Stakeholder Value: A Convenient Excuse for Underperforming Managers?

Abstract

Firms falling short of earnings expectations are more likely to cite stakeholder-focused objectives in their public communications around earnings announcements. This behavior suggests that managers push to be evaluated by subjective stakeholder-based performance criteria when falling short on objective shareholder-based measures. This relation between underperformance and stakeholder language becomes stronger after the 2019 Business Roundtable statement and appears unrelated to a firm’s actual ESG-related activity. Stakeholder language appears to influence the evaluation of CEOs; turnover-performance sensitivity is lower for managers citing stakeholder value. Collectively, our findings suggest that the push for stakeholder-focused objectives provides managers with a convenient excuse that reduces accountability for poor firm performance.

Keywords: stakeholder value, governance, earnings transcripts

JEL Classification: G30, G34, G38, M14, P12