Skip to main content
SpringerLink
Log in

Shareholders and managers: Who care more about corporate diversity and employee benefits?

  • Published:
Journal of Management & Governance Aims and scope Submit manuscript

Abstract

We test two competing theories that explain a firm’s engagement in corporate diversity and employee benefits: socially responsible investment theory and management overinvestment theory. We find that publicly-traded companies with strong shareholder rights are more likely to promote women and/or minorities to the positions of CEO and board of directors in their organizations, conduct business with women- and/or minority-owned operations, and provide better family benefits to their employees than firms with strong management power. These findings indicate that the companies with strong shareholder rights engage more actively in internal aspects of CSR activities, which supports the socially responsible investment theory rather than the management overinvestment theory. Shareholders (i.e. institutional investors) tend to integrate their social goals (i.e. internal CSR issues) and financial goals into their investments. In response to these changes, managers should engage in the internal aspects of corporate social issues more aggressively as the agents of shareholders.

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

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. The sample selection in 1993, 1995, 1998, 2000, 2002, 2004, and 2006 is restricted to the years in which we had to have both (1) the CSR ratings data available in the KLD database and (2) the corporate governance index in the IRRC database. Other studies (i.e. Borghesi et al. 2014) incurred the similar problems and they used the same sample period as the one employed in this study. To mitigate the concern of the old data problem, we conduct the robustness tests of logistic regressions in Table 5 using the most recent years’ data in the 2000 s and obtained quantitatively similar results.

  2. Counting four women, minorities, and/or the disabled on the board to be significant (assigned the value 1) is defined by the KLD database. This is reasonable given that the median number of directors in US corporations is nine (Denis and Sarin 1999; Ning et al. 2010), and only 10.6 % of board members are women, and 11.35 % are minorities (Jiraporn et al. 2009).

  3. There is no definition of minorities for this category in the KLD database. We imply that the term minorities is defined as ethnic minorities, and it does not include the disabled. The reasoning is that the data specifically indicates that if women, minorities, and/or the disabled hold four seats or more in the board of directors or one-third or more of the board seats if the board numbers <12, then the second variable Board of Directors is assigned 1, or 0 otherwise. However, there is an explicit indication that the promotion of the disabled to CEOs and/or other senior executive positions is considered.

  4. The employee here consists of all the employees in a company, including women, ethical minorities, and the disabled workers as a whole.

  5. We conduct robustness tests by including industry dummies in the regressions models in Table 5, and obtain quantitatively similar results. The industry classification is as follows: Mining and Construction (SIC 10–17); Manufacturing (SIC 20–39), Transportation, Communication, Electric, Gas, and Sanitary Services (SIC 40–49); Wholesale Trade and Retail Trade (SIC 50–59); Finance, Insurance, and Real Estate (SIC 60–67); Services (SIC 70–89); and other industries (SIC 01–09, 90–99).

  6. We thank an anonymous reviewer for the discussion of this line of potential problems in the KLD dataset, which is the limitation of this empirical study.

References

  • Acemoglu, D., & Angrist, J. (2001). Consequences of employment protection? The case of Americans with Disabilities Act. Journal of Political Economy, 109, 915–956.

    Article  Google Scholar 

  • Aktas, N., Bodt, E., & Cousin, J. (2011). Do financial markets care about SRI: Evidences from mergers and acquisitions. Journal of Banking and Finance, 35, 1753–1761.

    Article  Google Scholar 

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

    Article  Google Scholar 

  • Becchetti, L., Ciciretti, R., Dalo, A., & Herzel, S. (2015). Socially responsible and conventional investment funds: Performance comparison and the global financial crisis. Applied Economics, 47, 2541–2562.

    Article  Google Scholar 

  • Berk, J., Berk, J., Stanton, R., & Zechner, J. (2010). Human capital, bankruptcy, and capital structure. Journal of Finance, 65, 891–926.

    Article  Google Scholar 

  • Bird, R., Hall, A., Momente, F., & Reggiani, F. (2007). What corporate social responsibilities are valued by the market? Journal of Business Ethics, 76, 189–206.

    Article  Google Scholar 

  • Boatright, J. (1994). Fiduciary duties and the shareholder-management relation, or what is so special about shareholders? Business Ethics Quarterly, 4, 393–407.

    Article  Google Scholar 

  • Borghesi, R., Houston, J., & Naranjo, A. (2014). Corporate socially responsible investments: CEO altruism, reputation, and shareholder interests. Journal of Corporate Finance, 26, 164–181.

    Article  Google Scholar 

  • 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, 1325–1343.

    Article  Google Scholar 

  • Brammer, S., Millington, A., & Pavelin, S. (2009). Corporate reputation and women on the board. British Journal of Management, 20, 17–29.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Carlin, B., & Gervais, S. (2009). Work ethic, employment contracts, and firm value. Journal of Finance, 64, 785–821.

    Article  Google Scholar 

  • Carroll, A. (1991). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons, 34, 39–48.

    Article  Google Scholar 

  • Chima, F. (2002). Employee assistance and human resource collaboration for improving employment and disabilities status. Employee Assistance Quarterly, 17, 79–94.

