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Proactive government intervention, board gender balance, and stakeholder engagement in China and Europe

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Abstract

This study assesses the management quality and corporate social performance of firms supervised according to three distinctly different governance regimes. The differences relate to protocols and interventions on board gender balance. Sweden and Norway serve as our strongly gender-inclusive (SGI) benchmarks, with the UK and China as our respective moderately (MGI) and weakly gender-inclusive (WGI) domains. Our evidence shows that corporate social performance ratings have risen appreciably between 2010 and 2015 in each of China, the UK, Sweden and Norway. Moreover, corporate social responsibility (CSR) ratings in Sweden, Norway and the UK appear broadly comparable. In extending Ahern and Dittmar’s (Quarterly Journal of Economics, 127, 137–197, 2012) evidence of a quota’s initial deleterious effect on managerial quality, we observe improvement in Norwegian firms’ directors’ educational profiles as quotas become more entrenched. Average director age (experience) also rose in such firms over the study period. Our results suggest some degree of adaptation in the application of board quotas. Additionally, variation in female board participation exerts minimal (strong) influence on CSR ratings for SGI- (MGI- & WGI-) domain entities. Findings on this issue for China and the UK strongly support a critical mass theory (CMT; Konrad, Kramer, & Erkut, Organizational Dynamics, 37(2), 145–164, 2008) conception of corporate social-engagement. Finally, results reveal a non-uniform relation between corporate social and financial returns. Overall, we add new context to institutional theory narratives on stakeholder-engagement (Campbell, Academy of Management Review, 32(3), 946–967, 2007; Young & Makhija, Journal of International Business Studies, 45, 670–698, 2014).

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Notes

  1. For instance, the Clearly Cultural website assigns Norway and Sweden the same total Hofstede Power Distance Index (PDI) score: http://www.clearlycultural.com/geert-hofstede-cultural-dimensions/power-distance-index/. Nonetheless, clear differences exist in relation to the two countries’ “micro-politics” (Seierstad, Warner-Søderholm, Torchia, & Huse, 2017: 292).

  2. The OECD (http://stats.oecd.org/index.aspx?queryid=54753) shows women occupied 26% (36%) of board slots in Sweden’s major listed companies in 2010 (2016). The UK figure was 13% (26%).

  3. See Women on Boards (2011: 22–23).

  4. The European Commission’s philosophy is broadly similar. Its Directive (European Commission, 2014) sets an “objective” for women to occupy at least 40% of non-executive positions in listed non-SMEs by 2020. The EWOB (2016) highlighted a sharp increase in female board presence in 12 major European countries between 2011 and 2015. The rate of increase is even higher on audit and remuneration committees.

  5. A top-management CSR position is also more common in Scandinavia than in the US (Strand, 2013).

  6. The Steering committee of Women on Boards (2011), led by Lord Davies, has pushed strongly for greater gender diversity on FTSE 100 boards. Between 02/2011 and 10/2015, female representation on FTSE 100 boards rose from 12.5 to 26.1% (Women on Boards, 2015: 8). Australia offers further example of a “target-based” approach. Klettner, Clarke, and Boersma (2016) suggested that such an approach can be effective in fostering organizational cultural change, and in promoting greater gender inclusivity at board and top-management levels.

  7. Grant Thornton (2017: 23) defined such companies as having between 100 and 1,000 employees.

  8. For US firms, Manner (2010) revealed weaker CSR ratings where an incumbent CEO has undergraduate training in economics. Roach and Slater (2016) reported higher CSR ratings for CEOs trained in humanities.

  9. Ben-Amar et al. (2017) identified a U-shaped pattern of ROA performance in relation to age diversity. Age may also act as a barrier to board entry for women (Huang & Kisgen, 2013). Huang (2013) observed that CEO tenure promotes the consistency of CSR disclosure.

  10. See Bhalla’s (2015) commentary on board gender quotas in India, where several boards met recent quota threshold requirements by elevating a family member of an incumbent executive director.

  11. El Ghoul, Guedhami, Kwok, and Mishra (2011) and Goss and Roberts (2011) accounted for CSR in reducing funding costs.

  12. Several studies in the social performance area control for firm size using total assets (Barnea & Rubin, 2010; Ben-Amar et al., 2017). Some others utilize board size (Hafsi & Turgut, 2013; Nekhili et al., 2017). Equations 1–3 include one or other of size measures LnBs and LnTA, but not both, given a correlation between them of +.62.

  13. Clearly Cultural (see Note 1) assigns respective Hofstede PDI values to China, UK, Sweden and Norway of 80, 40, 31 and 31. Waldman et al.’s (2006) study includes China, but not the UK, Sweden and Norway. Of the 15 countries covered, China exhibits the greatest power distance (829).

  14. For mainland PRC listed entities, Zhang and Qu (2016) reported a female chair rate of 4% for the period 1997–2010 inclusive. Du (2016) reported regional variation in board diversity, with rates lowest where Confucian norms predominate.

  15. Results for such sub-periods are available on request.

  16. Comments in Note 15 apply.

  17. This result largely reflects the “Economic” dimension in the Asset4 Database CSR rating. Notes 15–16 apply.

  18. An instrumental variable or 2SLS design potentially mitigates such bias. However, a meaningful instrument for financial performance must be one that is exogenous to the overall model but strongly correlated with ROA. Obvious difficulties exist in identifying such an instrument. Moreover, inclusion of a weak instrument inevitably adds noise to the regressions. Incorporating a lagged ROA variable potentially offers a cleaner way of minimizing endogeneity effects (between corporate financial and social performance) as well as in dissipating noise.

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Acknowledgements

We express thanks to David Ahlstrom and two anonymous reviewers for comments on earlier drafts of this paper.

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Authors and Affiliations

  1. Department of Finance, The Chinese University of Hong Kong, Cheng Yu Tung Building, Sha Tin, NT, Hong Kong

    Paul B. McGuinness

  2. School of Business Sciences, Instituto Politécnico de Viana do Castelo, Avenida Miguel Dantas, 4930, Valença, Portugal

    João Paulo Vieito

  3. UNIAG Research Center, Bragança, Portugal

    João Paulo Vieito

  4. King’s Business School, King’s College London, 30 Aldwych WC2B 4BG, London, UK

    Mingzhu Wang

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McGuinness, P.B., Vieito, J.P. & Wang, M. Proactive government intervention, board gender balance, and stakeholder engagement in China and Europe. Asia Pac J Manag 37, 719–762 (2020). https://doi.org/10.1007/s10490-018-9611-y

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