Journal of Business Ethics

, Volume 132, Issue 4, pp 641–660 | Cite as

Board Diversity and Corporate Social Responsibility

Article

Abstract

This study examines the impact of board diversity on firms’ corporate social responsibility (CSR) performance. Using seven different measures of board diversity across 1,489 U.S. firms from 1999 to 2011, the study finds that board diversity is positively associated with CSR performance. Board diversity is associated with a greater number of areas in which CSR is strong and a fewer number of areas in which CSR is a concern. These findings support the stakeholder theory and are consistent with the view that board diversity enhances firms’ ability to satisfy the needs of their broader groups of stakeholders. We find that gender, tenure, and expertise diversities seem to be the driving factors of firms’ CSR activities. Furthermore, we find that board diversity significantly increases CSR performance by increasing CSR strengths and reducing CSR concerns for firms producing consumer-oriented products and firms operating in more competitive industries. Our results remain robust using different measures of CSR performance, different estimation methods, and different samples.

Keywords

Diversity Corporate social responsibility Board of Directors Stakeholders 

JEL Classifications

M14 G34 G39 

Notes

Acknowledgements

We are grateful for the helpful comments and suggestions of two anonymous referees. Harjoto acknowledges Julian Virtue Professorship endowment and Rothschild awards for financial support and release time for this research. Lee acknowledges Julian Virtue Professorship endowment for financial support and release time for this research.