    Article  Google Scholar 

  • Clark, M. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of Management Review, 20, 92–117.

    Google Scholar 

  • Cox, T. (2001). Creating the multicultural organization: A strategy for capturing the power of diversity. San Francisco: Jossey-Bass.

    Google Scholar 

  • Cronqvist, F., Heyman, F., Nisson, M., Svaleryd, H., & Vlachos, J. (2008). Do entrenched managers pay their workers more? Journal of Finance, 64, 309–339.

    Article  Google Scholar 

  • Daily, C., Certo, S., & Dalton, D. (1999). A decade of corporate women: Some progress in the boardroom, none in the executive suite. Strategic Management Journal, 20, 93–99.

    Article  Google Scholar 

  • Deleire, T. (2000). The wage and employment effects of the Americans with Disabilities Act. Journal of Human Resources, 35, 693–715.

    Article  Google Scholar 

  • Denis, D., & Sarin, A. (1999). Ownership and board structures in publicly traded corporations. Journal of Financial Economics, 52, 187–224.

    Article  Google Scholar 

  • Derwall, J., Guenster, N., Bauer, R., & Koedijk, K. (2005). The eco-efficiency premium puzzle. Financial Analysts Journal, 61, 51–63.

    Article  Google Scholar 

  • DiGiuli, 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.

    Article  Google Scholar 

  • Dunfee, T. (1999). Corporate governance in a market with morality. Law and Contemporary Problems, 62, 129–157.

    Article  Google Scholar 

  • Edmans, A. (2011). Does the stock market fully value intangible? Employee satisfaction and equity prices. Journal of Financial Economics, 101, 621–640.

    Article  Google Scholar 

  • Filbeck, G., Gorman, R., & Zhao, X. (2013). Are the best of the best better than the rest? The effect of multiple rankings on company value. Review of Quantitative Finance and Accounting, 41, 695–722.

    Article  Google Scholar 

  • Freeman, R. (1984). Strategic management: A stakeholder approach. Boston: Pitman.

    Google Scholar 

  • Friedman, M. (1962). Capitalism and freedom. Chicago: University of Chicago Press.

    Google Scholar 

  • Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. The New York Times Magazine.

  • Galema, R., Plantinga, A., & Scholtens, B. (2008). The stocks at stake: Return and risk in socially responsible investment. Journal of Banking and Finance, 32, 2646–2654.

    Article  Google Scholar 

  • Garber, K. (2010). The evolution of an oil giant. US News and World Report, 147, 39–40.

    Google Scholar 

  • Gillan, S., & Starks, L. (2003). Corporate governance, corporate ownership, and the role of institutional ownership: A global perspective. Journal of Applied Finance, 13, 4–22.

    Google Scholar 

  • Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics, 118, 107–155.

    Article  Google Scholar 

  • Griffin, J., & Koerber, C. (2006). Does industry matter when managing stakeholder relations? In Academy of management meeting proceedings (pp. G1–G6).

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

    Article  Google Scholar 

  • Hermalin, B., & Weisbach, M. (1988). The determinants of board composition. Rand Journal of Economics, 19, 589–606.

    Article  Google Scholar 

  • Hill, C., & Jones, T. (1992). Shareholder–agency theory. Journal of Management Studies, 29, 131–154.

    Article  Google Scholar 

  • Hillman, A., & Keim, G. (2001). Shareholder value, stakeholder management, and social issues: What’s the bottom line? Strategic Management Journal, 22, 125–139.

    Article  Google Scholar 

  • Hong, H., & Kostovetsky, L. (2012). Red and blue investing: Values and finance. Journal of Financial Economics, 103, 1–19.

    Article  Google Scholar 

  • Hsieh, N. (2009). Corporate social responsibility and the priority of shareholders. Journal of Business Ethics, 88, 553–560.

    Article  Google Scholar 

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

    Article  Google Scholar 

  • Jensen, M., & Meckling, W. (1976). Theory of firm: Managerial behavior, agency costs, and capital structure. Journal of Financial Economics, 3, 305–360.

    Article  Google Scholar 

  • Jiraporn, P., Davidson, W., DaDalt, P., & Ning, Y. (2009). Too busy to show up? An analysis of directors’ absences. Quarterly Review of Economics and Finance, 49, 1159–1171.

    Article  Google Scholar 

  • Jo, H., & Harjoto, M. (2011). Corporate governance and firm value: The impact of corporate social responsibility. Journal of Business Ethics, 103, 353–381.

    Article  Google Scholar 

  • Kempf, A., & Osthoff, P. (2007). The effect of socially responsible investing on portfolio performance. European Financial Management, 13, 908–922.

    Article  Google Scholar 

  • Kidalov, M., & Snider, K. (2011). A comparison of US and European public procurement policies for small and medium enterprises. Business and Politics, 13, 1469–1569.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1997). Legal determinants of external finance. Journal of Finance, 52, 1131–1150.

    Article  Google Scholar 

  • Lee, P., & James, E. (2007). SHE-E-OS: Gender effects and investor reactions to the announcements of top executive appointments. Strategic Management Journal, 28, 227–241.

