;

    Citation:

    Eccles, Robert G., George Serafeim, and Asun Cano-Escoriaza. "Developing the Materiality Matrix at Telefónica." Harvard Business School Case 413-088, December 2012. (Revised October 2013.) View Details

Teaching Notes

  1. ESG Metrics: Reshaping Capitalism?

    George Serafeim and Jody Grewal

    In the past twenty-five years, the world had seen an exponential growth in the number of companies reporting environmental, social and governance (ESG) data. Investor interest in ESG data also grew rapidly. A growing belief that increasing levels of social inequality and natural environment degradation were pressing problems that the capitalist system was failing to resolve had led many stakeholders to advocate for changes in measurement and corporate reporting as a potentially powerful “lever” that could move the discussion from “Reimagining” to “Reshaping” Capitalism. Some suggested that increased transparency could change corporate behavior, increase corporate accountability and lead to better outcomes for employees, customers, the environment and local communities. Others suggested that ESG data were value relevant from an investor standpoint and that firms “doing good would do well.” According to this view, investors that used ESG data would be able to make better investment decisions and widespread disclosure of such data would improve market efficiency. However, some commentators doubted the sincerity of company ESG disclosures and suggested that firms that did good were less competitive, and therefore earned lower returns for their shareholders. As the business community entered the second half of the second decade of the twenty first century, whether the widespread adoption of ESG metrics would happen -- and whether, if it did, it would lead to systematic change -- was very much an open question.

    Keywords: Capitalism; sustainability; accounting; accountability; corporate accountability; corporate social responsibility; Responsibilities to Society; environment; social impact investment; ESG; Measurement and Metrics; Corporate Social Responsibility and Impact; Integrated Corporate Reporting;

    Citation:

    Serafeim, George, and Jody Grewal. "ESG Metrics: Reshaping Capitalism?" Harvard Business School Technical Note 116-037, March 2016. View Details
  2. A Note on Water

    Robert G. Eccles, Amy C. Edmondson, George Serafeim and Sarah E. Farrell

    This note provides background on the complex issues regarding the supply and consumption of water and how this natural resource is at increasing risk, resulting in significant economic, political and environmental issues.

    Keywords: Economics; Government and Politics; Demand and Consumers; Supply and Industry; Risk and Uncertainty; Natural Environment; Pollution and Pollutants; Environmental Sustainability;

    Citation:

    Eccles, Robert G., Amy C. Edmondson, George Serafeim, and Sarah E. Farrell. "A Note on Water." Harvard Business School Background Note 412-050, August 2011. (Revised February 2012.) View Details
  3. Ultimate Fighting Championship: License to Operate (A) & (B) (TN)

    George Serafeim

    The case describes the challenges that Ultimate Fighting Championship faced as a result of regulatory opposition and loss of the license to operate. The genesis of the business idea, the subsequent growth, and the fall of the UFC are described. The case concludes with Lorenzo Fertitta deciding whether to invest in the company.

    Keywords: Governance Compliance; Ethics; Judgments; Investment; Sports Industry; Entertainment and Recreation Industry; United States;

    Citation:

    Serafeim, George. "Ultimate Fighting Championship: License to Operate (A) & (B) (TN)." Harvard Business School Teaching Note 113-034, September 2012. (Revised March 2013.) View Details
  4. A Note on the International Integrated Reporting Council: Towards An International Framework

    Robert G. Eccles, George Serafeim, Pippa Armbrester and Jess Schulschenk

    Citation:

    Eccles, Robert G., George Serafeim, Pippa Armbrester, and Jess Schulschenk. "A Note on the International Integrated Reporting Council: Towards An International Framework ." Harvard Business School Technical Note 413-072, November 2012. View Details

Working Papers

  1. Corporate Purpose and Financial Performance

    Claudine Gartenberg, Andrea Prat and George Serafeim

    We construct a measure of corporate purpose within a sample of US companies based on approximately 500,000 survey responses of worker perceptions about their employers. We find that this measure of purpose is not related to financial performance. However, high purpose firms come in two forms: firms that are characterized by high camaraderie between workers and firms that are characterized by high clarity from management. We document that firms exhibiting both high purpose and clarity have systematically higher future accounting and stock market performance, even after controlling for current performance, and that this relation is driven by the perceptions of middle management and professional staff rather than senior executives, hourly or commissioned workers. Taken together, these results suggest that firms with employees that maintain strong beliefs in the meaning of their work experience better performance.

