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Ortiz-de-Mandojana, N., Bansal, P., Aragon-Correa, J.A. (in press): Older and
Wiser: How CEO’s Time Perspective Influences Long-Term Investments in
Environmentally Responsible Technologies, British Journal of Management, in
This paper is the final accepted version to be published in the British Journal of
Authors and emails:
Natalia Ortiz-de-Mandojana, University of Granada (Spain), email@example.com; Pratima
(Tima) Bansal, Western University (Canada), firstname.lastname@example.org; J. Alberto Aragón
Correa, University of Granada (Spain) and University of Surrey (UK), email@example.com
OLDER AND WISER: HOW CEOS’ TIME PERSPECTIVE
INFLUENCES LONG-TERM INVESTMENTS IN ENVIRONMENTALLY
Most theories of corporate governance argue that Chief Executive Officers
(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; however, 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 U.S. investor-owned electric power generation sector over a three-
year unbalanced sample (64.3% of the population). We applied random-effects
generalized least squares (GLS) estimations to test our hypotheses, and found support for
three out of four hypothesized relationships.
Keywords. Corporate environmental investments, time perspective, CEOs career
horizon, tenure, ownership, compensation.
Running Head: Time perspective and environmental investments
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 follow stock prices daily
because their bonuses, promotions, and professional recognition are often pegged to stock
market reactions to their decisions. As a result, many managers have difficulty investing
in projects that accrue benefits in the long term, 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 activities that benefit society and the
natural environment. For example, power plants have increasingly generated more
electricity from renewable energy, even though there have been few financial incentives
or regulatory requirements to do so (Delmas, Russo, and Montes-Sancho, 2007; Ortiz-de-
Mandojana & Aragon-Correa, 2015). Such a high commitment to renewable energy
generation was risky for power plants, given market, political and policy uncertainties
(Finon, 2013; Nogee et al., 1999; Tietjen, Pahlea, and Fussb, 2016).
Previous management literature has highlighted that the perspective of time taken
by management is relevant to managerial decision-making (e.g. Bansal and DesJardine,
2014). Hambrick and Mason (1984) pioneered a cognitive approach to upper echelons’
shaping of a firm’s general decisions, and such insights have been extended to time
perspectives in investment decisions (e.g. Hoskisson et al., 2002). This prior research
suggests that a focus on a more distant future during 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 environmental arena, the
organization’s time perspective has been argued to be relevant in making environmental
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 governance literature cannot explain why such investments
would be made, given the very real short-term pressures that managers confront on a day-
to-day basis. Our study aims to address this omission by introducing temporality more
directly into the corporate governance literature. In this paper, we surface the temporal
assumptions in corporate governance literature, which allows us to introduce a time
perspective to corporate governance. We ask: why do senior executives sometimes make
long-term investments in 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 aggressive energy efficiency 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 previous literature by identifying the time-related governance factors
that may influence power plants’ long-term investments in renewable energy generation.
Specifically, we propose that the Chief Executive Officer’s (CEO’s) career horizon,
tenure, organizational ownership, and compensation shift the CEO’s temporal
perspective, thereby influencing a firm’s investments in renewable energy generation.
We collected three years of panel data from the U.S. electric power generation
industry, and applied random-effects generalized least squares (GLS) estimations to test
our hypotheses. Our results supported our hypotheses regarding the effects of career
horizon, organizational ownership, and short-term compensation pressures.
This manuscript makes two relevant contributions to previous literature. First, we
apply temporally-based theoretical arguments to corporate governance, recognizing that
a time perspective is embedded within commonly discussed corporate governance
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 corporate governance model. For example,
Larcker (1983) argued that long-term CEO compensation schemes help to encourage
longer-term decision-making horizons by generating some coincident approaches of
agents and principals, and found that the market responded favorably 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 orientation. Most
studies focus on a single variable, rather than recognizing that a CEO’s time perspective
is shaped by a confluence of factors, such as a CEO’s career horizon, tenure, ownership,
Second, our study surfaces the question that the type of decision may matter in
eliciting a longer time perspectives. 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), physical 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 intergenerational equity (Bansal and DesJardine, 2014; Wade-Benzoni,
Sondak, and Galinsky, 2010). We argue that at least part of the reason managers are
exhibiting longer time horizons is because of the nature of the decision, which evokes
concerns about the health of future generations.
This paper’s structure continues with the presentation of the research’s theoretical
framework and tests of related hypotheses. Our baseline hypothesis is that the CEO’s
career horizon, tenure, ownership of the firm, and compensation design embody a
perspective of time; these governance characteristics of a corporation shape the CEO’s
future time perspective and, ultimately, the corporation’s environmental investments.
Management literature and individuals’ time perspective
An individual’s time perspective reflects how an individual experiences time, and
influences how an individual’s actions are patterned over time (Wang and Bansal, 2012).
