Do Good People Make Bad Innovators? Managerial Prosocial Preferences and Automation Innovation

Strategy & Business Policy

Speaker: Daniel Keum

Associate Professor - Columbia University

Conference  Jouy-en-Josas T017

Abstract:

Automation, even while increasing aggregate employment in the long run, can displace and cause significant harm to incumbent employees. We propose that managers’ prosocial preferences, specifically their desire not to displace and harm their employees, deter investment in automation innovation research. Using both novel and previously-used proxies of prosocial preferences (e.g., CEO use of the ‘we’ pronoun during earnings calls, employee-prosocial language in annual reports, Machiavellianism score, and charity engagement), we show that managerial prosociality decreases automation patents in US public manufacturing firms, especially process-automation patents that lead to greater short-term layoffs, while having a weaker effect on non-automation patents. The negative effect is stronger when financial slack provides managers with greater discretion and weaker when social safety nets reduce the harm from losing a job. In a complementary laboratory experiment, we show that aversion to harming employees, not the automation technology itself, underpins the negative relation. Our study highlights prosocial preferences as a novel source of heterogeneity that shapes the rate and direction of firm innovation and cautions that CEO prosociality can lead to myopic underinvestment in automation innovation research.