According to our data, 38.5 % of S&P 1500 firms have at least one professor on their boards. Given the lack of research examining the roles and effects of academic faculty as members of boards of directors (professor–directors) on corporate outcomes, this study investigates whether firms with professor–directors are more likely to exhibit higher corporate social responsibility (CSR) performance ratings. Results indicate that firms with professor–directors do exhibit higher CSR performance ratings than those without. However, the influence of professor–directors on firm CSR performance ratings depends on their academic background—the positive association between the presence of professor–directors and firm CSR performance ratings is significant only when their academic background is specialized (e.g., science, engineering, and medicine). Finally, this positive association weakens when professor–directors hold an administrative position at their universities.
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We use the terms “board diversity” and “board heterogeneity” interchangeably in this section.
The “Image of Professions” Survey, conducted by Roy Morgan Research (2013), asked respondents to rate which professions they consider the most ethical and honest. Results indicated that among all 30 listed professions, university lecturers were ranked in the top one-third, which was higher than the rankings for business executives, lawyers, and accountants.
As a robustness test, we also check and find that our results are qualitatively the same even when we extend our analysis into the other four CSR dimensions (i.e., we use a dependent variable that sums up all scores in seven CSR dimensions of KLD).
There may be potential concerns about the use of net difference scores, i.e., sum of strengths – sum of weaknesses (Allison 1990; Edwards and Parry 1993; Johns 1981). However, we choose to use such difference scores as our CSR dependent variables because several recent studies that use the KLD database have commonly done so (Barnea and Rubin 2010; Chen et al. 2008; Rekker et al. 2012). Following Barnea and Rubin (2010), we assume that all types of CSR strengths and weaknesses are equal in terms of their importance and costs. However, as a robustness check, we also replicate our empirical tests by decomposing our dependent variables of difference scores into strengths and weaknesses and find inferentially similar results. We discuss this issue further in the “Robust Test and Additional Issues” section.
We classify majors into seven categories in a mutually exclusive and collectively exhaustive way.
To ensure that multicollinearity is not a significant issue in our study, we check and find that all VIFs (variance inflation factors) in the OLS regressions without year and industry fixed-effects are below 1.8, implying no significant multicollinearity issue. We also find that our results remain qualitatively the same when all control variables are dropped.
Audretsch and Stephan (1996) argue that university-based scientists provide three functions to biotech firms: 1) knowledge transfer, 2) signaling the quality of the firm’s research to both capital and resource markets, and 3) help chart the scientific direction of the firm. Thus, specialized professors’ role is to provide advice to make a firm succeed in the long run.
White et al. (2013) introduce some characteristics of administrative professor-directors. For example, administrative professors may provide appointing firms with beneficial social networks and additional access to resources but, at the same time, they may not be able to provide highly technical and industry-specific advice as it is likely that they have not been active in terms of research since they became administrators at their universities.
According to KLD guidelines, ‘diversity commitment’ ratings take into account whether a firm hires women, disabled, or gays/lesbians. However, these ratings do not consider occupational diversity such as hiring professors on the board. Thus, it is less likely that the presence of professor-directors on the board automatically increases its ratings for ‘diversity commitment.’
Although statistically insignificant, we also find that the percentage of having attendance problem (i.e., attended less than 75 % of board meetings) is higher for professor-directors with administrative positions than professors-directors without administrative jobs (1.24 % vs. 1.00 %, t statistic = 0.83).
Adams and Ferreira (2009) use an instrumental variable for the presence of female directors as the fraction of male directors with board connections to female directors.
We find inferentially similar results when the change in the proportion of professor-directors (△PctPROF) is used.
In the next section, we provide the rationale or justification for decomposing our CSR dependent variables (in the form of net difference scores) into CSR strengths and weaknesses.
We were not able to find clear evidence that firm CSR performance ratings increase when a new professor-director is added to the board.
We acknowledge some possible limitations in this section. To examine how CSR activities are associated with temporal changes in the presence of professor-directors, we adopt and modify a research design that LaFond and Watts (2008) use (i.e., CSR (t) = △Prof (t) + △Prof (t-1) + △Prof (t-2) + controls (t-1)) in which the dependent variable is the CSR rating level while the variables of interest are the longitudinal changes in the presence of professor-directors. As CSR scores provided by the KLD database are relatively sticky and insensitive over time, taking the change (△) of KLD variables does not capture a subtle change in CSR ratings over two consecutive years.
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We are indebted to Editor-in-Chief Alex Michalos for his support. We are also grateful for comments and suggestions provided by four anonymous reviewers, Den Patten, and participants of the International Conference for Green Finance, the 35 ème Congrès de l’Association Francophone de Comptabilité (AFC) in Lille (special thanks to discussant Tiphaine Compernolle), the 38th European Accounting Association (EAA) Annual Congress in Glasgow, and research seminars at Yonsei University, KAIST-Korea University (Joint Accounting Research Workshop), the University of Central Florida - Dixon School of Accounting, and IESEG. Byungjin Kwak and Choong-Yuel Yoo acknowledge financial support received from 2011 to 2013 KAIST Internal Research Grant.
See Table 7.
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Cho, C.H., Jung, J.H., Kwak, B. et al. Professors on the Board: Do They Contribute to Society Outside the Classroom?. J Bus Ethics 141, 393–409 (2017). https://doi.org/10.1007/s10551-015-2718-x
- Board of directors
- Corporate governance
- Corporate social responsibility
- Social performance ratings