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Board Composition and Corporate Social Responsibility: An Empirical Investigation in the Post Sarbanes-Oxley Era

Abstract

Although the composition of the board of directors has important implications for different aspects of firm performance, prior studies tend to focus on financial performance. The effects of board composition on corporate social responsibility (CSR) performance remain an under-researched area, particularly in the period following the enactment of the Sarbanes-Oxley Act of 2002 (SOX). This article specifically examines two important aspects of board composition (i.e., the presence of outside directors and the presence of women directors) and their relationship with CSR performance in the Post-SOX era. With data covering over 500 of the largest companies listed on the U.S. stock exchanges and spanning 64 different industries, we find empirical evidence showing that greater presence of outside and women directors is linked to better CSR performance within a firm’s industry. Treating CSR performance as the reflection of a firm’s moral legitimacy, our study suggests that deliberate structuring of corporate boards may be an effective approach to enhance a firm’s moral legitimacy.

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Notes

  1. As an example of illustration, we first eliminated the least statistically significant control variable, Financial leverage (p = 0.96) in Model 1 (i.e., the full model), to arrive at an intermediate reduced model. Both AIC and SC statistics indicate that this reduced model is preferred (AICfull = 327.49 vs. AICreduced = 325.49; SCfull = 363.45 vs. SCreduced = 357.46). The likelihood ratio test also suggests that this reduced model is preferred because the exclusion of Financial leverage does not significantly worsen model goodness-of-fit (χ2 = 0.003, df = 1, p = 0.96). We continued the process as we selected the next variable to remove until model diagnostic criteria indicated otherwise.

  2. Model 1 does not find a significant relationship between firm CSR performance and financial performance. This finding is documented in prior literature. McWilliams and Siegel (2000), with a specific focus on this issue, suggest that, after firm innovativeness is controlled for, the relationship between firm CSR performance and financial performance is “neutral” (i.e., statistically non-significant) (p. 603).

  3. In addition to Models S1 and S2, we also conducted data analyses with CSR_KLD retained as a continuous variable. Results from these analyses (not reported for brevity) are not substantially different.

  4. Pragmatic legitimacy is based on stakeholders’ calculation of self-interest. Cognitive legitimacy is based on taken-for-granted social assumptions. See more discussion in Suchman (1995).

  5. The partitioning is done through using three variables to account for the four types of directors: the proportion of women outside directors, proportion of women inside directors, proportion of men outside directors, and proportion of men inside directors.

  6. For instance, we found that among outside directors, women have greater effects on CSR performance than men. The difference (β = 2.96) is statistically significant at the 10 % level.

Abbreviations

CSR:

Corporate social responsibility

SOX:

The Sarbanes-Oxley Act of 2002

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Zhang, J.Q., Zhu, H. & Ding, Hb. Board Composition and Corporate Social Responsibility: An Empirical Investigation in the Post Sarbanes-Oxley Era. J Bus Ethics 114, 381–392 (2013). https://doi.org/10.1007/s10551-012-1352-0

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  • DOI: https://doi.org/10.1007/s10551-012-1352-0

Keywords

  • Board of directors
  • Board composition
  • Corporate social responsibility (CSR)
  • Sarbanes-Oxley Act (SOX)
  • Post-SOX
  • Moral legitimacy