CSR vs entrenchment: the silent battle impacting French business outcomes

What the paper says

Purpose This study examines the relationship between corporate social responsibility (CSR) performance and financial performance, focusing on the moderating role of managerial entrenchment. The research aims to understand how entrenched managers influence the effectiveness of CSR initiatives and their impact on financial outcomes, particularly in the context of stringent French regulations. Design/methodology/approach The study employs a generalized least squares (GLS) econometric model to analyze a panel of 120 companies listed on the SBF 120 index from 2011–2022. The model integrates Environmental, Social and Governance (ESG) scores, managerial entrenchment indicators and financial data to isolate the effects of CSR and governance on performance. Managerial entrenchment is measured using a novel composite index combining CEO tenure, CEO-Chairman duality and anti-takeover provisions. Robustness tests, including alternative measures and sectoral subsampling, are conducted to ensure the reliability of the results. Findings The results reveal a significant positive relationship between CSR performance and financial performance, supporting stakeholder theory. However, managerial entrenchment negatively moderates this relationship, as entrenched managers tend to prioritize superficial, media-friendly CSR initiatives over substantive, long-term investments. This strategic misalignment reduces the financial benefits of CSR, particularly in firms with high levels of managerial entrenchment. Additionally, robust governance mechanisms, such as board independence and size, positively influence financial performance. Research limitations/implications The study is limited by its focus on French firms listed on the SBF 120, which may restrict the generalizability of the findings to other contexts. Future research could explore cultural and sectoral variations, as well as the impact of crises (e.g., pandemics, energy transitions) on CSR strategies. The study also calls for further investigation into the underlying mechanisms of managerial entrenchment and its interaction with CSR innovation and reputation Practical implications The findings suggest that companies should adopt a balanced approach to CSR and governance. Implementing term limits for CEOs, creating independent CSR committees and integrating measurable ESG indicators into executive compensation can help align managerial incentives with stakeholder interests. Firms should also invest in green technologies and sustainable business models to mitigate the negative effects of managerial entrenchment on CSR effectiveness. Social implications The study highlights the importance of ethical governance in ensuring that CSR initiatives serve the common good rather than personal legitimization. By promoting transparency and accountability, companies can build trust with stakeholders and contribute to sustainable development. The research underscores the need for regulatory reforms to strengthen corporate governance and align CSR strategies with societal expectations. Originality/value This research makes a significant contribution to the business ethics literature by empirically validating the positive impact of corporate social responsibility (CSR) on financial performance, while simultaneously exposing the ethical myopia associated with managerial entrenchment. Its originality stems from a triple contribution that addresses key gaps in the field. First, it offers an important contextual advancement by focusing on France’s distinct stakeholder-oriented model, providing a crucial counterpoint to the dominant body of research centered on Anglo-Saxon market-based systems. Second, it delivers a methodological innovation through the creation of a novel, multi-dimensional entrenchment index that captures the complexity of this phenomenon beyond traditional proxy measures. Finally, and most substantially, it provides a theoretical breakthrough by revealing entrenchment’s dual role as both a driver of organizational stability and a negative moderator of CSR efficacy. This crucial finding helps reconcile conflicting perspectives in the literature by demonstrating how the same governance mechanism can simultaneously support certain organizational objectives while undermining ethical performance, thereby offering a more nuanced understanding of the complex relationship between governance structures, ethical decision-making and financial outcomes.