An individual’s time perspective comprises both temporal focus and temporal depth
(Zimbardo and Boyd, 1999). Temporal focus refers to the relative importance that
individuals attach to the past, present, and future. For example, actors who have a future
time perspective place more value on the future than on the present or past (Bluedorn,
2002). Temporal depth refers to the temporal distance — how far back into the past or
how far ahead into the future — that individuals consider when contemplating events that
have happened, may have happened, or have yet to happen (Bluedorn, 2002). Actors who
have a future time focus with long temporal depth anchor their attention in the distant
Previous studies have found that firms focused on a more distant future in their
planning and strategic decisions tend to have positive outcomes, such as greater
innovation and firm performance (Das, 2006; Flammer and Bansal, 2017). Researchers
have highlighted that U.S. firms tend toward ‘short-termism’ (Laverty, 1996; Porter,
1992) because they are either unwilling or unable to make the long-term investments
necessary for future growth. Such short-termism is argued to place U.S. firms at a
competitive disadvantage relative to their overseas competitors (Porter, 1992). This
temporal orientation reflects intertemporal choice problems, in which managers choose
nearer-term returns over more distant returns, which means that they are less likely the
corporate investments needed for research and development (R&D), product innovation,
or new facilities.
Most of the previous management literature around intertemporal choice problems
is directed at generic firm-level outcomes and their performance implications, such as
innovation and firm performance (Das, 2006). In these situations, economic rationality
suggests that decisions may be easily made by discounting future benefits and comparing
them with original investments. Very limited research has analyzed a firm’s decisions
that have societal implications (notable exceptions are Flammer and Bansal, 2017;
Slawinski and Bansal, 2015). But, for managers, there is often a contest between what is
good for the firm in the short term and what is good for society in the long term (Bansal
and DesJardine, 2014). Understanding these decisions requires attention to the managers’
time perspective and values because these decisions cannot be justified purely on
economic grounds. We argue that CEO characteristics and corporate governance
variables embody a perspective of time that is particularly salient to decisions that have
long-term societal consequences, such as those pertaining to the natural environment.
Time and environmentally responsible technologies
Long-term environmental investments have high benefits for society beyond the
organizations’ boundaries, but the economic outcomes are often unknown or risky, at
least in the short term (Bansal, 2005; Ortiz-de-Mandojana and Bansal, 2016). Pollution
reduction, fuel diversity, and other indirect economic benefits of renewables accrue to
society as a whole, although firms must cover most of the investment and deal with the
additional risks associated with technological change.
We state that managerial decisions that involve long-term societal outcomes, such
as those addressing environmental issues, are more subject to cognitive biases, beliefs,
knowledge, assumptions, and personal values (Cyert and March, 1963). Studies have
shown that a CEO’s personal preferences, expertise, activism, power, or values influence
organizational commitments to corporate social responsibility practices (Chatterji and
Toffel, 2017; Chin, Hambrick, and Treviño, 2013; Lewis, Walls, and Dowell, 2013; Walls
and Berrone, 2017). For example, Walls and Berrone (2017) propose that CEOs have a
greater ability to influence their company’s environmental practices when they have
experience in addressing environmental matters, and leverage their formal influence over
the board of directors and the top management team (Walls and Berrone, 2017). The
strong influence of managers’ characteristics and values on environmental decisions
reinforces the importance of studying the decision processes of organizational
participants in these situations (Flannery and May, 2000).
Interest is growing among researchers in the role of managers’ time orientation on
environmental decision making. For example, Slawinski and Bansal (2012) show that an
individual’s temporal perspective shapes firm-level environmental decisions. These
authors identify two categories of corporate responses to climate change grounded in
different temporal perspectives: focused and integrated. Focused firms emphasize linear
time, which is manifest in a lower tolerance for uncertainty. This linear view of time
emphasizes less complex solutions and creates path dependency in the firm’s capability
development. In contrast, integrated firms see time as cyclical and events as being
connected over time. These firms relied not only on metrics but also on qualitative
information. They were more tolerant of uncertainty, as their work involved numerous
stakeholders and many contingencies. In contrast to focused firms, integrated firms saw
making investments ahead of regulatory certainty as being less risky. As a result,
“integrated firms developed a broad range of responses, including investments in
alternative energies, multi-stakeholder dialogue, and energy efficiency” (Slawinski and
Bansal, 2012, p. 1554). Similarly, Wang and Bansal (2012) argue that entrepreneurs have
different time perspectives, and those with a longer time perspective are more likely to
invest in socially responsible activities and to profit from those investments.
The salience of environmental externalities reinforces the need for managers to
consider not only the long-term financial implications of their decisions but also the social
challenges and risks related to energy sources. The use of fossil fuels, such as coal, oil,
and natural gas, for electricity imposes a societal cost. Fossil fuels release greenhouse
gases and other toxins that contribute to climate change and pollute the air, water, and
land, while also consuming large amounts of water and compromising plant and animal
life. Similarly, generating electricity through nuclear energy poses serious safety risks.
Carbon can be reduced through a diverse range of strategies with different time
horizons. For example, carbon emissions can be reduced by improving the efficiency of
the organization’s operations. The advantage of such an approach is that costs and
environmental impacts are lowered simultaneously and relatively quickly; however, the
disadvantage is that the underlying environmental harm is not addressed, as a minimum
environmental impact is always incurred (Slawinski and Bansal, 2015). Yet, electricity
generated through renewable energy sources, such as solar, wind, and thermal, produces
relatively little or no pollution but incurs more short-term cost and market, production
and policy risk.