References

  1. Abbott, L. J., Parker, S., & Presley, T. J. (2012). Female board presence and the likelihood of financial restatement. Accounting Horizons, 26(4), 607–629.CrossRefGoogle Scholar
  2. Adams, R., & Ferreria, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309.CrossRefGoogle Scholar
  3. Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of Business Ethics, 97, 71–86.CrossRefGoogle Scholar
  4. Baron, D. P. (2009). Credence standards and social pressure. In Aseem Prakash & Matthew Potoski (Eds.), Voluntary programs: A club theory perspective (pp. 41–66). Cambridge: MIT Press.Google Scholar
  5. Baron, D., Harjoto, M., & Jo, H. (2011). The economics and politics of corporate social performance. Business and Politics, 13(2), 1–46.CrossRefGoogle Scholar
  6. 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, 207–221.CrossRefGoogle Scholar
  7. Benson, B. W., & Davidson, W. N. (2010). The relation between stakeholder management, firm value, and CEO compensation: A test of enlightened value maximization. Financial Management, 39(3), 929–963.CrossRefGoogle Scholar
  8. Benson, B. W., Davidson, W. N, I. I. I., Wang, H., & Worrell, D. L. (2011). Deviations from expected stakeholder management, firm value, and corporate governance. Financial Management, 40(1), 39–81.CrossRefGoogle Scholar
  9. Berman, S. L., Wicks, A. C., Kotha, S., & Jones, T. M. (1999). Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance. Academy of Management Journal, 42(5), 488–506.CrossRefGoogle Scholar
  10. Blau, P. M. (1977). Inequality and heterogeneity: A primitive theory of social structure. New York: The Free Press.Google Scholar
  11. Cai, Y., Jo, H., & Pan, C. (2011). Vice or virtue? The impact of corporate social responsibility on executive compensation. Journal of Business Ethics, 104, 159–173.CrossRefGoogle Scholar
  12. Campbell, J. L. (2007). Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility. Academy of Management Review, 32(3), 946–967.CrossRefGoogle Scholar
  13. Carroll, A. (1979). A three-dimensional conceptual model of corporate social performance. Academy of Management Review, 4, 497–505.Google Scholar
  14. Carroll, A. B. (1999). Corporate social responsibility: Evolution of a definitional construct. Business and Society, 38(3), 268–295.CrossRefGoogle Scholar
  15. Carter, D. A., D’Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5), 396–414.CrossRefGoogle Scholar
  16. Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial Review, 38(1), 33–53.CrossRefGoogle Scholar
  17. Cornell, B., & Shapiro, A. C. (1987). Corporate stakeholders and corporate finance. Financial Management, 16(1), 5–14.CrossRefGoogle Scholar
  18. Davidson, R., & MacKinnon, J. G. (1993). Estimation and inference in econometrics. New York: Oxford University Press.Google Scholar
  19. Dhaliwal, D., Li, O., Tsang, A., & Yang, Y. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. The Accounting Review, 86(1), 59–100.CrossRefGoogle Scholar
  20. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366), 427–431.CrossRefGoogle Scholar
  21. El Ghoul, S., Guedhami, O., Kwok, C., & Mishra, D. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance, 35(9), 2388–2406.CrossRefGoogle Scholar
  22. Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board director diversity and firm financial performance. Corporate Governance: An International Review, 11(2), 102–111.CrossRefGoogle Scholar
  23. Evan, W. M., & Freeman, R. E. (1988). A stakeholder theory of the modern corporation: Kantian capitalism. In T. Beauchamp & N. Bowie (Eds.), Ethical theory and business. Englewood Cliffs, NJ: Prentice Hall.Google Scholar
  24. Fama, E., & French, K. (1997). Industry costs of equity. Journal of Financial Economics, 43, 153–197.CrossRefGoogle Scholar
  25. Fisman, R., Heal, G., & Nair, V. (2005). A model of corporate philanthropy. Working Paper. New York: Columbia University.Google Scholar
  26. Forbes, D. P., & Milliken, F. J. (1999). Cognition and corporate governance: Understanding boards of directors as strategic decision-making groups. Academy of Management Review, 24(3), 489–505.Google Scholar
  27. Francoeur, C., Labelle, R., & Sinclair-Desgagne, B. (2008). Gender diversity in corporate governance and top management. Journal of Business Ethics, 81, 83–95.CrossRefGoogle Scholar
  28. Freeman, R. E. (1984). Strategic management: A stakeholder approach (p. 46). Boston: Pitman.Google Scholar
  29. Freeman, R. E., Wicks, A. C., & Parmar, B. (2004). Stakeholder theory and “the corporate objective revisited”. Organization Science, 15, 364–369.CrossRefGoogle Scholar
  30. Garriga, E., & Mele, D. (2004). Corporate social responsibility theories: Mapping the territory. Journal of Business Ethics, 53(1–2), 51–71.CrossRefGoogle Scholar
  31. Gillan, S., Hartzell, J., Koch, A., & Starks, L. (2010). Firms’ environmental, social and governance (ESG) choices, performance and managerial motivation. Working Paper. http://www.business.pitt.edu/faculty/papers/koch3.pdf. Accessed Nov 10 2010.
  32. Goss, A., & Roberts, G. (2011). The impact of corporate social responsibility on the cost of bank loan. Journal of Banking & Finance, 35, 1794–1810.CrossRefGoogle Scholar
  33. Gul, F. A., Srinidhi, B., & Ng, A. C. (2011). Does board gender diversity improve informativeness of stock prices? Journal of Accounting and Economics, 51, 314–338.CrossRefGoogle Scholar