    Keywords: corporate purpose; Meaning; workplace; Corporate performance; management practices;

    Citation:

    Gartenberg, Claudine, Andrea Prat, and George Serafeim. "Corporate Purpose and Financial Performance." Harvard Business School Working Paper, No. 17-023, September 2016. View Details
  2. Shareholder Activism on Sustainability Issues

    Jody Grewal, George Serafeim and Aaron Yoon

    Shareholder activism on sustainability issues has become increasingly prevalent over the years, with the number of proposals filed doubling from 1999 to 2013. We use recent innovations in accounting standard setting to classify 2,665 shareholder proposals that address environmental, social, and governance (ESG) issues as financially material or immaterial, and we analyze how proposals on material versus immaterial issues affect firms’ subsequent ESG performance and market valuation. We find that 58% of the shareholder proposals in our sample are filed on immaterial issues. We document that filing shareholder proposals is effective at improving the performance of the company on the focal ESG issue, even though such proposals nearly never received majority support. Improvements occur across both material and immaterial issues. Proposals on immaterial issues are associated with subsequent declines in firm valuation while proposals on material issues are associated with subsequent increases in firm value. We show that companies increase performance on immaterial issues because of agency problems, low awareness of the materiality of ESG issues, and attempts to divert attention from poor performance on material issues.

    Keywords: sustainability; activism; Activist Investors; Activist shareholder; corporate social responsibility; corporate accountability; environment; Corporate performance; corporate governance; Corporate Accountability; Corporate Social Responsibility and Impact; Performance; Environmental Sustainability; Corporate Governance; Business and Shareholder Relations; Investment Activism;

    Citation:

    Grewal, Jody, George Serafeim, and Aaron Yoon. "Shareholder Activism on Sustainability Issues." Harvard Business School Working Paper, No. 17-003, July 2016. View Details
  3. Who Pays for White-Collar Crime?

    Paul Healy and George Serafeim

    Using a proprietary dataset of 667 companies around the world that experienced white-collar crime, we investigate what drives punishment of perpetrators of crime. We find a significantly lower propensity to punish crime in our sample, where most crimes are not reported to the regulator, relative to samples in studies investigating punishment of perpetrators in cases investigated by U.S. regulatory authorities. Punishment severity is significantly lower for senior executives, for perpetrators of crimes that do not directly steal from the company, and at smaller companies. While economic reasons could explain these associations, we show that gender and frequency of crimes moderate the relation between punishment severity and seniority. Male senior executives and senior executives in organizations with widespread crime are treated more leniently compared to senior female perpetrators or compared to senior perpetrators in organizations with isolated cases of crime. These results suggest that agency problems could partly explain punishment severity.

    Keywords: crime; Crime and Corruption; gender; Gender bias; women; women executives; corruption; legal aspects of business; firing; human capital; human resource management; corporate governance; Prejudice and Bias; Crime and Corruption; Judgments; Law Enforcement; Human Resources; Corporate Governance; Gender;

    Citation:

    Healy, Paul, and George Serafeim. "Who Pays for White-Collar Crime?" Harvard Business School Working Paper, No. 16-148, June 2016. View Details
  4. Voluntary, Self-Regulatory and Mandatory Disclosure of Oil and Gas Company Payments to Foreign Governments

    Paul M. Healy and George Serafeim

    Transparency advocates argue that disclosure of oil and gas company payments to host governments for natural resources is a public good, helping to reduce corruption and increase accountability in resource rich countries. Yet we find a very low frequency of voluntary disclosures of payments to host governments by oil and gas firms, and negative stock price reactions for affected firms at the announcement of regulations mandating disclosure. This suggests that sample firm managers and their investors perceive that there are private costs of such voluntary disclosures, contributing to continued low transparency and weak governance in resource rich countries. However, we document that industry self-regulation has generated information to substitute for the gap in voluntary company disclosure. We also find some evidence that these disclosures are accompanied by lower country corruption ratings, suggesting that collective action may be an effective way for the industry to manage the private costs of disclosure and respond to public pressure to improve governance in resource rich countries.

