Eller College Professor of Finance Co-Authors New Study

Jason Sandvik

Jason Sandvik, assistant professor of finance in the Eller College of Management has co-authored a study with colleagues Anahit Mkrtchyan, from the Isenberg School of Management at the University of Massachusetts–Amherst, and Da Xu, from the School of Economics and Management at Tsinghua University. The study—which is forthcoming in the Journal of Accounting and Economics—titled Employee Responses to CEO Activism, examines the increasingly common practice of CEOs taking public stances on socio-political issues.

The study cites examples of recent CEO activism such as Starbucks CEO Howard Schultz’ outspoken opinion on gay marriage and Under Armour CEO Kevin Plank’s support of climate change initiatives as well as his public opposition to President Trumps’ withdrawal from the Paris Accord. 

Seeing as how relatively little is known about the responses of employees to these public activist stances, the study aims to fill the gap in literature by providing the first large-scale empirical evidence on employee responses to CEO activism. 

The co-authors state that since human capital is seen as the primary driver of productivity in the modern economy, understanding employee reactions to the behaviors of corporate leaders is of utmost importance. Key takeaways include:

  • Their findings of a positive relation between aligned CEO activism and employee ratings of corporate culture suggest that CEO activism can be an effective means of shaping and reinforcing the culture within the organization.
  • Their research suggests that the non-financial benefits of CEO activism—e.g., “sharpened”corporate culture and increased employer-employee value alignment—are associated with several advantageous outcomes, such as an increased ability to attract high-skilled inventors and greater innovation.
  • Research evidence shows that firms with activist CEOs exhibit behaviors that are consistent with their pro-diversity and pro-pay equality activist stances, as they hire more underrepresented employees and have smaller gender pay gaps.

This paper contributes to the relatively new literature on CEO activism. Most other papers in the literature focus on how investors and customers respond to CEO activism, rather than employees. 

The study states: “CEO activism may bolster employees’ identification with their organizations and strengthen shared beliefs among employees. Alternatively, CEO activism may alienate employees if CEO stances contrast with employees’ ideologies. We find that employee satisfaction is higher when CEOs engage in activism that is aligned with employees’ ideologies. Furthermore, firms with CEO activism experience a net inflow of productive, ideologically-aligned inventors, which contributes to increased firm-level innovation. The improvements in employee satisfaction and innovation constitute an important channel that connects aligned CEO activism to increased firm value.”