Advertisement

Corporate Governance as a Key Driver of Corporate Sustainability in France: The Role of Board Members and Investor Relations

  • Patricia Crifo
  • Elena Escrig-Olmedo
  • Nicolas Mottis
Original Paper
  • 329 Downloads

Abstract

This paper examines the relationships between corporate governance and corporate sustainability by focusing on two main components of companies’ governance structure: boards of directors (BoDs) and investor relations officers (IROs). We propose an original empirical strategy based on the 120 biggest French capitalizations for the year 2013, allowing us to measure boards of directors’ independence and expertise, as well as investor relations officers’ convictions and communication on corporate sustainability. Our results show that corporate governance has an ambiguous impact on corporate sustainability because of opposing forces: internal, external and intermediate forces. On the one hand, the higher the proportion of inside directors, the higher the company’s environmental and governance performance, while the higher the proportion of general experts in the board room, the lower the company’s governance performance. On the other hand, investor relations officers’ beliefs that corporate sustainability is primarily driven by investors’ ethical values appear negatively related to companies’ governance performance. In sum, corporate sustainability appears positively related to internal forces (inside directors) and negatively related to external forces (general expert directors and investor activist engagement). The results of this study demonstrate the need to carry out efforts to train BoDs (specifically inside directors) and IROs to respond to corporate sustainability and to take more of a leadership role in this area.

Keywords

Investor relations officers (IROs) Board of directors (BoDs) Environmental Social and governance (ESG) criteria Socially responsible investment (SRI) Corporate sustainability and corporate social responsibility (CSR) France 

JEL Classification

M14 G30 

Notes

Acknowledgements

We thank Vigeo and Ethics & Boards for granting us access to their data and the French Investor Relations Professional Association (CLIFF) for helping us in gathering the data on Investors Relations practices in the top French listed companies. Patricia Crifo acknowledges the support of the chair for Sustainable Finance and Responsible Investment (chair FDIR—Toulouse IDEI & Ecole Polytechnique) and Research program Investissements d’Avenir (ANR-11-IDEX-0003/Labex Ecodec/ANR-11-LABX-0047). Elena Escrig Olmedo acknowledges the support of Group SoGReS-MF (Sustainability of Organizations and Social Responsibility Management–Financial Markets) and the financial support provided by Grant E-2013-10 funded by Universitat Jaume I. Nicolas Mottis acknowledges the support of the chair for Energy and prosperity, finance and evaluation of energy transition.

Compliance with Ethical Standards

Conflict of interest

The authors declare that they have no conflict of interest.

Ethical Approval

This study does not contain any studies with human participants or animals performed by any of the authors.

