Corporate Social Responsibility: How the Role of CEO Duality
Affects the Influence of Board Diversity and Political Ideology
Tom Schutz
Student number: 10593691 Final draft, submitted 22-6-2018 MSc. Business Administration: Strategy Supervisor: Dr. Pushpika Vishwanathan
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Statement of Originality
This document is written by student Tom Schutz who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Table of Contents
Abstract ... 4
Introduction ... 5
Literature Review ... 8
Corporate Governance and Upper Echelons Theory ... 8
Determinants of CSR ... 10
Hypothesis Development ... 12
Board Gender Diversity ... 12
Board Independence ... 14
CEO Political Ideology ... 16
CEO Duality ... 18 Methodology ... 21 Dependent Variable ... 22 Independent Variables ... 23 Moderator Variable ... 24 Control Variables ... 25 Statistical Analysis ... 26 Results ... 27 Assumptions ... 27 Descriptive Statistics ... 27 Regression Analysis ... 28 Discussion ... 35
Findings and Implications ... 35
Limitations and Future Research ... 40
Conclusions ... 42
References ... 44
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Abstract
There may be many factors which directly or indirectly causes a firm to engage in corporate social responsibility. However, considering the people at the top of the firm having the final say in making these decisions may be most clarifying in explaining when firms actually tend to engage in CSR. In an attempt to integrate a corporate governance and upper echelons perspective, this study investigates the effects of board diversity and CEO political ideology on CSR with a sample of 516 U.S. firms. The findings show that having more women in the boardroom is associated with firms scoring higher on measures of CSR. The number of independent board members was not related to CSR performance. Also, CEO political ideology was not associated with CSR, meaning that firms with liberal CEOs did not score higher on CSR compared to firms with conservative CEOs. Finally, if conservative, dual CEOs did not hamper the efforts of gender diverse and independent boards to pursue CSR, compared to non-dual CEOs. The relationship between CEO political ideology and CSR performance was not moderated by CEO duality. The implications of these findings are discussed and directions for future research are suggested.
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Introduction
A growing number of businesses acknowledge the importance of corporate social responsibility (CSR). To begin, CSR is most commonly defined as corporate “actions that appear to further some social good, beyond the interests of the firm and that which is required by law” (McWilliams & Siegel, 2001, p. 117). A survey by PWC shows that 64% of CEOs around the world state that corporate responsibility is core to everything they do (PWC, 2016). Today, enhanced technology and social media creates increased access to information and awareness making it more difficult for businesses to hide any dubious practices, and at the same time driving up customer demands for firms to pursue CSR (Wharton, 2012; Adams, 2014). It is therefore not surprising that 27% of CEOs believe that customers seek relationships with organizations who address a wider range of stakeholder needs, and even 44% believe that it is what customers want in five years (PWC, 2016). Firms answer to these expectations by increasing their transparency towards stakeholders. The Governance and Accountability Institute found a dramatic increase in sustainability reporting of only 20% in 2011 to 85% in 2017 by Standard & Poor’s 500 biggest U.S. firms (G&A Institute, 2018). A less strong but similar trend was found worldwide (KPMG, 2017). This shows that both stakeholders and firms are increasingly focused on CSR as it receives more attention. However, firms may differ to what extent they actually engage in CSR. First, this may be explained by the fact that firms are likely to differ on their corporate governance structures, with respect to the board of directors. How firms are governed and by who may determine to a considerable degree whether a firm’s strategy includes efforts on CSR. Second, firms may differ on their levels of CSR due to differences between top executives’ (CEO) preferences or ideologies. As such, this research aims to investigate the antecedents of CSR from both perspectives and how they relate to each other, by integrating a corporate governance perspective upper echelons perspective.
Concerning the board of directors, previous research showed that the composition or diversity of the board is related to CSR. Specifically, the diversity of the board with respect to gender and independence. Regarding gender, as it is still uncommon to have as much women in
6 top positions as there are men (Catalyst, 2017), previous research investigated the relationship between the number of female board members and CSR and found mostly positive but sometimes inconclusive results (Jain & Jamali, 2016). Although some studies found that the number of female board members was positively related to a firm’s ratings of CSR (Bear, Rahman & Post, 2010; Zhang, Zhu & Ding, 2013; Harjoto, Laksmana & Lee, 2015), other research found less conclusive results on this relationship. For example, only to the 10 percent significance level (Boulouta, 2013; Coffey & Wang, 1998), or no relationship at all (Stanwick & Stanwick, 1998). Second, regarding the relationship between board independence and CSR, prior research shows a similar pattern of findings. On the one hand, a fair amount of research found that the number of independent or outside board members was positively related to firm CSR performance (Johnson & Greening, 1999; Jo & Harjoto, 2011, 2012; Zhang et al., 2013). On the other hand, however, some studies found no relationship between board independence and CSR (Walls, Berrone & Phan, 2012; Hafsi & Turgut, 2013).
