Skip to main content

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

Journal of Business Ethics volume 114, pages 381–392 (2013)Cite this article

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.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price includes VAT (USA)
Tax calculation will be finalised during checkout.

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

References

  • Ayuso, S., & Argandona, A. (2009). Responsible corporate governance: Towards a stakeholder board of directors? Corporate Ownership & Control, 6(4), 9–19.

    Google Scholar 

  • Bear, S., Rahman, N., & Post, C. (2010). The impact of board diversity and gender composition on corporate social responsibility and firm reputation. Journal of Business Ethics, 97(2), 207–221.

    Article  Google Scholar 

  • Beliveau, B., Cottrill, M., & O’Neill, H. M. (1994). Predicting corporate social responsiveness: A model drawn from three perspectives. Journal of Business Ethics, 13(9), 731–738.

    Article  Google Scholar 

  • Bilimoria, D. (2006). The relationship between women corporate directors and women corporate officers. Journal of Managerial Issues, 18(1), 47–61.

    Google Scholar 

  • Boeker, W., & Goodstein, J. (1991). Organizational performance and adaptation: Effects of environment and performance on changes in board composition. Academy of Management Journal, 34(4), 805–826.

    Article  Google Scholar 

  • Boutin-Dufresne, F., & Savaria, P. (2004). Corporate social responsibility and financial risk. Journal of Investing, 13(1), 57–66.

    Article  Google Scholar 

  • Campbell, J. L. (2006). Institutional analysis and the paradox of corporate social responsibility. American Behavior Scientist, 49(7), 925–938.

    Article  Google Scholar 

  • Carroll, A. B. (1994). Social issues in management research: Experts’ views, analysis, and commentary. Business & Society, 33(1), 5–29.

    Article  Google Scholar 

  • Carroll, A. B. (1999). Corporate social responsibility: Evolution of a definitional construct. Business & Society, 38(3), 268–295.

    Article  Google Scholar 

  • Catalyst. (2005). 2005 catalyst census of women board directors of the fortune 500. New York: Catalyst.

    Google Scholar 

  • Certo, S. T., Covin, J. G., Daily, C. M., & Dalton, D. R. (2001). Wealth and the effects of founder management among IPO-stage new ventures. Strategic Management Journal, 22(6–7), 641–658.

    Article  Google Scholar 

  • Chiu, S. C., & Sharfman, M. (2011). Legitimacy, visibility, and the antecedents of corporate social performance: An investigation of instrumental perspective. Journal of Management, 37(6), 1558–1585.

    Article  Google Scholar 

  • Cho, H. J., & Pucik, V. (2005). Relationship between innovativeness, quality, growth, profitability, and market value. Strategic Management Journal, 26(6), 555–575.

    Article  Google Scholar 

  • Coffey, B., & Wang, J. (1998). Board diversity and managerial control as predictors of corporate social performance. Journal of Business Ethics, 17(14), 1595–1603.

    Article  Google Scholar 

  • Cooper, S., Crowther, D., Davies, M., & Davis, E. (2001). Shareholder or stakeholder value: The development of indicators for the control and measurement of performance. London: CIMA Publishing.

    Google Scholar 

  • Cottrill, M. T. (1990). Corporate social responsibility and the marketplace. Journal of Business Ethics, 9(9), 723–729.

    Article  Google Scholar 

  • Dalton, D. R., & Dalton, C. M. (2010). Women and corporate boards of directors: The promise of increased, and substantive, participation in the post Sarbanes-Oxley era. Business Horizons, 53(3), 257–268.

    Article  Google Scholar 

  • de Graaf, F. J., & Herkströter, C. A. J. (2007). How corporate social performance is institutionalized within the governance structure: The Dutch corporate governance model. Journal of Business Ethics, 74(2), 581–597.

    Article  Google Scholar 

  • Dobson, A. (2002). An introduction to generalized linear models (2nd ed.). Boca Raton, FL: Chapman & Hall/CRC.

    Google Scholar 

  • Eagly, A. H., Johannesen-Schmidt, M. C., & van Engen, M. L. (2003). Transformational, transactional, and laissez-faire leadership styles: A meta-analysis comparing women and men. Psychological Bulletin, 129(4), 569–591.

    Article  Google Scholar 

  • Filatotchev, I., & Bishop, K. (2002). Board composition, share ownership, and ‘underpricing’ of U.K. IPO firms. Strategic Management Journal, 23(10), 941–955.

    Article  Google Scholar 

  • Fombrun, C., & Shanley, M. (1990). What’s in a name? Reputation building and corporate strategy. Academy of Management Journal, 33(2), 233–258.

    Article  Google Scholar 

  • Fortune. (2008). America’s most admired companies. (March 17), 65–67.

  • Frooman, J. (1999). Stakeholder influence strategies. Academy of Management Review, 24(2), 191–205.

    Google Scholar 

  • Goldschmidt, N. P., & Finkelstein, J. H. (2001). Academics on board: University presidents as corporate directors. Academe, 87(5), 33–37.

