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

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.

This is a preview of subscription content, log in to check access.

Notes

  1. 1.

    IR is an abbreviation of investor relations. IRO is an abbreviation of investor relations officer. In this study, both the abbreviations and the long versions of these two expressions are used interchangeably.

  2. 2.

    Corporate sustainability or corporate social responsibility (CSR) can be defined considering three main dimensions: environmental, social and governance (the so-called ESG factors). The ESG acronym describes corporate social responsibility and governance actions of a firm. In this paper, ESG and CSR data and ESG and CSR performance could be treated as synonyms considering that ESG performance is used by the stock market as a proxy of company’s integration of CSR in their strategy.

  3. 3.

    Socially responsible investment is “an investment discipline that considers ESG criteria to generate long-term competitive financial returns and positive societal impact” (US-SIF 2015).

  4. 4.

    The French sustainability rating agency ARESE was transformed and became Vigeo in 2002. We assume that former ARESE data and Vigeo data are similar as the same methodology applies.

  5. 5.

    In the Vigeo database, two other criteria are present: human rights and community involvement. However, those criteria are not activated for all sectors, and therefore, not all companies in the sample are systematically rated on those two dimensions. Hence, following the literature and given the possible issue of missing data, we choose not to take those two dimensions into account.

  6. 6.

    AFEP (Association Française des Entreprises Privées) and MEDEF (Mouvement des Entreprises De France) are two associations representative of business at the national level.

  7. 7.

    Firms are allowed to adopt a “comply or explain” approach. Most firms apply all criteria of independence. We take here firm disclosure in order to evaluate the impact of independence as defined by practitioners. We do not consider stricter definitions of independence (see Crespí-Cladera and Pascual-Fuster 2014 for discussion).

  8. 8.

    IROs convictions are not a measure of corporate sustainability performance.

  9. 9.

    We do not report here the bivariate outcome model coefficients for all the estimations, only for the bivariate Probit models that are significant, but they are available upon request.

  10. 10.

    Only significant coefficients are reported here. Full tables of marginal effects are available upon request.

References

  1. Adams, R., & Ferreira, D. (2007). A theory of friendly boards. The Journal of Finance, 62, 217–250.

    Article  Google 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.

    Article  Google Scholar 

  3. Aglietta, M., & Reberioux, A. (2005). Corporate governance adrift. A Critique of Shareholder Value. Cheltenham: Edward Elgar Publishing.

    Google 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.

    Article  Google Scholar 

  5. Anderson, R. C., Reeb, D. M., Upadhyay, A., & Zhao, W. (2011). The economics of director heterogeneity. Financial Management, 40(1), 5–38.

    Article  Google 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.

    Google Scholar 

  7. Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of Business Ethics, 97(1), 71–86.

    Article  Google Scholar 

  8. Basu, K., & Palazzo, G. (2008). Corporate social responsibility: A process model of sensemaking. Academy of Management Review, 33(1), 122–136.

    Article  Google Scholar 

  9. Bénabou, R., & Tirole, J. (2010). Individual and corporate social responsibility. Economica, 77, 1–19.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google Scholar 

  15. Brennan, M. J., & Tamarowski, C. (2000). Investor relations, liquidity, and stock prices. Journal of Applied Corporate Finance., 12(4), 26–38.

    Article  Google 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.

    Article  Google Scholar 

  17. Bushee, B. J., & Miller, G. S. (2012). Investor relations, firm visibility, and investor following. The Accounting Review, 87(3), 867–897.

    Article  Google Scholar 

  18. Cadbury, A. (1992). Report of the committee on the financial aspects of corporate governance (Vol. 1). Gee.

  19. Carroll, A. B. (1979). A three-dimensional conceptual model of corporate social performance. Academy of Management Review, 4(4), 497–505.

    Article  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.

    Article  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.

    Article  Google 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.

    Article  Google Scholar 

  23. Charreau, G., & Desbrières, P. (2001). Corporate governance: Stakeholder value versus shareholder value. Journal of Management and Governance, 5, 107–128.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google Scholar 

  27. Crespí-Cladera, R., & Pascual-Fuster, B. (2014). Does the independence of independent directors matter? Journal of Corporate Finance, 28, 116–134.

    Article  Google 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.

    Article  Google Scholar 

  29. Crifo, P., & Mottis, N. (2016). Socially responsible investment in france. Business and Society, 55(4), 576–593.

    Article  Google 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.

    Article  Google Scholar 

  31. Dam, L., & Scholtens, B. (2013). Ownership concentration and CSR policy of European multinational enterprises. Journal of Business Ethics, 118, 117–126.

    Article  Google 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.

    Article  Google 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.

    Article  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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google Scholar 

  41. Donnelly, R., & Mulcahy, M. (2008). Board structure, ownership, and voluntary disclosure in Ireland. Corporate Governance: An International Review, 16(5), 416–429.

    Article  Google Scholar 

  42. Eccles, R., & Armbrester, K. (2011). Integrated reporting in the cloud. IESE Insight, 8(1), 13–20.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google Scholar 

  52. Harjoto, M. A., & Jo, H. (2011). Corporate governance and CSR nexus. Journal of Business Ethics, 100(1), 45–67.

    Article  Google Scholar 

  53. Heckman, J. (1978). Dummy endogenous variables in a simultaneous equation system. Econometrica, 46(6), 931–959.

    Article  Google 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.

    Article  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.

    Article  Google 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.

    Article  Google 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.

    Article  Google Scholar 

  59. Hong, H., & Huang, M. (2005). Talking up liquidity: Insider trading and investor relations. Journal of Financial Intermediation, 14(1), 1–31.

    Article  Google 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.

    Article  Google Scholar 

  61. Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14(3), 8–21.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google Scholar 

  67. Kitzmueller, M., & Shimshack, J. (2012). Economic perspective on corporate social responsibility. Journal of Economic Literature, 50(1), 51–84.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google Scholar 

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

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  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.

    Article  Google Scholar 

  92. Waddock, S., & Graves, S. (1997). The corporate social performance–Financial performance link. Strategic Management Journal, 18(4), 303–319.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google Scholar 

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

    Article  Google 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.

    Article  Google Scholar 

  98. Wintoki, B., Linck, J., & Netter, J. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105, 581–606.

    Article  Google Scholar 

Download references

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.

Author information

Affiliations

Authors

Corresponding author

Correspondence to Nicolas Mottis.

Ethics declarations

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.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Crifo, P., Escrig-Olmedo, E. & Mottis, N. Corporate Governance as a Key Driver of Corporate Sustainability in France: The Role of Board Members and Investor Relations. J Bus Ethics 159, 1127–1146 (2019). https://doi.org/10.1007/s10551-018-3866-6

Download citation

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