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      Corporate Purpose and Firm Ownership
      25 Sep 2019Working Paper Summaries

      Corporate Purpose and Firm Ownership

      by Claudine Gartenberg and George Serafeim
      This study shows that corporate purpose varies greatly according to the nature of firm ownership, and these differences can be least partly explained by the choices and compensation of the CEOs. The greater the pay gap between CEOs and employees, the lower the sense of corporate purpose within the organization.
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      Author Abstract

      Analyzing data from approximately 1.5 million employees across 1,100 established public and private US companies, we find that the strength of employee beliefs about their firm’s purpose is lower in public companies. This difference is most pronounced within the salaried middle and hourly ranks rather than among senior executives. Among public companies, purpose becomes progressively lower with more concentrated shareholders, especially in firms with high hedge fund ownership. These patterns can be partly explained by differences in CEO backgrounds and compensation: public firms, particularly those with strong shareholders, choose outsider CEOs at higher rates and pay them more relative to their employees. Our analyses suggest that these results are not driven solely by sorting effects but appear attributable in part to the impact that firm owners have on their employees. In summary, shareholders appear to influence the strength of corporate purpose deep within organizations via the leadership and corporate practices they enable at the top.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: August 2019
      • HBS Working Paper Number: HBS Working Paper #20-024
      • Faculty Unit(s): Accounting and Management
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      George Serafeim
      George Serafeim
      Charles M. Williams Professor of Business Administration
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