References

  1. Adams, R., & Ferreira, D. (2007). A theory of friendly boards. The Journal of Finance, 62, 217–250.CrossRefGoogle Scholar
  2. Adams, R. B., Hermalin, B. E., & Weisbach, M. S. (2010). The role of boards of directors in corporate governance: A conceptual framework and survey. Journal of Economic Literature, 48(1), 58–107.CrossRefGoogle Scholar
  3. Aglietta, M., & Reberioux, A. (2005). Corporate governance adrift. A Critique of Shareholder Value. Cheltenham: Edward Elgar Publishing.CrossRefGoogle Scholar
  4. Aguilera, R., Rupp, D., Williams, C., & Ganapathi, J. (2007). Putting the S back in corporate social responsibility: A multilevel theory of social change in organizations. The Academy of Management Review, 32(3), 836–863.CrossRefGoogle Scholar
  5. Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The economics of director heterogeneity. Financial Management, 40(1), 5–38.CrossRefGoogle Scholar
  6. Bansal, P., & Clelland, I. (2004). Talking trash: Legitimacy, impression management, and unsystematic risk in the context of the natural environment. Academy of Management Journal, 47, 93–103.CrossRefGoogle Scholar
  7. Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of Business Ethics, 97(1), 71–86.CrossRefGoogle Scholar
  8. Basu, K., & Palazzo, G. (2008). Corporate social responsibility: A process model of sensemaking. Academy of Management Review, 33(1), 122–136.CrossRefGoogle Scholar
  9. Bénabou, R., & Tirole, J. (2010). Individual and corporate social responsibility. Economica, 77, 1–19.CrossRefGoogle Scholar
  10. Botosan, C. A., & Plumlee, M. (2002). A re-examination of disclosure level and the expected cost of equity capital. Journal of Accounting Research, 40(1), 21–40.CrossRefGoogle Scholar
  11. Boubaker, S., & Nguyn, D. K. (Eds.). (2012). Board directors and corporate social responsibility. Berlin: Springer. ISBN: 978-1-349-35109-1.Google Scholar
  12. Bourque, L., & Fielder, E. P. (2002). The survey kit: How to conduct self-administered and mail surveys (2nd ed.). New York: Sage.Google Scholar
  13. Brammer, S., Brooks, C., & Pavelin, S. (2006). Corporate social performance and stock returns: UK evidence from disaggregate measures. Financial Management, 35, 97–116.CrossRefGoogle Scholar
  14. Brammer, S., & Pavelin, S. (2006). Voluntary environmental disclosures by large UK companies. Journal of Business Finance and Accounting, 33(7/8), 1168–1188.CrossRefGoogle Scholar
  15. Brennan, M. J., & Tamarowski, C. (2000). Investor relations, liquidity, and stock prices. Journal of Applied Corporate Finance., 12(4), 26–38.CrossRefGoogle Scholar
  16. Busch, T., Bauer, R., & Orlitzky, M. (2015). Sustainable development and financial markets old paths and new avenues. Business and Society, 55(3), 303–329.CrossRefGoogle Scholar
  17. Bushee, B. J., & Miller, G. S. (2012). Investor relations, firm visibility, and investor following. The Accounting Review, 87(3), 867–897.CrossRefGoogle Scholar
  18. Cadbury, A. (1992). Report of the committee on the financial aspects of corporate governance (Vol. 1). Gee.Google Scholar
  19. Carroll, A. B. (1979). A three-dimensional conceptual model of corporate social performance. Academy of Management Review, 4(4), 497–505.Google Scholar
  20. Cavaco, S., Challe, E., Crifo, P., Rebérioux, A., & Roudaut, G. (2016). Board independence and operating performance: analysis on (French) company and individual data. Applied Economics.  https://doi.org/10.1080/00036846.2016.1170936.Google Scholar
  21. Cavaco, S., & Crifo, P. (2014). CSR and financial performance: Complementarity between environmental, social and business behaviours. Applied Economics, 46(27), 3323–3338.CrossRefGoogle Scholar
  22. Cavaco, S., Crifo, P., Réberioux, A., & Roudaut, G. (2017). Independent directors: Less informed but better selected than affiliated board members? Journal of Corporate Finance, 43, 106–121.CrossRefGoogle Scholar
  23. Charreau, G., & Desbrières, P. (2001). Corporate governance: Stakeholder value versus shareholder value. Journal of Management and Governance, 5, 107–128.CrossRefGoogle Scholar
  24. Chatterji, A. K., Levine, D. I., & Toffel, M. W. (2009). How well do social ratings actually measure corporate social responsibility? Journal of Economics and Management Strategy, 18(1), 125–169.CrossRefGoogle Scholar
  25. Clarkson, P., Li, Y., Richardson, G. D., & Vasvari, F. P. (2008). Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis. Organizations and Society, 33(4/5), 303–327.CrossRefGoogle Scholar
