This study examines the impact of the Chief Executive Officer (CEO)’s interlocking, created through serving on other companies’ audit committees and/or boards, on corporate social responsibility (CSR) performance of the focal company (interlocked CEO’s company) and that of its linked companies. We find that CEO interlocking positively affects CSR performance of both the focal company and its linked companies. Further analysis shows that interlocks created by the CEO enhance CSR performance and in turn the financial performance of both the focal company and its linked companies. Our findings are robust to a battery of analyses, including Heckman’s (1979) selection bias correction, propensity score matching (PSM), alternative measures of CSR performance, and CEO interlocks. These findings are important to regulators, company management teams, and other stakeholders with an interest in how the social ties of CEOs influence companies’ CSR performance and in the CSR–financial performance nexus.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Price excludes VAT (USA)
Tax calculation will be finalised during checkout.
Data are obtained from the sources mentioned in the paper.
The importance of directors serving on other companies’ boards has been addressed by the Sarbanes–Oxley Act of 2002 (SOX 2002) and rules promulgated by the US Securities and Exchange Commission (SEC), New York Stock Exchange (NYSE), and National Association of Securities Dealers (NASD) (Duchin et al., 2010). These directors are regarded as vital custodians of shareholders’ interests, and these regulations require greater participation on other companies’ boards and key committees. Prior studies argue that interlocking directors enhance skills, knowledge, and perspectives from their work outside the focal company and become better advisors (Hillman et al., 2009). Shropshire (2010) finds that if a company appoints interlocking directors, these directors can access critical resources, employing them to enhance the company’s performance.
The MSCI ESG KLD STATS measure of CSR performance comprises six main categories: the community, diversity, employee relations, human rights, products, and the environment. The first five categories are classified as social performance, and the last one is environmental performance. Corporate governance is considered to be a separate dimension.
The findings reported by Hussain et al. (2018) cover board size, board independence, CEO duality, women on the board, number of board meetings, and a CSR committee under the corporate governance structure.
The MSCI GMI Ratings database reports only 500 companies’ audit committee information in its 2013 data file. Due to the non-availability of audit committee data in 2013, we restrict our sample period to 2012 as the cut-off point.
The six exclusionary screens comprise alcohol, firearms, gambling, the military, nuclear power, and tobacco, for which only negative ratings (i.e., concerns) are available.
We use the number of links created by a CEO serving as an audit committee and/or board member in other companies, which is consistent with prior research where the number of audit committee–audit partner interlocks is used (e.g., Hossain et al., 2016).
In Table 4, we report the natural logarithms of ACSIZE, CEOAGE, CEOTEN, BSIZE, and BIND.
We also examine whether the effect of CEO interlocking is incremental to that of board interlocking. We utilize Gujarati’s (2003) ∆R2-F-statistic to measure the incremental role of CEO interlocking over board interlocking. The unreported Gujarati (2003) F-statistics suggest that CEO interlocking significantly increases the regression models’ explanatory power when CEO interlocking and board interlocking are included in the same model. This indicates that CEO interlocking is incrementally more informative than board interlocking.
For the dummy variables, we follow Hoi et al. (2013) to construct the company-level measure. For example, referring to having a female CEO (FCEO), we compose the company-level measure as a dummy variable that equals 1 if FCEO equals 1 in at least half the years from 2005 to 2012; otherwise, it equals 0.
Hoi et al. (2013) consider companies that have a score of four or more concerns as being highly socially irresponsible.
We do not find that CEO_AC interlocks have any association with the community dimension, and CEO_BRD interlocks with the products dimension of CSR performance.
Adams, R. B., & Ferreira, D. (2007). A theory of friendly boards. The Journal of Finance, 62(1), 217–250.
Al-Shaer, H., & Zaman, M. (2018). Credibility of sustainability reports: The contribution of audit committees. Business Strategy and the Environment, 27(7), 973–986.
Amin, A., Chourou, L., Kamal, S., Malik, M., & Zhao, Y. (2020). It’s who you know that counts: Board connectedness and CSR performance. Journal of Corporate Finance, 64, 101662.