Despite the social benefits of renewables, after the electricity market was
deregulated, the cost-benefit and risk calculus for renewable energy generation was
especially precarious for several reasons. First, the United States produced only about 12
percent of its national electricity from renewable energy sources in 1996, and most was
from hydro. Only 2 percent of national electricity came from other sources, such as
biomass, geothermal, wind, or solar energy, which precluded any benefit from economies
of scale (Nogee et al., 1999). Second, renewable energies confronted commercialization
barriers, including the lack of infrastructure, placing them at a competitive “disadvantage
against the entrenched industries” (Nogee et al., 1999, p. 8). To illustrate, companies
could take several years to identify publicly acceptable wind sites with good resources
and access to transmission lines. Furthermore, companies understood the permitting and
reviewing procedures for conventional energy technologies, but the permitting processes
for renewables involved new issues, ecosystem impacts, and standards, which often led
to unexpected delays. Financing was both more challenging and costlier for the
developers of renewable resources, as financial institutions were generally unfamiliar
with the new technologies and considered them relatively risky. These high financing
costs especially damaged the competitive position of renewable energy generation, since
“renewables generally require higher initial investments than fossil fuel plants, even
though they have lower operating costs”(Nogee et al., 1999, p.19). Third, companies
required retooling to switch to renewable technologies, which would almost certainly
involve infrastructure and learning costs that would not be incurred by expanding the use
of existing energy sources. (See Nogee et al., 1999, for an extended review of the costs
and risks of generating electricity from renewable sources).
Even now, most of the installed capacity is based on energy generated from fossil
fuels (The Economist, 2017), which illustrates the sustained high risk associated with the
switch to renewables. According to Tietjen et al. (2016), the investment risks for power
plants arise mainly because the need for future cash flows to cover the capital
expenditures (mostly investment costs) depends largely on risky electricity prices (a
revenue risk) and risky fuel and carbon prices (variable cost risks). Firms operating with
traditional technologies have high variable costs (i.e. fossil fuel prices) and relatively low
fixed costs, as they need few additional investments to continue producing electricity.
These firms can pass the fluctuations in variable costs through to the consumer by raising
the electricity price. Renewable energy generation, in contrast, does not exhibit such a
correlation between costs and revenues (Tietjen et al., 2016). If the energy price decreases
because the coal price decreases, firms investing in generating electricity from renewable
resources will still need to cover the cost of the new technologies. Thus, although the
level of risk is strongly affected by the overall capacity mix of the market, renewable
plants face the highest stand-alone risks, since their profits are most affected by the risk
associated with fluctuations in electricity prices (Tietjen et al., 2016).
After the U.S. electricity-generating industry was deregulated, the challenges of
moving to renewables for electricity generation was greater than before deregulation
because the “failure of the market to value public benefits like environmental protection
and fuel diversity, as well as market barriers, will make it hard for relatively new
technologies to become commercialized and enter the mainstream marketplace” (Nogee
et al., 1999, p. 44). In spite of this uncertainty and the prolonged time scales involved,
some companies were investing in generating electricity from renewable resources
(Delmas et al., 2007; Ortiz-de-Mandojana and Aragon-Correa, 2015). In the next section,
we offer time-related corporate governance variables that can explain why.
CEO career horizon
The CEO’s career horizon is the amount of time the CEO has until retirement (Krause
and Semadeni, 2014; Matta and Beamish, 2008; McClelland, Barker, and Oh, 2012).
Based on both prospect theory and agency theory, prior studies have argued that CEOs
closer to retirement are less likely to make major strategic investments because they are
unlikely to reap the financial rewards of their investments (Barker and Mueller, 2002;
Matta and Beamish, 2008). However, these studies did not consider the influence of
career horizon on decisions with long-term implications, such as decisions related to
environmental performance. In such situations, we state that CEOs with shorter career
horizons are more likely to make risky investments for several reasons.
First, peoples’ time perspective tends to become longer over their lifetime. As
people age, they tend to look farther into the future and past (Fung, Lai, and Ng, 2001;
Zimbardo and Boyd, 2008). Zimbardo and Boyd (1999) conducted exploratory and
confirmatory factor analysis of individual time perspectives and found that age positively
correlated with a factor that mirrored a future perspective. A time perspective is formed
through an unconscious process; personal and social experiences flow continuously to
instill a sense of order, coherence, and meaning (Zimbardo and Boyd, 1999). The process
of aging, although biological, carries important social meanings, culturally imbued
expectations for behavior, and socially defined needs and priorities (Lowry, 2009; Troy,
Smith, and Domino, 2011).
As people age, they have a longer period of time over which they can look back
(Bluedorn, 2002; El Sawy, 1983). Prior research has found a positive correlation between
the distance that people look back into the past and the distance that they look into the
future (Bluedorn, 2002; El Sawy, 1983). This time perspective exerts a dynamic influence
on many important judgments, decisions, and actions (Zimbardo and Boyd, 1999).
Although people with shorter career horizons will still apply a rational economic view to
firm-specific decisions that have mostly business implications, people who have a greater
temporal depth are more likely to accommodate a wider set of factors in their decision-
making (Taylor, 1975). With this wider set of considerations, CEOs with a future time
perspective are more likely to acknowledge a wider set of opportunities and threats, such
as those pertaining to society or the natural environment.