  26. Cormier, D., Ledoux, M. J., & Magnan, M. (2011). The informational contribution of social and environmental disclosures for investors. Management Decision, 49(8), 1276–1304.CrossRefGoogle Scholar
  27. Crespí-Cladera, R., & Pascual-Fuster, B. (2014). Does the independence of independent directors matter? Journal of Corporate Finance, 28, 116–134.CrossRefGoogle Scholar
  28. Crifo, P., & Forget, V. (2015). The economics of corporate social responsibility: A firm level perspective survey. Journal of Economic Surveys, 29(1), 112–130.CrossRefGoogle Scholar
  29. Crifo, P., & Mottis, N. (2016). Socially responsible investment in france. Business and Society, 55(4), 576–593.CrossRefGoogle Scholar
  30. Crifo, P., & Rebérioux, A. (2016). Corporate governance and corporate social responsibility: A typology of OECD countries. Journal of Governance and Regulation, 5(2), 14–27.CrossRefGoogle Scholar
  31. Dam, L., & Scholtens, B. (2013). Ownership concentration and CSR policy of European multinational enterprises. Journal of Business Ethics, 118, 117–126.CrossRefGoogle Scholar
  32. Dass, N., Kini, O., Nanda, V., Onal, B., & Wang, J. (2014a). Board expertise: Do directors from related industries help bridge the information gap? Review of Financial Studies, 25(7), 1533–1592.CrossRefGoogle Scholar
  33. Dass, N., Kini, O., Nanda, V., Onal, B., & Wang, J. (2014b). Board expertise: Do directors from related industries help bridge the information gap? Review of Financial Studies, 25, 533–1592.Google Scholar
  34. Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy Management Review, 22(1), 20–47.Google Scholar
  35. De Villiers, C., Naiker, V., & van Staden, C. J. (2011). The effect of board characteristics on firm environmental performance. Journal of Management, 37, 1636–1663.CrossRefGoogle Scholar
  36. Delmas, M., Hoffman, V., & Kuss, M. (2011). Under the tip of the iceberg: Absorptive capacity, environmental strategy and competitive advantage. Business and Society, 50(1), 116–154.CrossRefGoogle Scholar
  37. Dessain, V., Meier, O., & Salas, V. (2008). Corporate governance and ethics: Shareholder reality, social responsibility or institutional necessity? M@n@gement, 11(2), 65–79.CrossRefGoogle Scholar
  38. Dienes, D., & Velte, P. (2016). The impact of supervisory board composition on CSR reporting. Evidence from the German Two-Tier System, Sustainability, 8, 63.Google Scholar
  39. Dolphin, R. (2004). The strategic role of investor relations. Corporate Communications: An International Journal, 9(1), 25–42.CrossRefGoogle Scholar
  40. Donaldson, L., & Davis, J. H. (1994). Boards and company performance–Research challenges the conventional wisdom. Corporate Governance: An International Review, 2, 151–160.CrossRefGoogle Scholar
  41. Donnelly, R., & Mulcahy, M. (2008). Board structure, ownership, and voluntary disclosure in Ireland. Corporate Governance: An International Review, 16(5), 416–429.CrossRefGoogle Scholar
  42. Eccles, R., & Armbrester, K. (2011). Integrated reporting in the cloud. IESE Insight, 8(1), 13–20.CrossRefGoogle Scholar
  43. Escrig-Olmedo, E., Muñoz-Torres, M. J., Fernández-Izquierdo, A., & Rivera-Lirio, J. M. (2014). Lights and shadows on sustainability rating scoring. Review of Managerial Science, 8(4), 559–574.CrossRefGoogle Scholar
  44. European Commission -EC- (2011). A renewed EU strategy 2011-14 for Corporate Social Responsibility. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0681:FIN:EN:PDF. Accessed 9 April 2018.
  45. EUROSIF (2016). European SRI study. Available at: https://www.eurosif.org/sri-study-2016/[accessed March 3, 2017.
  46. Farragher, E. J., Kleiman, R., & Bazaz, M. S. (1994). Do investor relations make a difference ? Quarterly Review of Economics and Finance, 34(4), 403–412.CrossRefGoogle Scholar
  47. Ferreira, D. (2010). Board diversity. In R. Anderson & H. K. Baker (Eds.), Corporate governance: A synthesis of theory, research, and practice (pp. 225–242). Hoboken, NJ: Wiley.Google Scholar
  48. Fieseler, C. (2011). On the corporate social responsibility perceptions of equity analysts. Business Ethics: A European Review., 20(2), 131–147.CrossRefGoogle Scholar
  49. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Marshfield, MA: Pitman Publishing Inc.Google Scholar
  50. Girerd-Potin, I., Jimenez-Garcès, S., & Louvet, P. (2014). Which dimensions of social responsibility concern financial investors? Journal of Business Ethics, 121(4), 559–576.CrossRefGoogle Scholar
  51. Hahn, T., Figge, F., Aragón-Correa, J. A., & Sharma, S. (2017). Advancing research on corporate sustainability: Off to pastures new or back to the roots? Business and Society, 56(2), 155–185.CrossRefGoogle Scholar
