Older and Wiser: How CEOs’ Time Perspective Influences Long‐Term Investments in Environmentally Responsible Technologies
| DOI | http://doi.org/10.1111/1467-8551.12287 |
| Published date | 01 January 2019 |
| Date | 01 January 2019 |
| Author | Pratima Bansal,Natalia Ortiz‐de‐Mandojana,J. Alberto Aragón‐Correa |
British Journal of Management, Vol. 30, 134–150 (2019)
DOI: 10.1111/1467-8551.12287
Older and Wiser: How CEOs’ Time
Perspective Influences Long-Term
Investments in Environmentally Responsible
Technologies
Natalia Ortiz-de-Mandojana, Pratima Bansal1
and J. Alberto Arag´
on-Correa
University of Granada, Department of Business, Campus de la Cartuja, s/n. Granada, Spain and 1Ivey Business
School, Western University,London, ON, N6A 3K7, Canada
Corresponding author email: nortiz@ugr.es
Most theories of corporate governance argue that chief executive ocers (CEOs) take
less risk as they near the end of their career, and therefore are less likely to make major
investments. This prediction is based on decisions related to firm-specific benefits; how-
ever, it may not be generalizable to decisions that involve broad societal goals. In terms
of societal investments, CEOs with a longer time perspective may be more likely, rather
than less likely,to invest. In this paper, we argue that a CEO’s future time perspective is
fostered by shorter career horizons, longer tenures, higher organizational ownership and
less short-term compensation. We test these hypotheses on 150 observations from the
US investor-owned electric powergeneration sector over a three-year unbalanced sample
(64.3% of the population). We applied random-eects generalized least squares (GLS)
estimations to test our hypotheses, and found support for three out of four hypothesized
relationships.
Introduction
Managers face more pressure than ever before to
demonstrate short-term returns. Stocks that were
once held for seven years on average in 1960
were held for a mere eight months on average in
2016 (Roberge et al., 2017). Many managers fol-
low stock prices daily because their bonuses, pro-
motions and professional recognition are often
pegged to stock market reactionsto their decisions.
As a result, many managers have diculty invest-
ing in projects thataccrue benefits in the long ter m,
This research was partially supported by grants fromthe
Spanish Ministry of Science and Innovation (ECO2013-
47009-P) and the Social Sciences and Humanities Re-
search Council of Canada.
Acknowledgements: Natalie Slawinski, ISDE Research
Group, Ivey’s Centre for Building Sustainable Value.
especially when those benefits do not accrue to the
firm directly and are seen as being more targeted
to society.
Yet, some managers do invest in long-term ac-
tivities that benefit society and the natural envi-
ronment. For example, power plants have increas-
ingly generated more electricity from renewable
energy, even though there have been few finan-
cial incentives or regulatory requirements to do so
(Delmas, Russo and Montes-Sancho, 2007; Ortiz-
de-Mandojana and Arag´
on-Correa, 2015). Such a
high commitment to renewable energy generation
was risky for power plants, given market, politi-
cal and policy uncertainties (Finon, 2013; Nogee
et al., 1999; Tietjen, Pahle and Fussb, 2016).
Previous management literature has highlighted
that the perspective of time taken by manage-
ment is relevant to managerial decision-making
C2018 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
Time Perspective and Environmental Investments 135
(e.g. Bansal and DesJardine, 2014). Hambrick and
Mason (1984) pioneered a cognitive approach to
upper echelons’ shaping of a firm’s general de-
cisions, and such insights have been extended
to time perspectives in investment decisions (e.g.
Hoskisson et al., 2002). This prior research sug-
gests that a focus on a more distant future dur-
ing planning and when making strategic decision
leads to positive firm-level outcomes, including
greater innovation and firm performance (Das,
2006; Flammer and Bansal, 2017). In the environ-
mental arena, the organization’s time perspective
has been argued to be relevant in making envi-
ronmental decisions (Slawinski and Bansal, 2015;
Wang and Bansal, 2012).
In spite of the clear benefits that accrue to the
firm and society from investing in the long term,
the corporate governanceliterature cannot explain
why such investments would be made, given the
very real short-term pressures that managers con-
front on a day-to-day basis. Our study aims to
address this omission by introducing temporality
more directly into the corporate governance liter-
ature. In this paper, we surface the temporal as-
sumptions in the corporate governance literature,
which allows us to introduce a time perspective to
corporate governance. We ask: why do senior ex-
ecutives sometimes make long-term investmentsin
the face of short-term pressures?
We situate our empirical enquiry in the
electricity-generating industry, which is at the
front line of environmental issues. In the late
1990s, a host of new environmental regulations
were pending in this industry. Although aggres-
sive energy eciency and fuel switching were
expected to reduce domestic carbon emissions to
1990 levels by 2010, reducing carbon emissions
beyond that amount would require switching
to low-carbon technologies, such as renewable
energy generation (Nogee et al., 1999). However,
compared with other pollution control methods,
replacing fossil fuel generators with renewable
energy technologies was relatively expensive and
risky in the short term. Only with a long-term
view could investments in renewable technologies
be seen as a viable option (Nogee et al., 1999).
We extend the previous literature by identify-
ing the time-related governance factors that may
influence power plants’ long-term investments in
renewable energy generation. Specifically, we pro-
pose that the chief executive ocer’s (CEO’s)
career horizon, tenure, organizational ownership
and compensation shift the CEO’s temporal
perspective, thereby influencing a firm’s invest-
ments in renewable energy generation.
We collected three years of panel data from the
US electric power generationindustry, and applied
random-eects generalized least squares (GLS)
estimations to test our hypotheses. Our results
supported our hypotheses regarding the eects
of career horizon, organizational ownership and
short-term compensation pressures.
This paper makes two relevant contributions to
the previous literature. First, we apply temporally
based theoretical arguments to corporate gover-
nance, recognizing that a time perspective is em-
bedded within commonly discussed corporategov-
ernance variables, such as tenure, ownership and
compensation. Prior research has recognized that
some of these variables may influence the time
perspective of the upper echelons, but they have
not developed a temporally based corporategover-
nance model. For example, Larcker (1983) argued
that long-term CEO compensation schemes help
to encourage longer-term decision-making hori-
zons by generating some coincident approaches
of agents and principals, and found that the mar-
ket responded favourably to firms that announced
the adoption of long-term CEO incentive plans.
Additionally, Hoskisson et al. (2002) found that
managers were more likely to invest in research
and development when the firm was owned by
institutional investors who had a long-term ori-
entation. Most studies focus on a single variable,
rather than recognizing thata CEO’s time perspec-
tive is shaped by a confluence of factors, such as
the CEO’s career horizon, tenure, ownership and
compensation.
Second, our study surfaces the question of
whether the type of decision matters in eliciting a
longer-time perspective. Most studies of corporate
governance are agnostic to the strategic decision
being made. Prior studies have shown that the
temporal frame of the decision is important in
long-term investments in, for example, research
and development (Hoskisson et al., 2002), phys-
ical capital (Larcker, 1983) and corporate social
responsibility (Johnson and Greening, 1999;
Wang and Bansal, 2012). However, additional
studies have shown that the temporal dimensions
of strategic decision-making are particularly
important with respect to environmental issues,
because of the concerns associated with intergen-
erational equity (Bansal and DesJardine, 2014;
C2018 British Academy of Management.
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