A second reason why a CEO’s shorter career horizon will contribute to a greater
commitment to the generation of renewable energy is because as executives age, they
prioritize their emotional needs (Carstensen, Fung, and Charles, 2003), which also
contributes to a greater future focus. This shift is clearly seen with age, yet has also been
shown to exist in other contexts in which time horizons shrink, such as during periods of
geographic relocation, illness, and war, all of which compromise peoples’ subjective
sense of future time (Carstensen et al., 2003; Cheng and Yim, 2008; Lang and Carstensen,
1994). As people age, they attach less importance to goals that expand their horizons and
greater importance to goals from which they derive emotional meaning (Carstensen,
2006; Mather and Carstensen, 2003). This theory has been empirically supported by the
effects of timeliness in worker motivation and in the creativity of organizational members
(Mainemelis, 2001; Stamov-Roßnagel and Hertel, 2010). Maturity has been also
associated with higher levels of moral development and stricter interpretations of a firm’s
ethical standards of conduct (Serwinek, 1992), resulting in less likelihood of engaging in
or facilitating unethical behaviors such as accounting fraud (Troy et al., 2011).
Wade-Benzoni et al. (2010) support the argument that CEOs are less self-
interested and more socially concerned as they edge closer to retirement. Wade-Benzoni
et al. (2010) found that under conditions that define intergenerational allocations — in
which the present generation can potentially impose large and not easily reversed long-
term consequences on future generations — CEOs become more concerned with legacies,
ethics, and responsibilities, which temper, and even trump, self-interests. Progeny affects
the imaginability of future generations, which, in turn, increases individuals’ affinity with
future generations and brings the outcomes of future generations closer to one’s self
(Wade-Benzoni, 1999). This proposition translates to the following hypothesis in our
specific research project.
H1: The shorter the CEO’s career horizon, the greater the firm’s share of
environmentally responsible technologies.
The CEO’s tenure also influences the CEO’s time perspective and approach to
environmental decisions. Previous literature focusing on long-term business opportunities
has argued that longer-tenured executives tend to become more rigid because they rely
on past experiences instead of new stimuli (e.g. Hambrick and Fukutomi, 1991).
However, we suggest that longer tenure widens CEOs’ cognitive frame on socially
responsible investments so that they are more open to social and environmental stimuli.
We offer several arguments to support this assertion.
First, CEOs with longer tenures (i.e. those who have been working within the firm
for a longer period) have greater temporal depth because they have been exposed to more
different events in their firms, and those experiences can be helpful when making present-
day decisions that impact the future. For example, El Sawy (1983) found that planning
horizons lengthened when executives were asked to look first to the distant past of their
own personal organizational history and then to the future. Thus, CEOs’ longer personal
vision of the historical evolution of the firm and their understanding of the long-term
benefits gained by environmental commitments in past decades may be especially useful
in understanding the future societal importance of firms’ environmental decisions today.
Additionally, a CEO’s tenure relates to that individual’s knowledge of the organizational
culture. In other words, the longer CEOs have been with the company, the better they
know the organizational strategy and operations, the key influencers and resource holders,
and therefore the best approaches to innovation.
Second, a short CEO tenure belies a future perspective because managers are
likely to act opportunistically in the short term to signal their suitability to the external
labor (Laverty, 1996). That is, managers are motivated to select projects with short-term
returns in an attempt to convince the labor market of their strong managerial abilities
(Campbell and Marino, 1994; Kor, 2006). These executives, therefore, tend to ignore
projects that help the firm primarily in the long run, such as those that positively impact
the natural environment.
Consistent with this argument, Porter (1992) looked to executives’ tenure when
he studied the problem of short-termism among U.S. firms. He observed that Japanese
managers were less short-sighted than their American counterparts. Japanese managers
tended to be internally promoted career employees, who usually spent their careers with
one company, and inter-firm mobility was almost nonexistent. This tendency for Japanese
managers to remain in their current job encouraged long-range investments (Campbell
and Mariano, 1994; Porter, 1992). Indeed, in the past 20 years, the average U.S. CEO’s
tenure has decreased from approximately eight years to less than four years, a change that
has been linked to an increase in pressure on CEOs to deliver quick results (Antia,
Pantzalis, and Park, 2010). In general, we propose:
H2: The longer the CEO’s tenure, the greater the firm’s share of environmentally
CEO ownership of the firm
CEO ownership of the firm helps to increase the CEO’s identification with the firm and
is more likely to lead to decisions that build stability and a future perspective. We offer
First, managerial ownership fosters socio-emotional wealth (Berrone et al., 2010).
Prior research has shown that when CEOs are also shareholders, they tend to identify
more with the firm and internalize the firm’s image as their own (Thomsen and Pedersen,
2000). Given this association between image and identity, CEOs will likely want to avoid
tarnishing their firm’s image, which would challenge their own identity. These CEOs are
likely to think about their legacy and how they will be remembered, as they have built
such a strong emotional connection to the firm. They will see how each decision connects
both to other decisions and to a collective destiny for the firm over the long term.
In a second mechanism, ownership fosters a future time perspective through a lack
of incentives to develop strategies that will have an immediate impact on short-term firm
prices. CEOs face difficulties profiting from short-term stock markets movements, as they
are unable to liquidate their ownership quickly. Although speculative traders and other
shareholders can move quickly between companies (New York SEC, 2010), CEOs cannot
because a massive sell-off would send negative signals to other shareholders and to
stakeholders. For these reasons, we anticipate that CEOs with high ownership of the firm
are more likely to invest in environmentally responsible technologies. Specifically, we
H3: The greater the CEO’s ownership of the firm, the greater the firm’s share of
environmentally responsible technologies.