  34. Harjoto, M., & Jo, H. (2011). Corporate governance and CSR nexus. Journal of Business Ethics, 100(1), 45–67.CrossRefGoogle Scholar
  35. Harrison, D., Price, K., & Bell, M. (1998). Beyond relational demography: Time and the effects of surface-and deep-level diversity on work group cohesion. Academy of Management Journal, 41(1), 96–107.CrossRefGoogle Scholar
  36. Hillman, A. J., & Keim, G. D. (2001). Shareholder value, stakeholder management, and social issues: What’s the bottom line? Strategic Management Journal, 22, 125–139.CrossRefGoogle Scholar
  37. Huse, M., Nielsen, S., & Hagen, I. (2009). Women and employee-elected board members, and their contributions to board control tasks. Journal of Business Ethics, 89, 581–597.CrossRefGoogle Scholar
  38. Ilgen, D., Hollenbeck, J., Johnson, M., & Jundt, D. (2005). Teams in organizations: From input-process-output process models to IMOI models. Annual Review Psychology, 56, 517–543.CrossRefGoogle Scholar
  39. Ioannou, I., & Serafeim, G. (2014). The impact of corporate social responsibility on investment recommendations: Analysts’ perceptions and shifting institutional logics. Strategic Management Journal, 35, 1–23.CrossRefGoogle Scholar
  40. Jackson, S., Joshi, A., & Erhardt, N. (2003). Recent research on team and organizational diversity: SWOT analysis and implications. Journal of Management, 29, 801–830.CrossRefGoogle Scholar
  41. Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14, 8–21.CrossRefGoogle Scholar
  42. Jensen, M. C. (2002). Value maximization, stakeholder theory, and the corporate objective function. Business Ethics Quarterly, 12, 235–256.CrossRefGoogle Scholar
  43. Jo, H., & Harjoto, M. (2011). Corporate governance and firm value: The impact of corporate social responsibility. Journal of Business Ethics, 103(3), 351–383.CrossRefGoogle Scholar
  44. Johnson, S., Schnatterly, K., & Hill, A. (2013). Board composition beyond independence: Social capital, human capital, and demographics. Journal of Management, 39(1), 232–262.CrossRefGoogle Scholar
  45. Kim, Y., Park, M., & Wier, B. (2012). Is earnings quality associated with corporate social responsibility? The Accounting Review, 87(3), 761–796.CrossRefGoogle Scholar
  46. Knippenberg, D., & Schippers, M. (2007). Work group diversity. Annual Review Psychology, 58, 515–541.CrossRefGoogle Scholar
  47. Kotchen, M., & Moon, J. J. (2012). Corporate social responsibility for irresponsibility. The B.E. Journal of Economic Analysis & Policy, 12. doi:10.3386/w17254.
  48. Larcker, D., & Tayan, B. (2013). Corporate governance matters: A closer look at organizational choices and their consequences. Upper Saddle River, NJ: Pearson Education, Inc. (FT Press).Google Scholar
  49. Matten, D., & Crane, A. (2005). Corporate citizenship: Toward an extended theoretical conceptualization. Academy of Management Review, 30(1), 166–179.CrossRefGoogle Scholar
  50. McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117–127.Google Scholar
  51. Miller, T., & del Carmen Triana, M. (2009). Demographic diversity in the boardroom: Mediators of the board diversity-firm performance relationship. Journal of Management Studies, 46(5), 755–786.CrossRefGoogle Scholar
  52. Oikonomou, I., Brooks, C., & Pavelin, S. (2012). The impact of corporate social performance on financial risk and utility: A longitudinal analysis. Financial Management, 41, 483–515.CrossRefGoogle Scholar
  53. Palepu, K. (1985). Diversification strategy, profit performance and entropy measure. Strategic Management Journal, 6, 239–255.Google Scholar
  54. Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346.CrossRefGoogle Scholar
  55. Rubin, A. (2008). Political views and corporate decision making: The case of corporate social responsibility. Financial Review, 43, 337–360.CrossRefGoogle Scholar
  56. Sethi, S. P. (1975). Dimensions of corporate social responsibility. California Management Review, 77(3), 58–64.CrossRefGoogle Scholar
  57. Siegel, D. S., & Vitaliano, D. F. (2007). An empirical analysis of the strategic use of corporate social responsibility. Journal of Economics & Management Strategy, 16, 773–792.CrossRefGoogle Scholar
  58. Srinidhi, B., Gul, F. A., & Tsui, J. (2011). Female directors and earnings quality. Contemporary Accounting Research, 28(5), 1610–1644.CrossRefGoogle Scholar
  59. Waddock, S., & Graves, S. (1997). The corporate social performance-financial performance link. Strategic Management Journal, 18, 303–319.CrossRefGoogle Scholar
  60. Wang, J., & Coffey, B. S. (1992). Board composition and corporate philanthropy. Journal of Business Ethics, 11, 771–778.CrossRefGoogle Scholar
  61. Wang, J., & Coffey, B. S. (1998). Board diversity and managerial control as predictors of corporate social performance. Journal of Business Ethics, 17, 1595–1603.CrossRefGoogle Scholar
  62. Westphal, J. D., & Milton, L. P. (2000). How experience and network ties affect the influence of demographic minorities on corporate boards. Administrative Science Quarterly, 45, 366–398.CrossRefGoogle Scholar
  63. Williams, R. J. (2003). Women on corporate boards of directors and their influence on corporate philanthropy. Journal of Business Ethics, 42, 1–10.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  • Maretno Harjoto
    • 1
  • Indrarini Laksmana
    • 2
  • Robert Lee
    • 1
  1. 1.Graziadio School of Business and ManagementPepperdine UniversityMalibuUSA
  2. 2.College of Business AdministrationKent State UniversityKentUSA

Personalised recommendations