Looking far or close: The explanatory role of myopic management in the relationship between CEO-TMT power disparity and corporate social responsibility

Abstract

We apply the approach/inhibition theory of power and tournament theory to explain how power disparities between a CEO and a top management team (TMT) lead to myopic management in a firm that, in turn, influences its corporate social responsibility (CSR) performance. Specifically, we analyze panel data from multiple sources (i.e., KLD, ExecuComp, and Compustat) over a 12-year period and find that CEO-TMT power disparity, measured by pay slice, is positively associated with myopic management that, in turn, leads to a reduction in CSR performance. Furthermore, we decompose total power disparities into short- (e.g., salary and bonus) and long-term (e.g., stock option) power disparities. Our results suggest that CEOs receiving relatively greater short-term compensation than that of TMTs are more likely to engage in myopic management, leading to their firm's reduced CSR practices. We discuss the theoretical and practical implications of this study.