  52. Harjoto, M. A., & Jo, H. (2011). Corporate governance and CSR nexus. Journal of Business Ethics, 100(1), 45–67.CrossRefGoogle Scholar
  53. Heckman, J. (1978). Dummy endogenous variables in a simultaneous equation system. Econometrica, 46(6), 931–959.CrossRefGoogle Scholar
  54. Hermalin, B., & Weisbach, M. (2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9, 17–26.Google Scholar
  55. Hillman, A., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28, 383–396.Google Scholar
  56. Hillman, A. J., Keim, G. D., & Luce, R. A. (2001). Board composition and stakeholder performance: Do stakeholder directors make a difference? Business and Society, 40(3), 295–314.CrossRefGoogle Scholar
  57. Hockerts, K., & Moir, L. (2004). Communicating Corporate responsibility to investors: The changing role of the investor relations function. Journal of Business Ethics, 52(1), 85–98.CrossRefGoogle Scholar
  58. Hoffmann, C., & Fieseler, C. (2012). Investor relations beyond financials: Non-financial factors and capital market image building. Corporate Communications: An International Journal, 17(2), 138–155.CrossRefGoogle Scholar
  59. Hong, H., & Huang, M. (2005). Talking up liquidity: Insider trading and investor relations. Journal of Financial Intermediation, 14(1), 1–31.CrossRefGoogle Scholar
  60. Igalens, J., & Gond, J. P. (2005). Measuring corporate social performance in France: A critical and empirical analysis of ARESE data. Journal of Business Ethics, 56(2), 131–148.CrossRefGoogle Scholar
  61. Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14(3), 8–21.CrossRefGoogle Scholar
  62. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.CrossRefGoogle Scholar
  63. Jo, H., & Harjoto, M. A. (2012). The causal effect of corporate governance on corporate social responsibility. Journal of Business Ethics, 106(1), 53–72.CrossRefGoogle Scholar
  64. Kakabadse, A., & Korac-Kakabadse, N. (2002). Corporate governance in South Africa: Evaluating the King II report. Journal of Change Management, 2, 305–317.CrossRefGoogle Scholar
  65. Kaplowitz, M. D., Hadlock, T. D., & Levine, R. (2004). A comparison of web and mail survey response rates. Public Opinion Quarterly, 68(1), 94–101.CrossRefGoogle Scholar
  66. Kim, K., Mauldin, E., & Patro, S. (2014). Outside directors and board advising and monitoring performance. Journal of Accounting and Economics, 57(2–3), 110–131.CrossRefGoogle Scholar
  67. Kitzmueller, M., & Shimshack, J. (2012). Economic perspective on corporate social responsibility. Journal of Economic Literature, 50(1), 51–84.CrossRefGoogle Scholar
  68. KPMG. (2005). KPMG International Survey of Corporate Responsibility Reporting. Amstelveen: KPMG.Google Scholar
  69. KPMG. (2013). KPMG international survey of corporate responsibility reporting. Amstelveen: KPMG.Google Scholar
  70. Krivogorsky, V. (2006). Ownership, board structure, and performance in continental Europe. The International Journal of Accounting, 41(2), 176–197.CrossRefGoogle Scholar
  71. Larcker, D. F., Richardson, S. A., & Tuna, I. (2007). Corporate governance, accounting outcomes, and organizational performance. The Accounting Review, 82(4), 963–1008.CrossRefGoogle Scholar
  72. Lepoutre, J., & Heene, A. (2006). Investigating the impact of firm size on small business social responsibility: A critical review. Journal of Business Ethics, 67(3), 257–273.CrossRefGoogle Scholar
  73. Li, J., Pike, R., & Haniffa, R. (2008). Intellectual capital disclosure and corporate governance structure in UK firms. Accounting and Business Research, 38(2), 137–159.CrossRefGoogle Scholar
  74. Marston, C. (2004). A survey of European investor relations. Edinburgh: The Institute of Chartered Accountants of Scotland. ISBN: 1-904574-08-4.Google Scholar
  75. Marston, C., & Straker, M. (2001). Investor relations: A European survey. Corporate Communications: An International Journal, 6(2), 82–93.CrossRefGoogle Scholar
  76. McWilliams, A., & Siegel, D. S. (2000). Corporate social responsibility and financial performance: Correlation or misspecification. Strategic Management Journal, 21(5), 603–609.CrossRefGoogle Scholar
  77. Muller, A., & Kolk, A. (2010). Extrinsic and intrinsic drivers of corporate social performance: Evidence from foreign and domestic firms in Mexico. Journal of Management Studies, 47(1), 1–26.CrossRefGoogle Scholar
  78. Peng, Y. S., Dashdeleg, A. U., & Chih, H. L. (2014). National culture and firm’s CSR engagement: A cross-nation study. Journal of Marketing and Management, 5(1), 38–49.Google Scholar