    Article  Google Scholar 

  • Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics, 118(1), 107–156.

    Article  Google Scholar 

  • Graves, S. B., & Waddock, S. A. (1994). Institutional investors and corporate social performance. Academy of Management Journal, 37(4), 1035–1046.

    Article  Google Scholar 

  • Griffin, J., & Mahon, J. (1997). The corporate social performance and corporate financial performance debate: 25 years of incomparable research. Business & Society, 36(1), 5–31.

    Article  Google Scholar 

  • Hair, J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1995). Multivariate data analysis (4th ed.). Englewood Cliffs, NJ: Prentice-Hall Inc.

    Google Scholar 

  • Harrigan, K. R. (1981). Numbers and positions of women elected to corporate boards. Academy of Management Journal, 24(3), 619–625.

    Article  Google Scholar 

  • Hart, S. L., & Sharma, S. (2004). Engaging fringe stakeholders for competitive imagination. Academy of Management Executive, 18(1), 7–18.

    Article  Google Scholar 

  • Higgins, M. C., & Gulati, R. (2003). Getting off to a good start: The effects of upper echelon affiliations on underwriter prestige. Organization Science, 14(3), 244–263.

    Google Scholar 

  • Higgins, M. C., & Gulati, R. (2006). Stacking the deck: The effects of top management backgrounds on investor decisions. Strategic Management Journal, 27(2), 1–25.

    Article  Google Scholar 

  • Hillman, A. J., & Keim, G. D. (2001). Shareholder value, stakeholder management, and social issues: What’s the bottom line? Strategic Management Journal, 22(2), 125–139.

    Article  Google Scholar 

  • Houston, M. B., & Johnson, S. A. (2000). Buyer–supplier contracts versus joint ventures: Determinants and consequences of transaction structure. Journal of Marketing Research, 37(1), 1–15.

    Article  Google Scholar 

  • Ibrahim, N. A., & Angelidis, J. P. (1994). Effect of board members’ gender on corporate social responsiveness orientation. Journal of Applied Business Research, 10(1), 35–41.

    Google Scholar 

  • Ibrahim, N. A., & Angelidis, J. P. (1995). The corporate social responsiveness orientation of board members: Are there differences between inside and outside directors? Journal of Business Ethics, 14(5), 405–410.

    Article  Google Scholar 

  • Ibrahim, N. A., Howard, D. P., & Angelidis, J. P. (2003). Board members in the service industry: An empirical examination of the relationship between corporate social responsibility orientation and directorial type. Journal of Business Ethics, 47(4), 393–401.

    Article  Google Scholar 

  • Johnson, R. A., & Greening, D. W. (1999). The effects of corporate governance and institutional ownership types on corporate social performance. Academy of Management Journal, 42(5), 564–576.

    Article  Google Scholar 

  • Kesner, I. F. (1988). Directors’ characteristics and committee membership: An investigation of type, occupation, tenure, and gender. Academy of Management Journal, 31(1), 66–84.

    Article  Google Scholar 

  • Leonard, H. B., & Rangan, V. K. (2006). Corporate social responsibility strategy and boards of directors. Directors & Boards, 3(4), 12–14.

    Google Scholar 

  • Linck, J. S., Netter, J. M., & Yang, T. (2009). The effects and unintended consequences of the Sarbanes-Oxley Act on the supply and demand for directors. Review of Financial Studies, 22(8), 3287–3328.

    Article  Google Scholar 

  • Liston-Heyes, C., & Ceton, G. (2007). An investigation of real versus perceived CSP in S&P-500 firms. Journal of Business Ethics, 89(2), 283–296.

    Article  Google Scholar 

  • Logsdon, J. M., & Yuthas, K. (1997). Corporate social performance, stakeholder orientation, and organizational moral development. Journal of Business Ethics, 16(12–13), 1213–1226.

    Article  Google Scholar 

  • Luo, X., & Bhattacharya, C. B. (2006). Corporate social responsibility, customer satisfaction, and market value. Journal of Marketing, 70(4), 1–18.

    Article  Google Scholar 

  • Mahoney, L., & Thorn, L. (2006). An examination of the structure of executive compensation and corporate social responsibility: A Canadian investigation. Journal of Business Ethics, 69(2), 149–162.

    Article  Google Scholar 

  • Margolis, J. D., & Walsh, J. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative Science Quarterly, 48(2), 268–305.

    Article  Google Scholar 

  • Mattingly, J. E., & Berman, S. L. (2006). Measurement of corporate social action: Discovering taxonomy in the Kinder Lydenburg Domini ratings data. Business & Society, 45(1), 20–46.

    Article  Google Scholar 

  • McGuire, J., Dow, S., & Argheyd, K. (2003). CEO incentives and corporate social performance. Journal of Business Ethics, 45(4), 341–359.

    Article  Google Scholar 

  • McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of Management Journal, 31(4), 854–872.

    Article  Google Scholar 

  • McKendall, M., Samchez, C., & Sicilian, P. (1999). Corporate governance and corporate illegality: The effects of board structure on environmental violations. International Journal of Organizational Analysis, 7(3), 201–223.

