Are firms with foreign CEOs better citizens? A study of the impact of CEO foreignness on corporate social performance
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RESEARCH NOTE
Are firms with foreign CEOs better citizens? A study of the impact of CEO foreignness on corporate social performance Olivier Bertrand1, Marie-Ann Betschinger2 and Caterina Moschieri3 1
Fundac¸a˜o Getu´lio Vargas – FGV/EBAPE, Rua Jornalista Orlando Dantas 30 - Botafogo, Rio de Janeiro, RJ 22231-010, Brazil; 2 HEC ˆ te-SainteMontre´al, 3000, chemin de la Co Catherine, Montre´al H3T 2A7, Canada; 3 IE Business School, Calle Maria de Molina 11, 28006 Madrid, Spain Correspondence: Marie-Ann Betschinger, HEC Montre´al, 3000, ˆ te-Sainte-Catherine, chemin de la Co Montre´al H3T 2A7, Canada e-mail: [email protected]
Abstract This study examines whether firms’ corporate social performance (CSP) varies when local firms have foreign CEOs. Building on the social identity perspective, we argue that because foreign CEOs are perceived as outgroup (or nonprototypical) leaders by the local firms’ stakeholders, local firms with foreign CEOs need to achieve a higher level of CSP than do local firms with local CEOs to enhance their legitimacy and trustworthiness. Furthermore, we propose that the predicted difference in CSP between foreign and local CEOled firms will be larger (a) for more authentic and thus trust-enhancing CSR activities and (b) in those socio-economic environments where the salience of CEO foreignness and thus the need to build trustworthiness with locals is more pronounced. In a sample of 1001 local firms across 18 developed countries during the period between 2003 and 2015, our empirical results support most of our predictions. Journal of International Business Studies (2020). https://doi.org/10.1057/s41267-020-00381-3 Keywords: liability of foreignness; corporate social responsibility; foreign CEO; globalization; econometrics; social identity perspective
Received: 17 February 2019 Revised: 24 September 2020 Accepted: 6 October 2020
INTRODUCTION In 2018, when Canadian Benjamin Smith took over the group formed by Air France and Dutch KLM, the French trade unions opposed him, declaring that it was ‘‘inconceivable’’ that the French flag carrier be led by ‘‘a foreign leader’’ (Keohane, 2018). In 2013, William McDermott, the American chief executive officer (CEO) of the German software corporation SAP, noted that, although he had an American birth certificate, ‘‘[t]here [was] no reason to believe [he] could become disloyal towards Germany or SAP’’ (Kroker, 2013). This anecdotal evidence suggests that foreign CEOs – i.e., those CEOs born outside the country of the firms they lead – may face a collective reservation or negative bias due to their foreign origin. In the International Business (IB) literature, this disadvantage or liability of foreignness (LOF) that CEOs are confronted with has been proposed and primarily studied at the organizational level (Hymer, 1960; Zaheer, 1995), broadly referring to all the costs incurred by foreign firms above those incurred by local firms.
CEO foreignness and CSP
However, it can also affect individuals, particularly CEOs, working abroad (Fang, Samnani
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