From a shareholder to stakeholder orientation: Evidence from the analyses of CEO dismissal in large U.S. firms

Research Summary: The post-Enron era is marked with growing discourse of stakeholders, sustainability, and corporate social responsibility (CSR). Yet, commentators debate whether U.S. corporations have indeed moved toward a stakeholder orientation, given the difficulties in measuring such a shift. We assess this shift by examining corporate governance practices, especially the prevalence of shareholder- and stakeholder-oriented practices in chief executive officer (CEO) dismissals. Using data on large firms in 1980–2015, we found that, before the 2000s, CEOs were less heavily penalized for poor firm performance when they demonstrated a shareholder orientation by downsizing and refocusing the corporation and more heavily penalized for CSR activity. This trend, however, reversed after the early 2000s. This article provides evidence of the evolution of U.S. firms' governance practices from a shareholder toward stakeholder orientation. Managerial Summary: Many people are skeptical of the assertion that U.S. corporations have become more stakeholder-oriented over time. It is no wonder, as scant evidence exists for this claim. We tackle this claim head on by analyzing firm practices in 1980–2015 that contributed to chief executive officer (CEO) dismissal when the firm was performing poorly. Some practices, such as downsizing and firm refocusing, are associated with a shareholder orientation and others, such as CSR, are associated with a stakeholder orientation. We found strong evidence for a growing trend toward a stakeholder orientation. When the firm was performing poorly before the 2000s, CEOs were more likely to be dismissed for CSR activities and less likely to be dismissed for downsizing or refocusing the firm. This trend reversed in the early 2000s.