Executive compensation is an important mechanism for orienting management decisions
(Gerhart and Milkovich, 1990; Gomez-Mejia and Wiseman, 1997; Miller, Wiseman, and
Gomez-Mejia, 2002). Earlier research has shown that the design of CEOs’ compensation
affects their temporal orientation in making organizational decision. For example,
Larcker (1983) found that firms that adopt long-term compensation policies experience
statistically significant growth in capital investment compared with firms that do not. He
argued that these compensation schemes lengthen the manager’s decision-making
horizon. More recently, Flammer and Bansal (2017) argued that managers are overly
short-termist, so long-term compensation plans will change managerial behavior.
Through a differences-in-differences research design, corporations that pass shareholder
resolutions for long-term compensation plans showed higher corporate social
responsibility, greater R&D, long-term operational performance, and greater use of long-
term language relative to those that do not accept such shareholder resolutions.
In the environmental arena, Berrone and Gomez-Mejia, (2009) found that long-
term pay was an important incentive for pollution prevention, and it was more effective
where it is needed the most — that is, in highly polluting industries. Their results suggest
that a firm with poor environmental performance should increase the proportion of long-
term pay in the CEO compensation package. Russo and Harrison (2005) also found that
a link between plant manager compensation and environmental performance elicits
Based on this prior research, we expect that compensation plans that focus on
short-term performance will reduce investments in environmentally responsible
technologies, and this effect would be especially true in industries that are normally long
term, such as the electricity-generation industry. Short-term compensation is reflected in
bonuses based on current-year performance. Larcker (1983) argued that annual bonuses
push CEOs to focus on the present. Short-termism, which is defined as the excessive focus
of corporate managers on short-term results, repudiates concern for long-term value
creation and the fundamental value of firms (Stiglitz, 1989) and society. Short-term
actions include decreasing discretionary expenses and underinvesting in long-term assets
(Lee, Matsunaga, and Park, 2012; Waegelein, 1988). The capital investments needed for
such discretionary investments, such as environmentally responsible technologies, will
be delayed or even dismissed because profits in the current year will be reduced, which
will compromise the CEO’s bonus. Given that renewable energy generation requires
additional risks and investments in the short term (Nogee et al., 1999; Tietjena et al.,
2016), we predict that:
H4: The greater the CEO’s short-term compensation pressures, the smaller the
firm’s share of environmentally responsible technologies.
We collected data for a three-year period from utilities generating, transmitting, and
distributing electricity for public use in the United States. Information about the
environmental situation and the utilities’ electricity generation was drawn from three
databases: (1) the Energy Information Administration (EIA), for information regarding
each state’s deregulations and renewable portfolio standard measures; (2) the Toxics
Release Inventory, which records the level of emissions in states where the firms operate;
and (3) the eGRID database, which offers environmental information at the firm level.
We improved the reliability of results by analyzing data not from one year but from three
years. In selecting three years for data, we chose those years that could provide a range
of values over time yet also allow previous years’ data to act as control data. As a result,
we chose to analyze data for 1997, 2000, and 2005, with lagged variables from 1996,
1999, and 2004, respectively.
Financial information was obtained from Standard & Poor’s Capital IQ. Corporate
governance data came from the EDGAR database, which contains publicly accessible
documents of companies bound by law to disclose financial information to the US
Securities and Exchange Commission (SEC). CEO career horizon, tenure, ownership, and
compensation data were obtained from proxy FORM 10-K and FORM DEF 14A for the
fiscal years 2004, 1999, and 1996 (US Securities and Exchange Commission, 2013).
We first drew our sample from all investor-owned US electric utilities in the
eGRID database from the years 1997, 2000, and 2005. These data yielded 126 different
firms, though during the period of analysis (1996–2005), the US electric utilities industry
experienced structural changes, including mergers, acquisitions, and failures. As a result,
not all firms spanned all three years in our panel. Due to data availability, our final sample
comprised 81 of these firms (64.3% of the population analyzed) and 150 observations in
the three-year unbalanced panel. We excluded federally owned, and other publicly and
cooperatively owned firms, as we recognize these other forms of ownerships hold very
Dependent and independent variables
Environmentally responsible technologies. For the dependent variable, we
measured the share of electricity generated from renewable sources (US EPA, 2010)
relative to total electricity generation. We calculated this ratio for one year following the
year in which the data were collected for the independent variables. eGRID has data
available for t+1 for all years analyzed (i.e. 1996, 1999, and 2004).
CEO career horizon. We measured CEO career horizon as the number of years
remaining before the CEO reached the assumed retirement age of 70, which is consistent
with the measures used by Krause and Semadeni (2014), Matta and Beamish (2008), and
McClelland et al., (2012). CEO age was extracted from the proxy Form10-K for the fiscal
years 2004, 1999, and 1996. We calculated CEO age at the beginning of the reference
CEO tenure. We measured CEO tenure by calculating the years since the CEO’s
appointment at the firm. This information was drawn from proxy Form10-K for the fiscal
years 2004, 1999, and 1996.
