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Exploring ESG Theories and Strategies in Corporate Governance

Uncover various viewpoints on ESG in corporate governance including executive philanthropy, dumb markets, and the BP strategy. Delve into the impact of ethics, leadership values, and ownership structures. Discover how lifestyle marketing and shareholder activism influence corporate behavior.

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Exploring ESG Theories and Strategies in Corporate Governance

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Presentation Transcript

  1. Discussion of Gillan, Hartzell, Koch and Starks Will Goetzmann

  2. ESG • Corporations serve society • Corporations serve taxpayers • Fantasy theory: Do well by doing good • Managers and shareholders do not know what is good for them. • Constraints are for their own benefit. • Exception: governance measures focuses on institutional failure.

  3. Theories About ES not G Emergence • Dumb markets  • Corp as collective conscience  • Executive philanthropy  • Lifestyle marketing to shareholders  • HR benefits, like non-profits 

  4. Alternative Theory: The BP Strategy • Do bad while talking good • Strategy of operating efficiencies • i.e. cut safety corners to improve earnings • Big business/big regulatory target = risk • Advertising campaign: “Green Energy” • Look for past adverse news items • E.G. employee deaths, class action suits, fraud, executive convictions, environmental disasters. • Look for other types of cover-ups • Accruals • Dividend management • Look for advertising campaign to publicize ethics

  5. Executive Philanthropy • Shame Effects • Correlate CEO media exposure to E&S • Salary tradeoff for higher rating • Costly enhancement of social reputation. • CEO values?

  6. Common Value/Private Value Auction • Institutional ownership results • Retail investors more costly • Retail investors less powerful • Stocks as common value goods • CAPM world if no frictions • Stocks as partial private-value goods • Identity definition by stock ownership • Lifestyle clienteles, like product market • Implies ownership concentrations • UK, European, Scandinavian firms must go green • US Green party and share concentration • Republican and Democrat stocks?

  7. Curiosities • Size/ Profitability effects • Compensation neg. rel. ROA • Good ESG scores as a fraction of population • Size (Price) as determinant of scores • Q and size

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