SafetyInsights.org

This explored the association between CEO power and workplace injuries and illnesses.

Power was modelled via 1) structural power (whether the CEO has a dual role as chairperson and president) and their pay proportional to the five highest paid executives, 2) expertise, 3) ownership, 4) prestige. They also looked at geographical proximity of the CEO to employee injuries, since previous research has found favouritism towards employees in proximate locations.

It’s stated that powerful CEOs behave differently than non-powerful CEOs. CEOs gain utility by paying employees high wages which can create a better work environment and more loyal employees. They may also invest more in training, equipment and staff which may contribute to better safety performance. Rather than being solely for “truly altruistic reasons”, better safety performance may carry higher private benefits for CEOs for incentives and prestige and protect against takeover. Thus, “powerful CEOs can derive private benefits from behaving ethically” (p2).

They also argue and/or cite research highlighting:

• Powerful CEOs may have a poorer influence on safety since they create greater internal pressures to exceed earning targets (p2) and “firms that marginally beat analyst forecasts experience greater workplace injuries and illnesses, an increase in employee workload, and abnormal decreases in discretionary expenses” (p2)
• Powerful CEOS compared to nonpowerful CEOs may have compensation contracts less aligned with shareholder interest. They may thus be a liability for shareholders, but an asset to other stakeholders (like employees, who they may pay better)
• Research is mixed on the effects between the power of a CEO and corporate social responsibility (CSR).  Some research shows that powerful CEOs engage in fewer CSR activities and may be more concerned with extending their own interests rather than other stakeholders, whereas other data found damaging effects of power on CSR was only found at the very high levels of CEO power. Another study found higher power was associated with better environmental activities.
• CEO power may enable the CEO to obtain private benefits at the expense of others (higher compensation), and higher compensation may be less linked to the performance of the firm. They may also be more likely to “rig incentive contracts” (p4), and less likely to be challenged after poor performance. Firms also may have higher variability in stock returns, suggesting that these CEOs act more unilaterally and involve other executives less often compared to less powerful CEOs
• However, firms with powerful CEOs may have higher relative valuation in industries operating in high-demand markets. This suggests “that powerful CEOs are particularly valued in firms that require rapid decision-making” (p4)

Results

Key findings in this study were:

• Firms with structurally more powerful CEOs have fewer employee workplace injuries and illnesses and fewer days away from work.
• Firms governed by a CEO also serving as chairperson have 1.75 fewer injuries and illnesses per 100 fulltime employees. Each 10% increase in CEO compensation in relation to the top 5 executives is linked to 0.40 fewer injuries per 100 FTE.
• Employees at firms where the CEO serves as the chairperson have fewer days away from work due to injuries/illnesses.
• However, firms governed by a company founder (ownership power) have a higher rate of employee injuries/illnesses (2.63 higher rate per 100 FTE compared to firms not led by a founder).
• Firms with structurally powerful CEOs mitigate differences in injury/illnesses rates in relation to geographical proximity to corporate headquarters (that is, less bias towards their own headquarter/home state).
• CEO compensation for health and safety was connected to better safety performance, but not solely due to compensation benefits.

Although more structurally powerful CEOs was linked to better injury/illness data in general – this wasn’t statistically linked to fewer fatalities.

Also, importantly, it’s noted that “improved” health and safety performance with more structurally powerful CEOs may also be confounded by underreporting; such that an alternative explanation “could be that powerful CEOs are using their influence to underreport workplace injuries and illnesses” (p19).

Overall, it’s suggested that “In contrast to the contemporary view that powerful CEOs are ruthless exploiters … we find, on average, that powerful CEOs are ethical guardians of the workforce” (p17).

Further, this study “suggests that powerful CEOs are better positioned to foster safe workplaces, and we thus inform practice of the bright side of powerful leaders” (p17). It’s reasoned that CEOs “derive a private benefit from low injury and illness rates”, and because of this, powerful CEOs are better at influencing organisational conditions to maximise benefit from this.

Authors: Jesper Haga, Fredrik Huhtamäki, Dennis Sundvik, 2021, Journal of Business Ethics.

Study link: https://doi.org/10.1007/s10551-021-04740-4

Link to the LinkedIn article: https://www.linkedin.com/pulse/ruthless-exploiters-ethical-guardians-workforce-ceos-ben-hutchinson