CEO ownership. We measured CEO ownership by calculating the shares held by
the CEO as a percentage of total shareholdings. This information was drawn from proxy
Form10-K for the fiscal years 2004, 1999, and 1996.
Short-term CEO compensation. We define this variable as the share of annual
compensation that pressures CEO to pursue short-term goals — that is, the ratio of annual
bonuses to annual fixed salary. This information came from the executive compensation
table in proxy DEF14A for the fiscal years 2004, 1999, and 1996.
We included variables in the model to control for additional factors that might partly
explain firms’ renewable energy generation. Financial profitability may be associated
with the attention extended to environmental issues and to whether such issues are
considered to pose an opportunity (Sharma, 2000). We measured financial profitability
as firms’ return on assets from the previous year. Organizational size is related to
proactive environmental actions (e.g. Aragon-Correa, 1998). We measured firm size as
the total net generation of energy in megawatts per hour and used the square root to correct
normally. We also controlled for firm age, which refers to the number of years since the
firm’s incorporation date. To take into account any possible differences among the years
in the sample, we used Year00, which is a categorical variable that takes the value 1 for
year 2000 and 0 for all other years, and Year05, a variable that takes the value 1 for year
2005 and 0 for all other years.
Governance control variables were extracted from proxy Form10-K for the fiscal
years studied, and included Separate chair, which was 0 when the CEO and chair were
the same person, and 1 when they were not. Previous studies have suggested that CEO
duality affects environmental and social practices (Lattemann et al., 2009; McKendall,
Sanchez and Sicilian, 1999). Board size refers to the number of directors on the board.
Kassinis and Vafeas (2002) found that a larger board size was negatively related to board
effectiveness when dealing with environmental issues. We calculated Board career
horizon as the average of the number of years remaining before the directors reached the
assumed retirement age of 70. Board tenure was calculated as the average number of
years that the directors of the company have held their positions. Finally, we used a
dummy variable to control for the presence of larger shareholders, which can affect
investment in different dimensions of corporate social responsibility (e.g. Johnson and
Greening, 1999). This variable took the value 1 when investors held more than 5% of the
company’s shares, and 0 otherwise.
We also controlled for environmental regulation and other considerations that
could affect the firm’s emissions. To register the effect of deregulation, we followed
Delmas and Tokat (2005) and Delmas et al. (2007), who created a variable taking the
value of 1 when a retail deregulation had been enacted or a regulatory order had been
issued, and 0 otherwise (US Energy Information Administration, 2010). We also included
the variable renewable portfolio standard in place to capture the effect of operating in a
state with an established renewable portfolio standard (RPS) (Lawrence Berkeley
National Laboratory, 2008). This variable took the value 1 when a state had enacted a
RPS, and 0 otherwise. For multi-state utilities, the variables deregulation and renewable
portfolio standard in place were weighted based on the percentage of electricity generated
within each state by the firm.
To test the model, we used time-series cross-sectional data analysis. This method is
superior to analyzing single-period cross-sectional data because it controls for the
confounding effect of time-invariant and company-specific variables (Wiersema and
Bowen, 1997). The results of the Hausman specification test suggested that a random-
effects model was appropriate (χ2 = 20.15; p > 0.1; H0 = random effect is the efficient
estimator). Additionally, we clustered the standard errors by firm to obtain results that are
robust with correlation within firms across time.
Table 1 reports descriptive statistics and correlations for the variables examined
in our study. Results from the random-effects GLS regression analyses are listed in Table
2. Model 1 presents the results of regression with the control variables, and serves as a
baseline model. According to our results, smaller firms and firms with previous low
emissions scores generated a higher percentage of energy from renewable sources than
their larger and higher-scoring counterparts. In Models 2–4, having a separate CEO
relates positively with the percentage of energy from renewable sources, which supports
previous studies suggesting that CEO duality has a negative effect on environmental and
social practices (Lattemann et al., 2009; McKendall et al., 1999). For example,
McKendall et al. (1999) argue that a Chair who is not a CEO is less pressured to produce
positive short-term outcomes than a Chair who is also a CEO. In these situations, the
Chair who is not a CEO is more likely to recognize the undesirable long-term social and
financial liabilities associated with noncompliance. Finally, older firms generate a higher
percentage of energy from renewable sources. Thus, for our sample of investor-owned
companies in the period of analysis, size is found to positively affect the level of
Insert Tables 1 and 2 about here.
Models 2–5 progressively include the independent variables of our analysis. The
Wald test was used in all models to understand improvements that resulted from the
incorporation of variables in each step. We also calculated the variance inflation factor
(VIF) after each regression; values were within acceptable limits for all control and
independent variables. Model 5 includes the full model.
Hypothesis 1 proposed that the CEO career horizon is negatively related to a
firm’s environmentally responsible technologies. Model 5 shows that the coefficient of
the variable representing CEO career was negative and significant (z = –2.31, p = 0.021),
indicating that firms whose CEOs have a shorter career horizon invested in a higher
percentage of renewable energy generation. Therefore, Hypothesis 1 is supported.
The coefficient capturing CEO tenure was not significant. Therefore, for the
sampled firms, we cannot accept Hypothesis 2, which proposed that firms led by CEOs
with longer tenures would demonstrate more environmentally responsible technologies
than firms led by CEOs with shorter tenures.