Ben-Amar, W., Chang, M., & McIlkenny, P. (2017). Board gender diversity and corporate response to sustainability initiatives: Evidence from the carbon disclosure project. Journal of Business Ethics, 142(2), 369–383.
Booth, J. R., & Deli, D. N. (1996). Factors affecting the number of outside directorships held by CEOs. Journal of Financial Economics, 40(1), 81–104.
Brammer, S., & Millington, A. (2008). Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29(12), 1325–1343.
Burt, R. S. (2009). Structural holes: The social structure of competition. Harvard University Press.
Carroll, A. B. (1999). Corporate social responsibility: Evolution of a definitional construct. Business & Society, 38(3), 268–295.
Chahine, S., Fang, Y., Hasan, I., & Mazboudi, M. (2019). Entrenchment through corporate social responsibility: Evidence from CEO network centrality. International Review of Financial Analysis, 66, 1–14.
Cheng, B., Ioannou, I., & Serafeim, G. (2013). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1–23.
Chin, M., Hambrick, D. C., & Treviño, L. K. (2013). Political ideologies of CEOs: The influence of executives’ values on corporate social responsibility. Administrative Science Quarterly, 58(2), 197–232.
Chiu, P.-C., Teoh, S. H., & Tian, F. (2013). Board interlocks and earnings management contagion. The Accounting Review, 88(3), 915–944.
Cornett, M. M., Erhemjamts, O., & Tehranian, H. (2016). Greed or good deeds: An examination of the relation between corporate social responsibility and the financial performance of US commercial banks around the financial crisis. Journal of Banking & Finance, 70, 137–159.
David, P., Bloom, M., & Hillman, A. J. (2007). Investor activism, managerial responsiveness, and corporate social performance. Strategic Management Journal, 28(1), 91–100.
de Villiers, C., Naiker, V., & van Staden, C. J. (2011). The effect of board characteristics on firm environmental performance. Journal of Management, 37(6), 1636–1663.
Deng, X., Kang, J., & Low, B. S. (2013). Corporate social responsibility and stakeholder value maximization: Evidence from mergers. Journal of Financial Economics, 110, 87–109.
Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011). Voluntary non-financial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. The Accounting Review, 86(1), 59–100.
Di Giuli, A., & Kostovetsky, L. (2014). Are red or blue companies more likely to go green? Politics and corporate social responsibility. Journal of Financial Economics, 111(1), 158–180.
Duchin, R., Matsusaka, J. G., & Ozbas, O. (2010). When are outside directors effective? Journal of Financial Economics, 96(2), 195–214.
El Ghoul, S., Guedhami, O., Kwok, C. C. Y., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking and Finance, 35(9), 2388–2406.
European Commission 2006. Implementing the partnership for growth and jobs: Making Europe a pole of excellence on corporate social responsibility. Retrieved November 10, 2020, from, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2006:0136:FIN:en:PDF.
Fahlenbrach, R., Low, A., & Stulz, R. M. (2010). Why do firms appoint CEOs as outside directors? Journal of Financial Economics, 97(1), 12–32.
Fama, E. F., & MacBeth, J. D. (1973). Risk, return, and equilibrium: Empirical tests. The Journal of Political Economy, 81(3), 607–636.
Flammer, C. (2015a). Does corporate social responsibility lead to superior financial performance? A Regression Discontinuity Approach. Management Science, 61(11), 2549–2568.
Flammer, C. (2015b). Does product market competition foster corporate social responsibility? Evidence from trade liberalization. Strategic Management Journal, 36(10), 1469–1485.
Freeman, R. E. (2010). Strategic management: A stakeholder approach. Cambridge University Press.
Friedman, M. (1970). The social responsibility of business is to increase its profits (pp. 122–126). New York Time Magazine.
Granovetter, M. (1985). Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91(3), 481–510.
Griffin, J. J., & Mahon, J. F. (1997). The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research. Business & Society, 36(1), 5–31.
Gujarati, D. (2003). Basic econometrics. McGraw-Hill.
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics. McGraw-Hill Irwin.
