Not Walking the Talk: The Effect of Prioritizing Profit or ESG Impact on Employee Behavior Across ESG Impact- and Shareholder Value-Focused Mission Statements

ABSTRACT

We experimentally examine the impact of mission-statement focus (environmental, social, and governance (ESG) impact or shareholder value) on employee effort before and after firm trade-off actions prioritizing ESG impact or profit. We find that employees exert more initial effort given an ESG-impact (versus shareholder-value) mission. However, subsequent trade-off actions can be costly for firms with ESG-impact missions. Regardless of a firm’s mission statement focus, employees respond positively to actions that prioritize ESG impact over profit; however, relative to a firm with a shareholder-value mission, a firm with an ESG-impact mission will experience more negative employee responses when the firm takes actions that prioritize profit over ESG impact. Further, firms with ESG-impact missions cannot easily reverse the negative effects of their profit-prioritizing actions; employee effort does not revert to original levels if the action is subsequently reversed. Finally, we provide evidence that mission-statement focus and firm actions influence employee turnover intentions.