As for CEO ideology, research often used a liberal (Democratic) to conservative (Republican) scale to position CEOs between two very different political views. Only a few researchers have investigated the relationship between CEO political ideology and CSR. One study showed that a CEO’s political ideology is positively related to firm CSR performance when its ideology leans towards a liberal view (Chin, Hambrick & Treviño, 2013). However, another study found that firms with CEOs supporting both a liberal and a conservative point of view were more likely to perform well on CSR (Borghesi, Houston & Naranjo, 2014).
These findings show that the predicting effects of board diversity and CEO political ideology on CSR are still inconclusive and should be further investigated to provide more clarity on these relationships. In the aforementioned studies, one important control variable was left out, which is the size of the board. It is argued that the number of board members should be limited to ensure decent corporate governance (Lipton & Lorsch, 1992). Additionally, research also found that larger boards are less involved in strategic decision making (Judge & Zeithaml, 1992), or initiate strategic change (Goodstein, Gautam & Boeker, 1994). This may be caused by board
7 members having a reduced sense of making an important contribution, as the board grows larger, potentially creating free-riding behaviors (Harris & Raviv, 2006). Thus, less involved or less cooperative boards may experience decreased levels of their decision-making and monitoring effectiveness.
Therefore, the previously discussed relationships will be investigated once more with the addition of an important control variable, board size. It is argued that a higher proportion of female and independent board members relates positively to CSR, due to the consideration of multiple perspectives and stakeholder interests. A liberal political ideology is also argued to be positively related to CSR, as liberals are more concerned with social issues and economic equality compared to conservatives. Furthermore, it will be investigated whether the presence of a dual CEO (holding the board chair position as well) has any influence on these relationships, as the duality structure might enhance CEO power. First, it is argued that conservative dual CEOs counter the efforts of diverse boards to engage in CSR, due to the double position they hold. Second, when CEOs chair the board as well, they become better equipped to pursue their liberal ideas through CSR. The findings from 516 U.S. firms in this paper show that board diversity in terms of gender is positively related to a firm’s CSR engagement. This was not found for board independence and a CEO’s liberal preferences. Oddly enough, the dual position of conservative CEOs was found to positively moderate the relationship between board gender diversity and CSR performance, which is in the opposite direction of what was predicted. The relationship between board independence and CSR was not moderated by the duality of conservative CEOs. However, further analysis showed that for firms with a dual CEO structure, the relationship between board independence and CSR was more negative when CEOs had a conservative ideology compared to a liberal ideology. Finally, the relationship between CEO political ideology and CSR performance was not moderated by CEO duality.
This study contributes to the CSR literature on an empirical and theoretical level. Empirically, this study reevaluates the predictors of CSR performance on a board and executive level by taking into account the potential influence of board size. Although board size has been
8 shown to affect the board’s own collaboration and involvement in strategic decision-making, research on these predictors of CSR hardly ever controlled for board size. Moreover, this study attempts to integrate a corporate governance perspective with upper echelons theory, by investigating how board influence is affected by a CEO’s dual position when they are considered conservative, and whether CEOs’ dual position enhances their ability to express liberal ideas through CSR. To the extent known, such an integration has rarely been attempted before, as the effects of corporate governance and top executive ideologies on CSR often have been investigated separately. Examining the effect of board member characteristics and top executives’ dual position and ideologies on CSR provides new understanding of the underlying mechanisms how the upper layers within a firm interact. The findings may offer opportunities for new empirical research on the antecedents of CSR.
Literature Review
Corporate Governance and Upper Echelons Theory
This study aims to bring a perspective of corporate governance and upper echelons theory closer together. In past research, the effects of corporate boards and top executive characteristics on CSR have seldom been investigated simultaneously, even though corporate boards and their CEOs stand in quite close contact with each other. Whereas the board monitors the CEO or executive team on the pursuit of an agreed strategy, the CEO is expected to implement this strategy into the firm’s operations (Fama & Jensen, 1983). Thus, the board’s function is to ensure that CEOs do not deviate from the firm strategy to pursue goals in line with their own ideas or interests. However, the risk of such a conflict is never absent and is central to agency theory, which will be further elaborated on below.
