Research: CEOs from Working-Class Families Support Less-Labor-Friendly Policies

Henrik Cronqvist of the University of Miami Herbert Business School and colleagues compiled data on U.S. CEOs’ socioeconomic backgrounds and their firms’ personnel practices and policies, as reflected by union and employee litigation, occupational safety metrics, and employee reviews. They found that CEOs raised in less-wealthy households were more likely to run companies that did not treat workers well. The conclusion: CEOs from working-class families support less-labor-friendly policies. Professor Cronqvist, defend your research. Cronqvist: This finding may seem counterintuitive at a glance. But I’d argue there’s actually an intuitive case to be made for either effect our research might have found. Here’s what I mean: On the one hand, you could imagine that if you grew up in a working-class household and saw that your mom or dad wasn’t treated well as an employee, you’d learn from it and implement more-labor-friendly policies as a CEO. On the other hand, maybe you’d be more likely to tolerate ungenerous corporate behavior. When my coauthors—Irena Hutton of Florida State and Danling Jiang of Stony Brook University—and I looked at the S&P 1500 CEOs from 1992 to 2017 for whom we had enough information, we found evidence of the latter, not the former. HBR: Is the basis of your finding psychological? Do people tend to replicate the conditions they’ve grown up in? Psychology certainly is a factor, but I think economics and sociology are too. Quite a bit of previous work in those three fields investigates “occupational norms” and shows that they’re shaped in part by our childhood and adolescent experiences—what we see, what information we get, and what we discuss throughout them. Growing up in a white-collar home is quite different from growing up in a blue-collar one. The occupational experiences of blue-collar parents are going to reflect lower pay, less job security, limited benefits, higher physical demands, and odd hours. We wanted to find out if there was a link between the conditions CEOs were raised in and the norms they were exposed to and their attitudes toward workers as seen in their labor policies. How did you measure socioeconomic background? Historically, social class is considered a function of three factors: income, education, and occupation. In our case we decided to look primarily at parents’ occupations. We used a variety of sources, such as newspapers, professional societies, school and university alumni publications, and speeches at events to track down that information for the parents of 1,626 U.S. CEOs. We then sorted them into five socioeconomic classes: upper class (CEOs, philanthropists, business moguls), professional class (doctors, judges, high-ranking army officers), middle class (accountants, engineers, teachers), working class (carpenters, plumbers, truck drivers), and poor (unemployed, odd jobs, sharecroppers). What about this idea of employee-friendly policies? How did you measure that? Ah yes! We didn’t think there was one metric that would be perfect. So we looked at three that captured outcomes related to labor policies. The first was the number of employee or union lawsuits—the idea being that if employees or unions were suing a firm, it probably had worse labor practices. We also considered workplace violations identified in Occupational Safety and Health Administration inspections; more of them obviously meant a less-friendly work environment. Finally, we looked at employees’ own ratings of firms, which we collected from Glassdoor.com because it’s the most robust database of feedback on S&P 1500 companies. We felt that if these three metrics pointed in the same direction for each firm—which they did—then we’d have a good sense of how well a company was treating its workers. Aren’t there a lot of other factors you could have considered—paid leave, vacation, health care coverage? That’s a good question. But in our analysis the friendliness of benefits is reflected in employees’ Glassdoor reviews. I imagine that litigation, OSHA complaints, and even reviews varied considerably by industry, though. Maybe CEOs who grew up poor are more likely to preside over companies doing more-dangerous work? You’re absolutely right that there’s some critical variation across industries. But our statistical analysis controlled for that. This isn’t a phenomenon that happens within some industries but not others. We controlled for other significant business factors, too, including firm size, total assets, profitability, leverage ratio, and market-to-book ratio. Was there any difference between CEOs who’d founded their companies and those who hadn’t? That’s important because founders are often more involved in establishing their company’s culture, so we controlled for that, too. The effect, we discovered, was the same for founder CEOs and professional CEOs. How do you know that CEOs, rather than their predecessors or their boards, set the labor policies? One of my favorite ways of trying to address causality was to look at changes in CEOs. And what we saw was that if a firm transitioned from a CEO with a blue-collar background to a CEO with a white-collar one, its policies got friendlier. What about geography? Did your findings hold no matter where a company was headquartered? We sampled firms from across the country, but we didn’t control for geography. We could do that in the future to see if any differences emerged among firms based in different regions. It would also be interesting, albeit very difficult, to do a study like this in an international setting. There’s a complicated relationship between socioeconomic class and race in the United States. How did your research approach that question? We didn’t look at race specifically. We did, however, correlate CEOs’ socioeconomic classifications with a few other background characteristics—for example, whether their parents were immigrants or minorities, had served in the military, or had attended Ivy League schools. And we did find some correlations. CEOs whose parents had Ivy League degrees were very likely to be upper-class, and those with immigrant or minority backgrounds were more likely to be working-class or poor. That being said, only 5.7% of CEOs in our sample were minorities, so these correlations are limited in what they tell us. What about female versus male CEOs? We would have done that analysis, but unfortunately only 4.4% of the leaders in our sample were women, so it would have been impossible to draw any substantive conclusions. We did, however, analyze a characteristic related to gender: whether a CEO’s mother had worked. And if the leader’s mom had held a job, the effect was actually stronger—that is, the labor policies of the CEO’s firm were even worse. What conclusions do you draw from that? Well, the CEOs in our data set are relatively older: The average year of birth was 1946–1947. And we know that most women had an even harder time in the workplace back in the 1950s and 1960s. So a future CEO whose mother worked would have been exposed to harsher occupational norms early on. That makes me wonder: Were there any notable generational trends in your findings? In fact, yes—and this is a more positive note! If you look at CEOs born in 1960 or later—that is, who are 60 years old or younger—the effect tends to be more muted, which suggests that a generational force could be at work here. Younger CEOs are also less stratified with respect to their labor policies; their socioeconomic backgrounds matter less. That could bode well for the future, but it will take time to know for sure if the trend will continue. Have you seen any of this playing out in companies’ responses to the coronavirus crisis? We have no systematic evidence about this yet, but some of the variation in actions and policies with respect to workers’ health and safety during the pandemic could be attributable to a CEO’s upbringing. Also, this crisis and poor economic conditions will shape an entire generation, just as the 1930s created “Depression babies.” Our research suggests that those growing up poor in today’s crisis will be more likely to tolerate less-worker-friendly corporate practices if they become CEOs.

Research: CEOs from Working-Class Families Support Less-Labor-Friendly Policies

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