Do the political views of CEOs influence the development of environmentally friendly products?

Some schools of thought portray CEOs as rational decision-makers that always seek to maximize their company’s economic performance regardless of their personal values or political backgrounds. In the recent study "Red, blue, and green? The association between CEOs' political ideologies and green new product introductions", University of St.Gallen (HSG) Professor Maximilian Palmié and other researchers explore this notion. Their study takes a deeper look into the way CEOs make decisions and how their political views influence the decisions they make for their companies, specifically how it relates to developing environmentally friendly products, referred to as Green New Product Introductions (GNPIs). GNPIs are developed to reduce environmental impact and can, in turn, enhance a company's image and competitiveness.

Although environmentally friendly innovations tend to attract growing attention in the public discourse, firms vary widely in the number of GNPIs they produce. The reasons for this variation are still poorly understood. Palmié and his colleagues address this knowledge gap, building on emerging literature that investigates the effect of leader characteristics and individual behaviour as it relates to firm-level innovation.

If you are willing to assume that CEOs’ political values may have an effect on their professional decisions, you might expect that CEOs with more liberal (left-leaning) political views tend to lead their firms toward creating more GNPIs. Indeed, the study starts by confirming this expectation empirically. Going beyond the obvious, the study subsequently finds that the effect of a CEO’s political ideology on their firms’ development of GNPIs becomes stronger under adverse conditions that are outside their control. That is, the difference between liberal and conservative CEOs tends to become bigger when the political climate is conservative or consumer interest in sustainability is low.

In contrast, the effect becomes weaker if the firm and its CEO can be held accountable for the adverse situation they find themselves in – for instance, when they have been involved in sustainability-related scandals such as “greenwashing”.  

Palmié remarked that this study marks a first step toward a better understanding of an individual’s influence on their firm’s green innovation. “The results demonstrate that a CEOs’ political ideology and contextual conditions can influence decision-making and therefore the strategic direction of a firm when it comes to the development of GNPIs.”

This research adds a new perspective to the understanding of what drives companies to innovate sustainable products. The findings indicate that the personal beliefs and values of CEOs can significantly shape a company's environmental strategies and decisions. The study implies that – for better or worse – a value-free comparison of economic costs and benefits does not fully determine how emphatically firms embrace environmental friendliness. 

These insights suggest that the success of the sustainability transformation of our economies and the speed with which they become more sustainable is not a mere issue of economic rationality. It also depends on organizational leaders and their willingness to promote this transition.  

The study, which can be found with open access, was published by the Journal of Product Innovation Management entitled “Red, blue, and green? The association between CEOs' political ideologies and green new product introductions” can be found here.

Maximilian Palmié is Senior Lecturer of Business Management with special focus on Energy and Innovation Management at the Institute of Technology Management (ITEM-HSG), University of St.Gallen.