Hypothesis 3 suggested that firms led by CEOs who own more of the firm would
demonstrate more environmentally responsible technologies than firms led by CEOs who
own less of the firm. Model 5 shows that the coefficient of the variable representing CEO
ownership was positive and significant (z = 7.30, p = 0.000), which confirms Hypothesis
Finally, Hypothesis 4 advocated that firms led by CEOs who receive larger short-
term compensation would demonstrate a smaller share of environmentally responsible
technologies. Model 5 shows that the coefficient of the variable representing CEO short-
term compensation was negative and significant (–1.96, p = 0.050), which confirms
Considering the size of our sample and the high number of parameters we estimated, we
checked whether our main results were affected by a subset of variables. We repeated our
analysis considering only significant variables instead of the entire list, and we obtained
the same results as in the study’s original model.
We also repeated our analysis by dropping the oldest observations (i.e. data for
1996) to verify whether our results were sensitive to the temporal evolution of the
analyzed effects. We obtained similar results and confirmed the same findings in our
original model. Only the variable for short-term compensation reduced its significance
level, but it maintained the direction of the predicted results. The smaller size of the
sample may explain the drop in the significance level.
These additional analyses confirm that our models are consistent with the assorted
control variables, that the proportion parameters we estimated and the number of
observations are not problematic, and that our results are stable over time. We have
provided the detailed results to our reviewers; these results are also available to any
interested readers upon request to the authors.
Prior research has shown that corporate governance plays a significant role in strategic
decisions, but this prior work is agnostic to the temporal implications of the dependent
variable. In this paper, we focus on a strategic decision, specifically the investment in
environmentally responsible technologies, which requires a future time perspective. We
hypothesized that the CEO’s career horizon, tenure, ownership of the firm, and
compensation design are related to such investments because they shape the CEO’s time
We tested our hypotheses on 150 observations from the U.S. electric utilities
sector over a three-year unbalanced panel, using random-effects GLS analysis. We
confirm that a CEO’s short career horizon, higher ownership, and a low level of short-
term compensation foster a future time perspective, which leads to a higher percentage of
electricity generation from renewable sources.
Prior research argues that CEOs close to retirement are unlikely to make long-
term investments because they tend to be more risk-averse than their counterparts (Barker
and Mueller, 2002; Matta and Beamish, 2008). However, whereas these studies
investigated outcomes with firm-specific benefits, we analyzed the relationship between
CEO career horizon and corporate investments that have societal implications. Whereas
investments that have firm-specific benefits often lead to foreseeable short-term
outcomes, most societal investments require a future perspective because of their long-
Any investment has risk; however, during our research frame (1996 to 2005),
investments in renewable electricity generation were highly risky, given the uncertainty
of U.S. public policy in carbon pricing and the high prices associated with renewable
energies. During the period of analysis, renewable electricity generation required
significant investments and therefore was considered to be risky for organizations (Finon,
2013; Nogee et al., 1999). Even now, most of the installed capacity is based on energy
generated from fossil fuels (The Economist, 2017), which illustrates the sustained high
risk associated with the switch to renewables.
Our results show that, compared with their younger counterparts, CEOs closer to
retirement are more likely to assume additional risks and to make environmentally
responsible decisions. CEOs with shorter career horizons are also more likely to
acknowledge the wider set of opportunities and threats associated with environmental
issues. Their future time perspective exerts a dynamic influence on their judgments,
decisions, and actions (Bluedorn, 2002; Zimbardo and Boyd, 1999). Furthermore, as
executives age, they tend to prioritize their emotional needs, relative to other needs such
as compensation and career advancement (Carstensen et al., 2003), and tend to have
higher levels of moral development and stricter interpretations of the firm’s ethical
standards of conduct (Serwinek, 1992; Troy et al., 2011), which also contribute to a
greater future focus. This result supports previous studies’ findings that having an older
management could, in certain situations, have a positive effect. For example, Troy et al.
(2011) found that, as CEOs age, they are less likely to engage in or facilitate unethical
behaviors such as accounting fraud.
We also found that CEO ownership had a positive effect on the level of renewable
energy generation. A CEO’s ownership typically increases the CEO’s identification with
the firm, implying a more stable and long relationship with the firm and fostering a future
time perspective. Previous studies have mainly analyzed ownership as a mechanism for
aligning the incentives between principal and agent (e.g. Wright et al., 1996; Walters,
Kroll, and Wright, 2008; Zahra, Neubaum, and Huse, 2000). We argue that CEO
ownership also increases CEOs’ future time perspective, which can help to align CEOs’
interests with the future environmental implications of their decisions for society (even
when these interests do not necessarily coincide with the principals’ interests).
Additionally, we show that CEOs with a low level of short-term compensation are
related to higher environmentally responsible technologies. This result confirms the
importance of considering compensation extremes to avoid sending the wrong signals to
CEOs in terms of environmental decisions. Thus, we see a connection between short-term
pressures and temporal myopia. Our findings support studies that find that the CEOs who
are pressured to perform well in the short term tend to underinvest in long-term assets
(Lee et al., 2012; Waegelein, 1988).
Contrary to our expectations, we did not find that CEO tenure affected the use of
environmentally responsible technologies. The predicted relationship may not have been
significant because of the very specific features of our sample of U.S. electric utilities.
First, the vast majority of the CEOs in our sample already had long tenure, so the variance
in this variable was low and there were few observations of shorter-tenured CEOs.