Agency theory is one of the most prominent theories of corporate governance, and basically describes how one party (principle) delegates work to another party, the agent (Eisenhardt, 1989). Agency theory is based on four assumptions: bounded rationality in decision making, information asymmetry between principle and agent, both principle and agent are
self-9 interested, and agents are usually more risk averse (Eisenhardt, 1989). When using this theory, problems may arise, because agents may have different interests from the principle, and information asymmetries may exist. When considering shareholders as a principle and the CEO as an agent, it may happen that the CEO not always acts in the best interest of shareholders, which would be maximizing profits. This is an example of diverging interests. A reason for this is that a CEO may act in his own interests, for example to advance his or her own career. One solution to prevent this from happening as much as possible would be to separate decision management from decision control, by installing a board of directors (Fama & Jensen, 1983). The board of directors can monitor the CEO to make sure the main strategic goals are pursued, and shareholder value is maximized.
Another important theory of corporate governance is stakeholder theory, which states that not only shareholder interests should be considered, but those of all others who can affect or are affected by the achievement of the firm’s objectives (Freeman, 1984). Different stakeholder groups exist, such as shareholders, employees, customers, suppliers, communities, and the general public (Hill & Jones, 1992). Attending to a wide variety of stakeholder needs can be interpreted as a way of acting socially responsible. According to stakeholder theory, for the survival of the firm, the interests of all stakeholders should be considered while making decisions. Three views on stakeholder theory were identified by Donaldson and Preston (1995), which are a descriptive, instrumental and normative view. They argue that a normative perspective is fundamental and should receive the most emphasis, because corporations are not less morally obliged than citizens to act in an ethical way. Especially since all stakeholders have at least some kind of reciprocal relationship with the corporation, independent of whether the corporation takes an (economical) interest in them. For example, even local communities and the general public, as tax payers, provide a local and national infrastructure wherein the corporation can operate. In return they expect no damage on the quality of life and compliance of rules and legislation (Hill & Jones, 1992). When combining agency and stakeholder theory, managers should not only maximize shareholder value, but consider and address stakeholder interests as well (Hill
10 & Jones, 1992). Consequently, the board of directors would monitor management to pursue both of these goals. As it turns out, research shows that stakeholder management may in the long run benefit shareholders, by creating intangible and valuable resources (Hillman & Keim, 2001).
Thus far, agency and stakeholder theory explained how firms should be governed and prescribed which stakeholder groups should be focused on. It also states that the board of directors should prevent the CEOs from furthering their own interests. However, a CEO is more than a self-interested executor of the corporate strategy. The CEO is also a human being with certain qualities, opinions about varying issues, and values or ideologies about life. As the firm’s top manager, CEOs are likely to have some influence over the firm’s course of action and its outcomes, which may reflect some of these CEO characteristics. This line of reasoning is supported by upper echelons theory (Hambrick & Mason, 1984; Hambrick, 2007), which describes that top managers are likely to differ on dimensions such as education, (career) experiences, and socioeconomic background. Such characteristics are then argued to develop top managers’ values and cognitions (Hambrick & Mason, 1984). In turn, these values and cognitions give direction to the decisions top managers make and could to some extent determine organizational outcomes. Top managers may exert such an influence on organizational outcomes by taking a personal approach to the corporate strategic situation (Hambrick & Mason, 1984).
In this paper, by integrating a corporate governance and upper echelons perspective, it is proposed that the board of directors should monitor CEOs on the pursuit of both shareholder wealth and stakeholder interests, while at the same time these CEOs are likely to utilize their position and latitude to take a personal approach to the implementation of corporate strategy. Although there is a risk of self-serving behaviors by CEOs, they are also likely to bring their own ideas and values into corporate decisions.