Gul, F. A., Srinidhi, B., & Ng, A. C. (2011). Does board gender diversity improve the informativeness of stock prices? Journal of Accounting and Economics, 51(3), 314–338.
Gulati, R., & Westphal, J. D. (1999). Cooperative or controlling? The effects of CEO-board relations and the content of interlocks on the formation of joint ventures. Administrative Science Quarterly, 44(3), 473–506.
Hasan, I., Kobeissi, N., Liu, L., & Wang, H. (2018). Corporate social responsibility and firm financial performance: The mediating role of productivity. Journal of Business Ethics, 149(3), 671–688.
Heckman, J. J. (1979). Sample selection bias as a specification error. Econometrica, 47(1), 153–161.
Hillman, A. J. (2005). Politicians on the board of directors: Do connections affect the bottom line? Journal of Management, 31(3), 464–481.
Hillman, A. J., & Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28(3), 383–396.
Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: A review. Journal of Management, 35(6), 1404–1427.
Hirshleifer, D., & Teoh, S. H. (2009). Thought and behavior contagion in capital markets. In T. Hens & K. R. Schenk-Hoppé (Eds.), Handbook of financial markets: Dynamics and evolution (pp. 1–56). North-Holland.
Hoang, H., & Phang, S.-Y. (2020). How does combined assurance affect the reliability of integrated reports and investors’ judgments? European Accounting Review. https://doi.org/10.1080/09638180.2020.1745659
Hoi, C. K., Wu, Q., & Zhang, H. (2013). Is corporate social responsibility (CSR) associated with tax avoidance? Evidence from irresponsible CSR activities. The Accounting Review, 88(6), 2025–2059.
Hoitash, U. (2011). Should independent board members with social ties to management disqualify themselves from serving on the board? Journal of Business Ethics, 99(3), 399–423.
Hossain, S., Monroe, G. S., Wilson, M., & Jubb, C. (2016). The effect of networked clients’ economic importance on audit quality. Auditing: A Journal of Practice & Theory, 35(4), 79–103.
Hussain, N., Rigoni, U., & Orij, R. P. (2018). Corporate governance and sustainability performance: Analysis of triple bottom line performance. Journal of Business Ethics, 149(2), 411–432.
Jo, H., & Harjoto, M. A. (2012). The causal effect of corporate governance on corporate social responsibility. Journal of Business Ethics, 106(1), 53–72.
Johnson, J. L., Daily, C. M., & Ellstrand, A. E. (1996). Boards of directors: A review and research agenda. Journal of Management, 22(3), 409–438.
Kim, Y., Li, H., & Li, S. (2014). Corporate social responsibility and stock price crash risk. Journal of Banking and Finance, 43(1), 1–13.
Kim, Y., Park, M. S., & Wier, B. (2012). Is earnings quality associated with corporate social responsibility? The Accounting Review, 87(3), 761–796.
Kitzmueller, M., & Shimshack, J. (2012). Economic perspectives on corporate social responsibility. Journal of Economic Literature, 50(1), 51–84.
Li, J., Mangena, M., & Pike, R. (2012). The effect of audit committee characteristics on intellectual capital disclosures. The British Accounting Review, 44, 98–110.
Li, M. (2013). Using the propensity score method to estimate causal effects: A review and practical guide. Organizational Research Methods, 16(2), 188–226.
Malenko, N. (2013). Communication and decision-making in corporate boards. Review of Financial Studies, 27(5), 1486–1532.
Manner, M. H. (2010). The impact of CEO characteristics on corporate social performance. Journal of Business Ethics, 93(1), 53–72.
Margolis, J., Elfenbein, H., & Walsh, J. (2009). Does it pay to be good… and does it matter? A meta-analysis of the relationship between corporate social and financial performance. http://ssrn.com/abstract=1866371.
Marquis, C., Glynn, M. A., & Davis, G. F. (2007). Community isomorphism and corporate social action. Academy of Management Review, 32(3), 925–945.
Mizruchi, M. S. (1996). What do interlocks do? An analysis, critique, and assessment of research on interlocking directorates. Annual Review of Sociology, 22(1), 271–298.