    Keywords: transparency; regulation; industry self-regulation; disclosure; accountability; competition; Competition; Corporate Accountability; Corporate Disclosure;

    Citation:

    Healy, Paul M., and George Serafeim. "Voluntary, Self-Regulatory and Mandatory Disclosure of Oil and Gas Company Payments to Foreign Governments." Harvard Business School Working Paper, No. 16-099, March 2016. View Details
  5. Cross-firm Return Predictability and Accounting Quality

    Wen Chen, Mozaffar N. Khan, Leonid Kogan and George Serafeim

    We examine the role of accounting quality (AQ), defined as the reliability with which accounting earnings map into cash flows, in stock price formation. We expect that poor AQ is more conducive to fostering differences in higher-order beliefs among investors, and such settings have been shown in prior theoretical work to generate slow price adjustment. Consistent with this, we document significant one-month-ahead positive return predictability from good AQ firms to industry- and size-matched poor AQ firms, but no reverse predictability. In exploring the delayed-information-processing mechanism behind the return cross-predictability, we find that analyst earnings forecast revisions (FR) mimic the return patterns: FR of good AQ firms significantly positively predict one-month-ahead FR of matched poor AQ firms, but there is no reverse predictability. Further, return cross-predictability is concentrated in months with substantial news arrival, but not in no-news months, and is stronger when the good AQ predictor firms have a richer information environment than poor AQ firms as proxied by analyst following and institutional ownership. Finally, using a measure of the linguistic complexity of qualitative information in financial statements to alternatively index accounting quality, we document return predictability from good to poor accounting quality firms, but no reverse predictability. Collectively the results provide direct evidence that complicated accounting affects the speed with which information flows into stock prices.

    Keywords: Quality; Investment Return; Accounting; Market Timing;

    Citation:

    Chen, Wen, Mozaffar N. Khan, Leonid Kogan, and George Serafeim. "Cross-firm Return Predictability and Accounting Quality." Working Paper, September 2015. View Details
  6. Market Reaction to Mandatory Nonfinancial Disclosure

    Jyothika Grewal, Edward J. Riedl and George Serafeim

    This paper examines the equity market reaction to events associated with the passage of a directive in the European Union (EU) mandating increased nonfinancial disclosure, which affected firms listed on EU exchanges or having significant operations in the EU. The mandated disclosures relate to firms' environmental, social, and governance performance. Using a cross-country sample, we first document an on average negative market reaction to events increasing the likelihood of passage for this regulation, consistent with equity investors anticipating net costs with the directive's passage for most firms. Exploiting cross-sectional variation, we then predict and document a more negative market reaction for firms having: (i) low pre-directive nonfinancial disclosure levels, consistent with investors anticipating these future disclosures to reveal worse-than-expected news; (ii) weaker performance on nonfinancial issues, consistent with expectations for these firms to incur future costs to internalize current externalities; and (iii) lower ownership by institutional asset owners, consistent with such investors demanding further disclosures than mandated by the directive. The average market reaction for firms with superior nonfinancial performance and disclosure in our sample is positive, suggesting that investors expect net benefits from the passage of the directive for these firms.

    Keywords: accounting; disclosure; regulation; mandatory disclosure; mandatory reporting; sustainability; sustainability reporting; environmental and social sustainability; environment; environmental performance; corporate governance; corporate social responsibility; Corporate Disclosure; Corporate Social Responsibility and Impact; Accounting; Environmental Sustainability; Corporate Governance; European Union;

    Citation:

    Grewal, Jyothika, Edward J. Riedl, and George Serafeim. "Market Reaction to Mandatory Nonfinancial Disclosure." Harvard Business School Working Paper, No. 16-025, September 2015. View Details
  7. Career Concerns of Banking Analysts

    Joanne Horton, George Serafeim and Shan Wu

    We study how career concerns influence banking analysts' forecasts and how their forecasting behavior benefits both them and bank managers. We show that banking analysts issue early in the year relatively more optimistic and later in the year more pessimistic forecasts for banks that could be their future employers. This pattern is not observed when the same analysts forecast earnings of companies that are not likely to be their future employers. Moreover, we use the Global Settlement as an exogenous shock, which limited outside opportunities and therefore exacerbated career concerns, and show that this forecast pattern is more pronounced after the Settlement. Both analysts and bank executives benefit from this behavior. Analysts issuing more biased forecasts for potential future employers are more likely to face favorable career outcomes and bank executives appear to profit from the analysts' bias since the bias is associated with higher levels of insider trading. Our results highlight the bias created by asking analysts to rate their outside opportunities in the labor market.