Determinants of CSR
As was described in the introduction, CSR is about going beyond what is required by law, by contributing to a social good without any economic considerations (McWilliams & Siegel,
11 2001). An example of CSR could be investing in sport facilities for the local community, making philanthropic donations to charity, or spending money on recycling. The antecedents of CSR have been widely investigated on both macro and micro levels and may come from outside or inside the firm (Aguinis & Glavas, 2012). Some of the research showed how stakeholder pressures (Brammer & Millington, 2008), top management equity ownership (Johnson & Greening, 1999), or supervisor encouragement and policy (Ramus & Steger, 2000) led firms to engage in CSR. However, the final decision to incorporate CSR in the firm’s strategy lies with those who control and implement any CSR related activities, the board of directors and top management.
The board of directors, on the one hand, has a lot of influence on the strategic course of the firm, as they play an important role in the way the firm is governed. They establish the firm’s agenda and decide on important issues (Boland & Hofstrand, 2009), which may determine to a large extent the course of action of the firm. Corporate governance (CG) is defined by Cadbury (2000) as “the system by which companies are directed and controlled” (p. 8). Prior research showed how the board may use tools to incentivize CEOs through their compensation structure to improve CSR performance (Deckop, Merriman & Gupta, 2006). However, to try and explain which fundamental factors contribute to the decision-making process of board members regarding CSR, the composition of the board itself should be considered. That is, after several impacting corporate scandals in the U.S., the Sarbanes-Oxley Act was put into effect in 2002, which required firms to have a majority of independent directors on the board (Dalton & Dalton, 2010). Research has begun to investigate how this enactment had any effect on firm performance (e.g. Zhang et al., 2012). Moreover, since the enactment it seems that more women participated on corporate boards and committees, although they are still outnumbered by their male colleagues (Dalton & Dalton, 2010; Catalyst, 2017). To find out whether the legislation regarding independent board members and the increase of female board members contributes to corporate CSR performance, and to clear up on the inconclusive findings of prior research, these board characteristics will be further investigated.
12 Regarding top management and CEOs specifically, some research has investigated the relationship between CEO demographics and CSR, such as age (Fabrizi, Mallin & Michelon, 2014), or gender (Huang, 2013). Other research focused on the backgrounds or experiences of CEOs in relationship with CSR (Slater & Dixon-Fowler, 2008; Manner, 2010). These studies have incorporated several or only a few of such CEO demographics in their research as their main variables of interest or as control variables. The findings in these articles have not always been consistent either. For example, CEO age has been found to have a negative relationship with the diversity and humanitarian dimensions of CSR (Borghesi et al., 2014), whereas other research found a positive relationship (Huang, 2013). However, according to upper echelons theory (Hambrick & Mason, 1984), it is the combination of these demographics that may ultimately shape someone’s cognitions and values which in turn affect their perceptions and the decisions they make. Therefore, there may be less meaning in investigating these demographics separately. To have an idea how these CEO cognitions and values are reflected in a firm’s CSR performance, this article will examine the role of a CEO’s political ideology. Only few researchers have investigated this relationship, of which the findings remain inconclusive.
In the next section, it will be argued how board diversity in terms of gender and independence, and CEO ideology are related to CSR performance. Thereafter, the influence of CEO duality, as a measure of CEO power, will be examined to find out how the interaction between the board and the CEO affect CSR performance.
Hypothesis Development
Board Gender Diversity
Although a modest increase exists, it is still uncommon for women to occupy seats in the corporate board of directors, in contrast to men (Dalton & Dalton, 2010; Catalyst, 2017). This may seem as a missed opportunity, since research indicates that a higher number of female board members is positively associated with firm financial performance (Terjesen, Couto & Francisco,
13 2016), innovation (Miller & Carmen Triana, 2009), and reputation (Bear et al., 2010). These findings should motivate firms to attract more women to their corporate boards.
With regard to a more CSR related outcome, one study found that when more female directors are seated in a board of directors, the board as a whole tends to have a more philanthropic orientation (Terjesen, Sealy & Singh, 2009). That is because women may have different educational and professional backgrounds and take a more participative and democratic approach (Hillman, Cannella & Harris, 2002). Specifically, compared to male directors, women oftentimes have non-business backgrounds such as public relations, government or legal expertise (Hillman et al., 2002). Furthermore, most female directors were found to have more advanced educational degrees than male directors. The writers explained this by the fact that women have to achieve more than men to be regarded as equal in terms of skills and abilities. On the positive side, when women with higher educational degrees are indeed chosen to join a board of directors, they bring extra qualities with them, which increases the overall board knowledge (Hillman et al., 2002). With these findings, it was argued that since female directors have different educational and occupational backgrounds, a wider array of perspectives on certain issues will be considered. In turn, this should enhance processes such as problem solving and decision making, because more information is available and taken into account (Bear et al., 2010). This line of reasoning contains elements of a resource-based perspective as (female) board members ultimately bring different kinds of resources to the firm, such as their knowledge and expertise, different perspectives, connections with other organizations, and legitimacy (Hillman et al., 2002). The board members’ resources may function as a trigger to take up a stakeholder perspective, since in this case it focuses on board members’ ability to recognize multiple stakeholder interests. In turn, this should be related to CSR engagement, since in the most basic and broadest sense CSR means to take the interests of all stakeholders into consideration, including employees, local communities and even the environment.