Mizruchi, M. S., & Stearns, L. B. (1988). A longitudinal study of the formation of interlocking directorates. Administrative Science Quarterly, 33(2), 194–210.
Nandy, M., Lodh, S., Kaur, J., & Wang, J. (2020). Impact of directors’ networks on corporate social responsibility: A cross country study. International Review of Financial Analysis, 72, 101601.
Pearce, J. A., II., & Zahra, S. A. (1992). Board composition from a strategic contingency perspective. Journal of Management Studies, 29(4), 411–438.
Pfeffer, J., & Salancik, G. R. (2003). The external control of organizations: A resource dependence perspective. Stanford Business Books.
Radhakrishnan, S., Tsang, A., & Liu, R. (2018). A corporate social responsibility framework for accounting research. The International Journal of Accounting, 53(4), 274–294.
Rao, K., & Tilt, C. (2016). Board composition and corporate social responsibility: The role of diversity, gender, strategy and decision making. Journal of Business Ethics, 138(2), 327–347.
Reverte, C. (2009). Determinants of corporate social responsibility disclosure ratings by Spanish listed firms. Journal of Business Ethics, 88(2), 351–366.
Rezaee, Z. (2016). Business sustainability research: A theoretical and integrated perspective. Journal of Accounting Literature, 36, 48–64.
Roberts, R. (1992). Determinants of corporate social responsibility disclosure: An application of stakeholder theory. Accounting, Organizations and Society, 17(6), 595–612.
Shipman, J. E., Swanquist, Q. T., & Whited, R. L. (2017). Propensity score matching in accounting research. The Accounting Review, 92(1), 213–244.
Shropshire, C. (2010). The role of the interlocking director and board receptivity in the diffusion of practices. Academy of Management Review, 35(2), 246–264.
Skinner, D. J. (1997). Earnings disclosures and stockholder lawsuits. Journal of Accounting and Economics, 23(3), 249–282.
Sparrowe, R. T., & Liden, R. C. (1997). Process and structure in leader-member exchange. Academy of Management Review, 22(2), 522–552.
Tang, Y., Qian, C., Chen, G., & Shen, R. (2015). How CEO hubris affects corporate social (ir) responsibility. Strategic Management Journal, 36(9), 1338–1357.
Trotman, A. J., & Trotman, K. T. (2015). Internal audit’s role in GHG emissions and energy reporting: Evidence from audit committees, senior accountants, and internal auditors. Auditing: A Journal of Practice & Theory, 34(1), 199–230.
Vigeo (2013). Integration of CSR issues into corporate governance system. Retrieved from http://vigeo-eiris.com/wp-content/uploads/2013/06/2013_12_Vigeo_Governance_Study_GB.pdf.
Waldman, D. A., Siegel, D. S., & Javidan, M. (2006). Components of CEO transformational leadership and corporate social responsibility. Journal of Management Studies, 43(8), 1703–1725.
Westphal, J. D. (1999). Collaboration in the boardroom: Behavioral and performance consequences of CEO-board social ties. Academy of Management Journal, 42(1), 7–24.
Westphal, J. D., Boivie, S., & Ming Chng, D. H. (2006). The strategic impetus for social network ties: Reconstituting broken CEO friendship ties. Strategic Management Journal, 27(5), 425–445.
Yuan, Y., Tian, G., Lu, L. Y., & Yu, Y. (2019). CEO ability and corporate social responsibility. Journal of Business Ethics, 157(2), 391–411.
This study was not funded by any external grant authority.
Conflict of interest
Dr Sudipta Bose declares that he has no conflict of interest. A/Prof. Muhammad Jahangir Ali declares that he has no conflict of interest. Dr Sarowar Hossain declares that he has no conflict of interest. Prof. Abul Shamsuddin declares that he has no conflict of interest.
This paper does not contain any studies with human participants or on animals undertaken by any of the authors.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
About this article
Cite this article
Bose, S., Ali, M.J., Hossain, S. et al. Does CEO–Audit Committee/Board Interlocking Matter for Corporate Social Responsibility?. J Bus Ethics 179, 819–847 (2022). https://doi.org/10.1007/s10551-021-04871-8