    Article  Google Scholar 

  • Li, W., & Zhang, R. (2010). Corporate social responsibility, ownership structure, and political interference: Evidence from China. Journal of Business Ethics, 96, 631–645.

    Article  Google Scholar 

  • Logsdon, J., & Yuthas, K. (1997). Corporate social performance, stakeholder orientation, and organization moral development. Journal of Business Ethics, 16, 1213–1226.

    Article  Google Scholar 

  • Lorenzo, R. A. (2010). Understanding the ‘Transnational Social’: Soft affirmative action, human rights, and corporate social responsibility in Brazil. Journal of Global and Historical Anthropology, 56, 49–62.

    Google Scholar 

  • Luckerath-Rovers, M. (2013). Women on boards and firm performance. Journal of Management and Governance, 17(2), 491–509.

    Article  Google Scholar 

  • Luoma, P., & Goodstein, J. (1999). Stakeholders and corporate boards: Institutional influences on board composition and structure. Academy of Management Journal, 42, 553–563.

    Article  Google Scholar 

  • Marshall, J., & Heffes, E. M. (2006). Diversifying suppliers isn’t costly: Hackett. Financial Executive, 22(9), 12.

    Google Scholar 

  • McKinsey and Company. (2007). Women matter: Gender diversity, a corporate performance driver. Paris: McKinsey and Company.

    Google Scholar 

  • McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26, 117–127.

    Google Scholar 

  • Ning, Y., Davidson, W., & Wang, J. (2010). Does optimal corporate board size exist? An empirical analysis. Journal of Applied Finance, 20, 57–69.

    Google Scholar 

  • Norton, J., & Fox, R. (1997). The change equation: Capitalizing on diversity for effective organizational change. Washington, DC: American Psychological Association.

    Book  Google Scholar 

  • Ntim, C. (2015). Board diversity and organizational valuation: Unravelling the effects of ethnicity and gender. Journal of Management and Governance, 19(1), 167–195.

    Article  Google Scholar 

  • Pagano, M., & Volpin, P. (2005). Managers, workers, and corporate control. Journal of Finance, 60, 843–870.

    Article  Google Scholar 

  • Parrino, R., Sias, R., & Starks, L. (2003). Voting with their feet: Institutional ownership changes around forced CEO turnover. Journal of Financial Economics, 68, 3–46.

    Article  Google Scholar 

  • Pfeffer, J., & Salancik, G. (1978). The external control of organizations: A resource dependence perspective. New York: Harper and Row.

    Google Scholar 

  • Revelli, C., & Viviani, J. (2015). Financial performance of socially responsible investing (SRI): What have we learned? A meta-analysis. Business Ethics: A European Review, 24(2), 158–185.

    Article  Google Scholar 

  • Sandberg, J. (2011). Social responsible investment and fiduciary duty: Putting the freshfields report into perspective. Journal of Business Ethics, 101, 143–162.

    Article  Google Scholar 

  • SIF Foundation. (2012). Report on sustainable and responsible investing trends in the United States, US Social Investment Forum.

  • Simpson, W., Carter, D., & D’Souza, F. (2010). What do we know about women on boards? Journal of Applied Finance, 2010, 27–39.

    Google Scholar 

  • Sparkes, R., & Cowton, C. (2004). The maturing of socially responsible investment: A review of the developing link with corporate social responsibility. Journal of Business Ethics, 52, 45–57.

    Article  Google Scholar 

  • Stewart, R., Volpone, S., Avery, D., & McKay, P. (2011). You support diversity, but are you ethical? Examining the interactive effects of diversity and ethical climate perceptions on turnover intention. Journal of Business Ethics, 100, 581–593.

    Article  Google Scholar 

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

    Article  Google Scholar 

  • Webb, E. (2004). An examination of socially responsible firms’ board structure. Journal of Management and Governance, 8, 255–277.

    Article  Google Scholar 

  • Wen, S. (2009). Institutional investor on socially responsible investment: Effects and expectations. Business Ethics, A European Review, 18, 308–333.

    Article  Google Scholar 

  • Werhane, P., & Freeman, R. (1999). Business ethics: The state of the art. International Journal of Management Review, 1, 1–16.

    Article  Google Scholar 

  • World Business Council for Sustainable Development. (2000). Making good business sense report. http://www.wbcsd.ch/web/publications/csr2000.pdf.

  • Zingales, L. (2000). In search of new foundations. Journal of Finance, 55, 1623–1653.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Business Administration, University of Houston – Victoria, 14000 University Blvd., Sugar Land, TX, 77479, USA

    Yixi Ning

  2. School of Communication, University of Houston, Houston, TX, USA

    Zhiwen Xiao & Jaesub Lee

Authors
  1. Yixi Ning
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Zhiwen Xiao
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Jaesub Lee
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Yixi Ning.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Ning, Y., Xiao, Z. & Lee, J. Shareholders and managers: Who care more about corporate diversity and employee benefits?. J Manag Gov 21, 93–118 (2017). https://doi.org/10.1007/s10997-015-9335-z

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10997-015-9335-z

Keywords

Search

Navigation