    Keywords: sell-side analysts; analyst forecasts; analysts; investment recommendations; Career advancement; career management; Labor Mobility; labor market; Prejudice and Bias; Personal Development and Career; Forecasting and Prediction;

    Citation:

    Horton, Joanne, George Serafeim, and Shan Wu. "Career Concerns of Banking Analysts." Harvard Business School Working Paper, No. 15-085, May 2015. View Details
  8. Chief Sustainability Officers: Who Are They and What Do They Do?

    Kathleen Miller and George Serafeim

    While a number of studies document that organizations go through numerous stages as they increase their commitment to sustainability over time, we know little about the role of the Chief Sustainability Officer (CSO) in this process. Using survey and interview data we analyze how a CSO's authority and responsibilities differ across organizations that are in different stages of sustainability commitment. We document increasing organizational authority of the CSO as organizations increase their commitment to sustainability moving from the Compliance to the Efficiency and then to the Innovation stage. However, we also document a decentralization of decision rights from the CSO to different functions, largely driven by sustainability strategies becoming more idiosyncratic at the Innovation stage. The study concludes with a discussion of practices that CSOs argue to accelerate the commitment of organizations to sustainability.

    Keywords: sustainability; Change; change management; Organizational change; organizational culture; innovation; Performance; Leadership & Corporate Accountability; Organizational Change and Adaptation; Leadership; Change Management; Environmental Sustainability; Innovation and Invention;

    Citation:

    Miller, Kathleen, and George Serafeim. "Chief Sustainability Officers: Who Are They and What Do They Do?" Harvard Business School Working Paper, No. 15-011, August 2014. View Details
  9. The Role of the Corporation in Society: An Alternative View and Opportunities for Future Research

    George Serafeim

    A long-standing ideology in business education has been that a corporation is run for the sole interest of its shareholders. I present an alternative view where increasing concentration of economic activity and power in the world's largest corporations, the Global 1000, has opened the way for managers to consider the interests of a broader set of stakeholders rather than only shareholders. Having documented that this alternative view better fits actual corporate conduct, I discuss opportunities for future research. Specifically, I call for research on the materiality of environmental and social issues for the future financial performance of corporations, the design of incentive and control systems to guide strategy execution, corporate reporting, and the role of investors in this new paradigm.

    Keywords: corporate accountability; corporate social responsibility; corporate social responsibility and impact; corporate governance; environment; environmental and social sustainability; sustainability; sustainability reporting; Sustainability Research; sustainability targets; Corporate performance; Corporate Accountability; Corporate Social Responsibility and Impact;

    Citation:

    Serafeim, George. "The Role of the Corporation in Society: An Alternative View and Opportunities for Future Research." Harvard Business School Working Paper, No. 14-110, May 2014. View Details
  10. Corporate and Integrated Reporting: A Functional Perspective

    Robert G. Eccles and George Serafeim

    In this paper, we present the two primary functions of corporate reporting (information and transformation) and why currently isolated financial and sustainability reporting are not likely to perform effectively those functions. We describe the concept of integrated reporting and why integrated reporting could be a superior mechanism to perform these functions. Moreover, we discuss, through a series of case studies, what constitutes an effective integrated report (Coca-Cola Hellenic Bottling Company) and the role of regulation in integrated reporting (Anglo-American).

    Keywords: sustainability; sustainability reporting; integrated reporting; corporate reporting; corporate accountability; corporate social responsibility; Corporate Disclosure; disclosure; accounting; Investing; information; Corporate Accountability; Corporate Disclosure; Integrated Corporate Reporting; Corporate Social Responsibility and Impact;

    Citation:

    Eccles, Robert G., and George Serafeim. "Corporate and Integrated Reporting: A Functional Perspective." Harvard Business School Working Paper, No. 14-094, April 2014. (Revised May 2014.) View Details
  11. Firm Competitiveness and Detection of Bribery