Second, it may very well be that there is a countervailing force with CEOs with long
tenure. CEOs with long tenure may rely more on existing routines because of their
knowledge of the sector and the firm and are less receptive to new information and more
rigid to change, which could potentially represent (Hambrick and Fukutomi, 1991). We
leave this and other limitations for future researchers to explore further, which we discuss
in the next section.
Limitations and future research directions
Several limitations of this study warrant discussion. First, we restricted our managerial
focus to CEOs and did not examine the time perspective of the entire top management
team. Despite a variety of significant contributions examining executive groups, rather
than individuals (Hambrick, 2007), CEOs are still the most powerful executive agent in
the organization and play a central role in this strategic decision.
Second, we analyzed the effect of CEOs’ time perspective within a single sector
and a single national context. We restricted the variance in context to control the nature
of the environmental investments being made. Had we not limited the sector and
geography, the nature of the investment decisions on environmental performance may
have differed so much that the outcomes of the analysis would have been difficult to
interpret. However, this narrow focus has introduced limitations. We have a relatively
small sample, but it is highly representative of the population (64.3%). As well, we do
not know how generalizable our work is to other contexts. We encourage future
researchers to further develop the theory in corporate governance to consider the
implications to CEO time perspectives in other contexts.
Third, we also recognize that this specific industry leads to limitations. For
example, the electric power generation industry, which has been highly regulated,
experienced significant deregulation in the sampled years of this study. Consequently, the
time perspective may have been more salient than in other, more stable industries.
Finally, we use the share of electricity generated from renewable sources to
capture the long-term option to react to pressures for renewable adoption; however, future
studies could investigate the effects of other measures, such as investment in renewable
energy capacity. Additionally, future studies could extend the period of analysis to
determine whether the evolution of external factors may affect our conclusions.
We argue that a CEO’s short career horizon, higher level of ownership, and
absence of short-term compensation pressure will foster a future time perspective, which
leads to a higher percentage of electricity generation from renewable sources. Although
previous literature supports our reasoning, we recognize the possibility of some
alternative causality affecting the estimated relationships. For illustration, a firm that is a
more socially responsible might be more likely both to invest in green energy and to
prioritize its best practices regarding corporate governance — such as long-term
performance-related compensation for the top management team. In such a scenario, it
would not be that the compensation arrangements led to the investments in renewable
energy generation, but that both resulted from a firms’ broader orientation. Future studies
could thus analyze complementary relationships to those proposed in this study.
Implications for managers and policy makers
The findings from this study have important managerial implications. We find that the
CEO’s time perspective matters to environmental decisions. As previous corporate
experiences show (e.g. Enron), adopting a short-term perspective may not be in the long-
term best interests of the corporation. Our results can help managers to understand the
influence of their time perspective on their decisions. Boards will be better poised,
therefore, to scrutinize a tendency for some CEOs and senior executives to exhibit a short-
term perspective and, thereby, fail to manage environmental risks.
US board members are older on average and stay in their post longer than their
European counterparts, which calls attention to how leaders’ characteristics affect
investors’ interests (Financial Times, 2016). Our research recognizes that critical
differences likely exist in the way that senior executives make decisions with respect to
firm-specific investments and environmentally beneficial investments. Even when
demographic dimensions (e.g. career horizon or tenure) are unlikely to influence regular
organizational operations, boards may want to include incentives that influence the
CEO’s time perspective to encourage decisions that are more environmentally
Although we have focused on the effects of a future time perspective on
environmental decisions, a future time perspective may also contribute to a more stable
working environment for the firm. To the extent that people are made aware of their long-
term impact on others, they are more likely to consider their legacy (Wade-Benzoni et al.,
2010). Codes of ethics that focus on the long-term, multi-generational nature of
organizations may increase the likelihood of intergenerational beneficence (Wade-
Benzoni et al., 2010). It is likely that environmental sensibilities can be fostered, or
attuned, under the enacted morality perspective (Fineman, 1997; Gonzalez-Benito and
The importance of time in strategy research is likely to become even more salient with
the increasing pressures toward short-termism. This paper shows that managers with a
future time perspective are more likely, relative to their peers, to invest in long-term
activities that benefit society — environmentally responsible technologies. A CEO’s
future perspective is fostered by a short career horizon, higher organizational ownership,
and long-term compensation. We hope that this research will help to motivate even deeper
insights into a time perspective on corporate governance, so that organizations can
simultaneously meet the needs of business and society.
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Table 1. Descriptive statistics and correlations of variablesª
1. Env. responsible
4. Previous e missions
5. Separate CEO
6. Board career horizon
7. Board tenure
8. Board size
9. Large shareh olders
10. Firm age
13. CEO career horizon
14. CEO tenure
15. CEO ownership
ª Table 1 contains Pearson’s correlation coefficient (n = 150). †p < .1, *p < .05, **p < .01, *** p < .001
Table 2. Results of random effects GLS regressionª
Board career horizon
CEO career horizon
Wald chi2 (df)
Chi2 Δ R2
ªn = 150. Table 2 contains unstandardized regression coefficients. SEs clustered on firm are shown in parentheses. Environmentally responsible technologies
is the dependent variable. Significant at †p < .1, *p < .05, **p < .01, and ***p < .001.