Board Attributes Corporate Social Responsibility Strategy

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Introduction, Research in the field of corporate environmental and social responsibility generally referred. to as corporate social responsibility CSR has attracted the attention of scholars from diverse. disciplines including management and corporate governance Drawing from the management. literature particularly the resource based view of the firm RBV theory scholars have. argued that firms possessing unique human resources like superior managerial capabilities as. well as superior organizational strategies such as proactive environmental strategies are able. to develop competitive advantages in CSR which in turn enable such firms to achieve. superior environmental and economic performance Al Tuwaijri et al 2004 Clarkson et al. 2011 Hart 1995 Porter and van der Linde 1995 Russo and Fouts 1997 A significant. limitation of this literature is that while managerial capability and superior environmental. strategies are assumed to be the main factors driving superior environmental performance. these variables are neither directly measured nor explicitly incorporated in the research. design leading to conceptually incomplete analysis e g Al Tuwaijri et al 2004 Clarkson et. al 2011 Russo and Fouts 1997 This paper conceptually and methodologically advances this. stream of literature by explicitly measuring and incorporating in the research design variables. that measure a firm s board level CSR orientation and its board CSR strategy linking these. with the firm s environmental and social performance Our analysis thus helps advance the. RBV based CSR literature explicitly identifying the board level human resources and. strategies that can help firms achieve a competitive edge in the field of CSR often seen as the. new battleground for corporate competitive advantage Galbreath 2010 Hart 1995 Lash and. Wellington 2007 Porter and Reinhardt 2007, In recent years scholars working in the field of corporate governance have also. started taking a keen interest in the study of CSR This is in line with the broadening scope of. corporate governance CG which is no longer seen to be limited to aligning the interest of. the managers of public corporations with those of its capital providers as per agency theory. Jensen and Meckling 1976 but also of the firm with those of its wider stakeholders. Aguilera et al 2007 UK Companies Act 2006 Jensen 2002 Rodrigue et al 2013 UK. Code of Corporate Governance 2010 Within this literature the role of the board which is. the apex decision making body in a public corporation has been the main focus of attention. Accordingly scholars drawing upon the agency or the resource dependence theory RDT. Boyd 1990 Hillman et al 2000 Hillman and Dalziel 2003 Pfeffer 1972 1973 Pfeffer and. Salancik 1978 examine the link between various board attributes including. outside independent director attributes and measures of corporate social performance e g. Johnson and Greening 1999 Jo and Harjoto 2011 2012 Mallin and Michelon 2011 Post et. al 2011 Webb 2004 These studies argue that certain directors particularly outside directors. serve on a board to provide effective managerial oversight as per agency theory Fama and. Jensen 1983 as well as to play an effective resource dependence role Pfeffer and Salancik. 1978 by providing essential resources to a firm or by helping the firm secure these resources. through linkages with its external environment cf Pfeffer 1973 Hillman et al 2000 There. are two significant limitations of this literature First most of it considers board director. attributes to be exogenous e g Mallin and Michelon 2011 Rodrigue et al 2013 Second it. is conceptually incomplete in the sense that it does not clearly identify board. actions decisions that contribute to superior CSR performance However it is widely. acknowledged within the corporate governance literature e g Adams et al 2010 Agrawal. and Knoeber 1996 Hermalin and Weisbach 1998 2003 that board of director characteristics. and firm performance are endogenous outcomes Moreover it is also proposed by Hermalin. and Weisbach 2003 that this link is mediated by board actions decisions which research to. date has largely assumed away a significant caveat in governance performance type. research highlighted in recent literature reviews cf Adams et al 2010 Johnson et al 2013. Our study thus contributes to the corporate governance related CSR literature both. conceptually as well as methodologically by developing and testing a theoretical model. adapted from Hermalin and Weisbach 2003 which makes explicit the potentially. endogenous links between CSR related director attributes board CSR related strategic. decisions and corporate environmental and social performance In doing so it also directly. responds to the need for developing a better understanding of the decisions and activities that. a board undertakes to address the growing corporate environmental and social challenges. Mallin et al 2013, The empirical analysis based on the proposed theoretical model suggests that firms. with more CSR oriented boards i e those with more independent directors women directors. as well as directors possessing financial expertise sitting on the audit committee develop a. more proactive and comprehensive board CSR strategy i e one which combines internal. CSR strengths with external CSR reputation building measures Such firms in turn achieve. superior environmental and social performance We also find this link to be endogenous and. self reinforcing with firms having superior environmental and social performance further. strengthening their board level CSR orientation Overall these results are in line with the. predictions of RDT as well as RBV theory Our findings shed light on the board level human. resources and strategies required to achieve superior environmental and social performance. They also lend support to the key RBV theory prediction Hart 1995 Russo and Fouts 1997. that in order to sustain competitive advantages in the field of CSR proactive CSR oriented. firms tend to keep building on their CSR strengths as the positive cyclical link suggests. Our paper also makes a more general contribution the theoretical model and. empirical approach developed in this paper can be applied to guide any future investigation of. the link between board attributes board decisions and firm performance outcomes be it in. the field of CSR or corporate governance in general. The rest of the paper is organized as follows The next section discusses the relevant. literature and develops the theoretical model with its set of interconnected testable hypotheses. It is followed by the discussion of the variables and structural model specifications Next we. discuss the sample and the data and subsequently analyze the results Finally we present. the