    George Serafeim

    Using survey data from firms around the world I analyze how detection of bribery has impacted a firm's competitiveness over the past year. Managers report that the most significant impact was on employee morale, followed by business relations, and then reputation and regulatory relations. The impact on stock price has been much less significant, and this could be attributed to stock prices not reflecting the impact on employee morale and business relations in less competitive labor and product markets. To better understand these bribery cases I analyze detailed data on the identity of the main perpetrator, detection method, and organizational response following detection and find that both the method of detection and how an organization responds are systematically related to the seniority or type of the perpetrator. Finally, I examine how these factors are associated with the impact on competitiveness and find that internally initiated bribery from senior executives is more likely to be associated with a significant impact on firm competitiveness. Bribery detected by the control systems of the firm is less likely to be associated with a significant impact on regulatory relations. Finally, bribery cases where the main perpetrator is dismissed are less likely to be associated with a significant impact on firm competitiveness. These results shed light on the costs of bribery after detection.

    Keywords: competitiveness; Performance; corruption; bribery; ethics; employee engagement; reputation; regulation; Competition; Crime and Corruption; Ethics; Performance;

    Citation:

    Serafeim, George. "Firm Competitiveness and Detection of Bribery." Harvard Business School Working Paper, No. 14-012, July 2013. (Revised February 2014, April 2014.) View Details
  12. FIN Around the World: The Contribution of Financing Activity to Profitability

    Russell Lundholm, George Serafeim and Gwen Yu

    We study how the availability of domestic credit influences the contribution that financing activities make to a firm's return on equity (ROE). Using a sample of 51,866 firms from 69 countries, we find that financing activities contribute more to a firm's ROE in countries with higher domestic credit. However, the path from available credit to firm profitability varies significantly between small firms and large firms. More domestic credit allows small firms to increase their leverage ratio but has no effect on the leverage ratio of large firms, presumably because the smaller firms are the marginal borrowers. However, large firms still benefit more from domestic credit because they have higher leverage ratios to begin with, and countries with more available domestic credit have lower borrowing costs. Finally, we show that large increases in domestic credit are followed by significant increases in the financing contribution to ROE in the subsequent year. This is not true for large decreases in domestic credit suggesting that firms are able to access credit in other countries during a financial crisis.

    Keywords: Domestic Credit; Return of Equity; Corporate performance; financial statement analysis; Financial Statements; Valuation; Cost of Capital; Asset Pricing; Economic Growth;

    Citation:

    Lundholm, Russell, George Serafeim, and Gwen Yu. "FIN Around the World: The Contribution of Financing Activity to Profitability." Harvard Business School Working Paper, No. 13-011, July 2012. (Revised March 2014.) View Details
  13. The Consequences of Mandatory Corporate Sustainability Reporting: Evidence from Four Countries

    Ioannis Ioannou and George Serafeim

    We examine the effect of mandatory sustainability reporting on corporate disclosure practices. Specifically, we examine regulations mandating the disclosure of environmental, social, and governance information in China, Denmark, Malaysia, and South Africa using differences-in-differences estimation with propensity score matched samples. We find significant heterogeneity in corporate disclosure responses across those four countries. Relative to propensity score matched control firms, treated firms in China and South Africa increased disclosure significantly. We also find increased propensity to receive assurance to increase disclosure credibility in the case of South Africa, and increased propensity to adopt reporting guidelines to increase disclosure comparability in both China and South Africa. In contrast, treated firms in Denmark and Malaysia did not increase disclosure. Danish firms responded by embedding environmental and social factors in their supply chain management, and by signing on the United Nations Global Compact while Malaysian firms adopted reporting guidelines. We do not find any evidence that the disclosure regulations adversely affected shareholders. Instrumental variables regressions suggest that increases in disclosure driven by the regulation are associated with increases in firm value. Our results highlight the role of local context and institutional differences in how firms in different countries respond to reporting regulations.

    Keywords: sustainability reporting; mandatory reporting; corporate sustainability; corporate social responsibility; Integrated Corporate Reporting; Training; Corporate Governance; Governing Rules, Regulations, and Reforms; Governing and Advisory Boards; Law Enforcement; Management Practices and Processes; Corporate Social Responsibility and Impact; Environmental Sustainability;

    Citation:

    Ioannou, Ioannis, and George Serafeim. "The Consequences of Mandatory Corporate Sustainability Reporting: Evidence from Four Countries." Harvard Business School Working Paper, No. 11-100, March 2011. (Revised May 2012, October 2012, August 2014.) View Details

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