    Article  Google Scholar 

  • McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecification? Strategic Management Journal, 21(5), 603–609.

    Article  Google Scholar 

  • Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. Academy of Management Review, 22(4), 853–886.

    Google Scholar 

  • Moore, G. (2001). Corporate social and financial performance: An investigation in the U.K. Supermarket industry. Journal of Business Ethics, 34(3–4), 299–315.

    Article  Google Scholar 

  • Nielsen, S., & Huse, M. (2010). The contribution of women on boards of directors: Going beyond the surface. Corporate Governance: An International Review, 18(2), 136–148.

    Article  Google Scholar 

  • Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24(3), 403–441.

    Article  Google Scholar 

  • Palazzo, G., & Scherer, A. G. (2006). Corporate legitimacy as deliberation: A communicative framework. Journal of Business Ethics, 66(2), 71–88.

    Article  Google Scholar 

  • Palazzo, G., & Scherer, A. G. (2008). Corporate social responsibility, democracy, and the politicization of the corporation. Academy of Management Review, 33(3), 773–775.

    Article  Google Scholar 

  • Pfeffer, J., & Salancik, G. R. (1974). Organizational decision making as a political process: The case of the university budget. Administrative Science Quarterly, 19(2), 135–151.

    Article  Google Scholar 

  • Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. New York: Harper & Row.

    Google Scholar 

  • Post, C., Rahman, N., & Rubow, E. (2011). Green governance: Boards of directors’ composition and environmental corporate social responsibility. Business & Society, 50(1), 189–213.

    Article  Google Scholar 

  • Saiia, D. H. (2007). Stakeholder salience, issues management and mapping new ways to sustainability. In S. Sharma, M. Starik, & B. Husted (Eds.), Organizations and the sustainability mosaic: Crafting long-term ecological and societal solutions. Cheltenham: Edward Elgar.

    Google Scholar 

  • Scherer, A. G., & Palazzo, G. (2007). Toward a political conception of corporate responsibility: Business and society seen from a Habermasian perspective. Academy of Management Review, 32(4), 1096–1120.

    Article  Google Scholar 

  • Scherer, A. G., & Palazzo, G. (2011). The new political role of business in globalized world: A review of a new perspective on CSR and its implications for the firm, governance, and democracy. Journal of Management Studies, 48(4), 899–931.

    Article  Google Scholar 

  • Stanwick, P. A., & Stanwick, S. D. (1998). The determinants of corporate social performance: An empirical examination. American Business Review, 16(1), 86–93.

    Google Scholar 

  • Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3), 571–610.

    Google Scholar 

  • Terjesen, S., Sealy, R., & Singh, V. (2009). Women directors on corporate boards: A review and research agenda. Corporate Governance: An International Review, 17(3), 320–337.

    Article  Google Scholar 

  • Vaaland, T. I., Heide, M., & Grønhaug, K. (2008). Corporate social responsibility: Investigating theory and research in the marketing context. European Journal of Marketing, 42(9/10), 927–953.

    Article  Google Scholar 

  • Valenti, A. (2007). The Sarbanes-Oxley Act of 2002: Has it brought about changes in the boards of large U.S. Corporations? Journal of Business Ethics, 81(2), 7–18.

    Google Scholar 

  • Waddock, S. A., & Graves, S. B. (1997). The corporate social performance-financial performance link. Strategic Management Journal, 18(4), 303–319.

    Article  Google Scholar 

  • Wang, J., & Coffey, B. (1992). Board composition and corporate philanthropy. Journal of Business Ethics, 11(10), 771–778.

    Article  Google Scholar 

  • Wang, J., & Dewhirst, H. D. (1992). Boards of directors and stakeholder orientation. Journal of Business Ethics, 11(2), 115–123.

    Article  Google Scholar 

  • Webb, E. (2004). An examination of socially responsible firms’ board structure. Journal of Management and Governance, 8(3), 255–277.

    Article  Google Scholar 

  • Williams, R. J. (2003). Women on corporate boards of directors and their influence on corporate philanthropy. Journal of Business Ethics, 42(1), 1–10.

    Article  Google Scholar 

  • Zhang, J. Q., Craciun, G. C., & Shin, D. S. (2010). When does electronic word-of-mouth matter? A study of consumer product reviews. Journal of Business Research, 63(12), 1336–1341.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Marketing Department, Sellinger School of Business, Loyola University Maryland, 4501 N Charles Street, Baltimore, MD, 21210, USA

    Jason Q. Zhang

  2. Accounting Department, Sellinger School of Business, Loyola University Maryland, 4501 N Charles Street, Baltimore, MD, 21210, USA

    Hong Zhu

  3. Department of Management and International Business, Sellinger School of Business, Loyola University Maryland, 4501 N Charles Street, Baltimore, MD, 21210, USA

    Hung-bin Ding

Authors
  1. Jason Q. Zhang
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Hong Zhu
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Hung-bin Ding
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jason Q. Zhang.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

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

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • 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