conclusions implications and limitations of this study. Literature Review Theoretical Model and Hypothesis Development. As scholars and policy makers widen the remit of corporate governance to include corporate. responsibilities towards not only the shareholders but also other stakeholders of the firm e g. Jensen 2002 Rodrigue et al 2013 UK Companies Act 2006 UK Corporate Governance. Code 2010 in recent years academic research has examined the link between various. governance mechanisms particularly the board related characteristics and a firm s CSR. performance These studies have drawn upon the agency and the resource dependence theory. perspectives From the agency theory perspective the board of directors particularly the. outside directors on the board is considered to be decision control experts with reputational. concerns Fama and Jensen 1983 Hence they have incentives to perform an effective. monitoring task which includes protecting the interests of not just the shareholders but also. other stakeholders of the firm Johnson and Greening 1999 Applying such a logic Johnson. and Greening 1999 argue that non executives on a board are likely to have a wider. stakeholder perspective in strategic decision making as opposed to a narrow shareholder. perspective often adopted by top management concerned with meeting short term. shareholder oriented performance targets Consistent with these arguments Johnson and. Greening 1999 find a positive link between outside director representation on the board and. measures of corporate social performance More recently Jo and Harjoto 2011 2012 also. find that effective corporate governance mechanisms including independent boards promote. CSR engagement thus helping reduce the conflicts between the firm and its wider. stakeholders and positively influencing firm value. The resource dependence theory RDT is the perspective recently drawn upon by. scholars to explain the role of the board in achieving CSR objectives e g Mallin and. Michelon 2011 Mallin et al 2013 The board is seen from the RDT perspective as a. resource for managing a firm s external environmental dependencies and uncertainties such. as those posed by the social and natural environmental challenges Pfeffer 1972 1973. Pfeffer and Salancik 1978 Hillman et al 2000 Based on a comprehensive review of prior. relevant research Hillman and Dalziel 2003 outline key resource dependence related. contributions of the board namely enhancing the legitimacy and public image of the firm. providing expertise providing advice and counsel linking the firm to important stakeholders. or other important entities facilitating access to resources building external relations and. aiding in the formulation of strategy and other important firm decisions Therefore these. board contributions have a direct relevance for a firm s CSR For instance gaining social. legitimacy and positive stakeholder reputation are considered vital for economic success in. today s natural resource depleted stakeholder sensitive business climate Hart 1995 Hillman. and Keim 2001 Jensen 2002 Porter and Kramer 2006 To this end a firm has to have the. right mix of directors particularly outside directors who can bring the diversity of knowledge. skills experience expertise and ties Fama and Jensen 1983 Pfeffer and Salancik 1978 as. well as a broader stakeholder orientation Wang and Dewhirst 1992 that can help develop an. effective CSR strategy leading to superior CSR performance Consistent with such arguments. studies tend to find a positive association between the proportion of outside directors. including women directors and various measures of CSR performance Mallin and Michelon. 2011 Post et al 2011 Webb 2004 For example Mallin and Michelon 2011 draw upon the. RDT and argue that as providers of both human and relational capital outside directors and. women directors can enhance a firm s social performance and its reputation by developing. useful relationships with the firm s stakeholders Such directors are also argued to provide. insightful advice to top management about stakeholders expectations Consistent with these. arguments Mallin and Michelon 2011 find a positive link between a number of board. attributes including board independence and gender diversity on the board Similar results are. also found by Post et al 2011 who find that firms with higher proportion of outside. directors and those with three or more female directors tend to have higher Kinder Lydenberg. Domini KLD strengths scores Webb 2004 who investigates the differences in the. structure of the board of directors between socially responsible and matched non responsible. firms also finds that socially responsible firms tend to have larger boards more independent. board members and more women on their boards Thus prior studies tend to find a positive. association between various board attributes particularly board independence and gender. diversity and measures of corporate social performance. It is important to note though that most prior studies examining the link between. board characteristics and CSR performance tend to treat the board attributes as exogenous. However it is widely acknowledged in the corporate governance literature e g Adams et al. 2010 Agrawal and Knoeber 1996 Hermalin and Weisbach 1998 2003 that the composition. of the board of directors of a company is an endogenous outcome Discussing the perils of. ignoring the exogenous or endogenous interpretation of most governance research Hermalin. and Weisbach 2003 p 8 note that w hile it is generally difficult to distinguish between. the two interpretations in a given study they often have drastically different implications for. policy To illustrate this point Hermalin and Weisbach 2003 cite Hermalin and Weisbach s. 1998 finding of poor firm performance leading to increase in board independence and note. that i n a cross section this effect is likely to make firms with independent directors look. worse It is precisely for this reason that Hambrick 2007 p 338 notes that controlling for. endogeneity in research is not a technical nicety but instead is essential for gaining a grasp. of the causal mechanisms that lie behind empirical associations. In an effort to conceptually tease out the board attributes firm performance link. Hermalin and Weisbach 2003 present a theoretical model that makes explicit the expected. endogenous links between board characteristics board actions decisions and firm. performance reasoning that the characteristics performance link is mediated by board. actions decisions Their model points to another gap in the board characteristics performance. 1 Board Attributes Corporate Social Responsibility Strategy and Corporate Environmental and Social Performance Forthcoming in the Journal of Business Ethics DOI 10 1007 s10551 014 2460 9

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