  79. Post, J., Preston, L., & Sachs, S. (2002a). Redefining the corporation, stakeholder management and organizational wealth. Stanford, CA: Stanford University Press.Google Scholar
  80. Post, J., Preston, L., & Sachs, S. (2002b). Managing the extended enterprise: The new stakeholder view. California Management Review, 45, 6–28.CrossRefGoogle Scholar
  81. Rebeiz, K. S. (2017). Relationship between boardroom independence and corporate performance: Reflections and perspectives. European Management Journal.  https://doi.org/10.1016/j.emj.2017.01.008.Google Scholar
  82. Sakuma-Keck, K., & Hensmans, M. (2013). A motivation puzzle: Can investors change corporate behavior by conforming to ESG pressures? Institutional Investors’ Power to Change Corporate Behavior: International Perspectives (Critical Studies on Corporate Responsibility, Governance and Sustainability) Emerald Group Publishing Limited, 5, 367–393.CrossRefGoogle Scholar
  83. Smyth, J., Dillman, D. A., Christian, L., & O’Neill, A. (2010). Using the Internet to survey small towns and communities: Limitations and possibilities in the early 21st century. American Behavioral Scientist, 53, 1423–1448.CrossRefGoogle Scholar
  84. Surroca, J., Tribó, J. A., & Waddock, S. (2010). Corporate responsibility and financial performance: The role of intangible resources. Strategic Management Journal, 31(5), 463–490.CrossRefGoogle Scholar
  85. Tang, Z., Hull, C. E., & Rothenberg, S. (2012). How corporate social responsibility engagement strategy moderates the csr-financial performance relationship. Journal of Management Studies, 49(7), 1274–1303.CrossRefGoogle Scholar
  86. Tian, Q., Liu, Y., & Fan, J. (2015). The effects of external stakeholder pressure and ethical leadership on corporate social responsibility in China. Journal of Management and Organization, 21(04), 388–410.CrossRefGoogle Scholar
  87. Tirole, J. (2006). The theory of corporate finance. Princeton: Princeton University Press.Google Scholar
  88. Tourangeau, R., Couper, M. P., & Conrad, F. (2004). Spacing, position, and order interpretive heuristics for visual features of survey questions. Public Opinion Quarterly, 68(3), 368–393.CrossRefGoogle Scholar
  89. Trinks, P. J., & Scholtens, B. (2015). The opportunity cost of negative screening in socially responsible investing. Journal of Business Ethics.  https://doi.org/10.1007/s10551-015-2684-3.Google Scholar
  90. US-SIF (2015). SRI Basics. Available at: http://www.ussif.org/sribasics. Accessed May 18, 2015.
  91. Van den Berghe, L., & Louche, C. (2005). The link between corporate governance and corporate social responsibility in insurance. The Geneva Papers on Risk and Insurance Issues and Practice, 30(3), 425–442.CrossRefGoogle Scholar
  92. Waddock, S., & Graves, S. (1997). The corporate social performance–Financial performance link. Strategic Management Journal, 18(4), 303–319.CrossRefGoogle Scholar
  93. Wagemans, F. A. J., Van Koppena, C. S. A., & Molapages, A. P. J. (2013). The effectiveness of socially responsible investment: A review. Journal of Integrative Environmental Sciences, 10(3–4), 235–252.CrossRefGoogle Scholar
  94. Walls, J. L., Berrone, P., & Phan, P. H. (2012). Corporate governance and environmental performance: Is there really a link? Strategic Management Journal, 33(8), 885–913.CrossRefGoogle Scholar
  95. Walsh, J., & Seward, J. (1990). On the efficiency of internal and external corporate control mechanisms. Academy of Management Review, 15(3), 421–458.Google Scholar
  96. Wang, J., & Coffey, B. S. (1992). Board composition and corporate philanthropy. Journal of Business Ethics, 11(10), 771–778.CrossRefGoogle Scholar
  97. Weir, C., Laing, D., & McKnight, P. (2002). Internal and external governance mechanisms: Their impact on the performance of large UK public companies. Journal of Business Finance & Accounting, 29(5/6), 579–611.CrossRefGoogle Scholar
  98. Wintoki, B., Linck, J., & Netter, J. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105, 581–606.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media B.V., part of Springer Nature 2018

Authors and Affiliations

  • Patricia Crifo
    • 1
  • Elena Escrig-Olmedo
    • 2
  • Nicolas Mottis
    • 3
  1. 1.University Paris Nanterre EconomixÉcole Polytechnique Department of Economics and CiranoPalaiseauFrance
  2. 2.Department of Finance and AccountingUniversity Jaume ICastellónSpain
  3. 3.Management of Innovation and Entrepreneurship DepartmentEcole PolytechniquePalaiseauFrance

Personalised recommendations