Indeed, empirical studies found that the number of female board members was positively related with CSR ratings (Baer et al., 2010; Zhang et al., 2013; Harjoto et al., 2015). Other research
14 however, found less conclusive results on this relationship. For example, only to the 10 percent significance level (Boulouta, 2013; Post, Rahman & Rubow, 2011; Coffey & Wang, 1998), or found a relationship on the social dimension only and not on the environmental dimension (Galbreath, 2011), or found no relationship at all (Stanwick & Stanwick, 1998). Nevertheless, as female board members bring different backgrounds and skills to the boardroom, the board as a whole becomes more diverse. This diversity should increase the amount of perspectives taken, considering the interests of multiple stakeholders. Therefore, the first out of two connected hypotheses will be as follows:
Hypothesis 1a: Board of directors’ diversity in terms of gender is positively related to CSR performance.
Board Independence
The other aspect of interest regarding the board of directors is independence or outside representation. For a director to be independent, it means that the director has no affiliations with the firm (other than being a board member), such as employment, business dealings, or family and social relationships (Hillman & Dalziel, 2003). Johnson and Greening (1999) argue that outside directors are often hired to help managing the interests of multiple stakeholders, as outside directors often have more diverse backgrounds than inside directors do. Moreover, they tend to have a different outlook regarding the firm compared to insiders, as their personal situations do not depend on the firm’s success (Hillman & Dalziel, 2003). Indeed, Johnson and Greening (1999) found that outside director representation was indeed positively related to both the people dimension (employees, minorities and communities) and the product dimension (environment and product quality) of CSP. These different perspectives that outside and inside directors tend to have was also found in a study by Wang and Dewhirst (1992), regarding the orientation towards employees. They found that the board as a whole takes responsibility for multiple stakeholder groups (instead of shareholders only), while outside directors have a stronger employee orientation than inside directors do. It can be argued that this latter difference
15 shows that outside directors care about more than (short-term) profits only. That is, investing in and taking care for employees probably does not lead to short-term financial profits, but may benefit the firm in the long term, such as attracting applicants (Turban & Greening, 1997). Furthermore, it was found that outside directors are more concerned with a voluntary obligation to contribute to society’s welfare, as opposed to inside directors (Ibrahim & Angelidis, 1995).
These findings indicate a stakeholder perspective, where outside directors may come from various occupations or backgrounds which brings resources to the firm and creates a multitude of perspectives within the board. One example of outside directors bringing resources to the firm would be the presence of university deans on corporate boards, providing expertise in various fields (Goldschmidt & Finkelstein, 2001). At the same time, it enables a firm to manage relationships with specific groups and communities, the authors argue. Since outside directors are not part of management or have an inside stake in the firm, they not only pursue goals in the interest of short- and long-term profits, but in the interest of various stakeholders as well (Johnson & Greening, 1999).
Again, most empirical studies found a positive relationship between outside director representation and CSR (Johnson & Greening, 1999; Jo & Harjoto, 2011, 2012; Zhang et al., 2013) or environmental performance (Post et al., 2011), while some other studies found no relationship (Walls, Berrone & Phan, 2012; Hafsi & Turgut, 2013). However, since prior research indicates that independent board members have a different outlook on the firm’s interests and come from diverging backgrounds, multiple perspectives are considered such that more stakeholder needs are addressed. Therefore, the second out of two related hypotheses concerning board diversity will be as follows:
Hypothesis 1b: Board of directors’ diversity in terms of independence is positively related to CSR performance.
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CEO Political Ideology
So far, the antecedents of CSR have been discussed on the level of the corporate board. However, as discussed, the antecedents of CSR engagement could also very well exist on the executive level, focusing on CEOs specifically. Research shows that CEOs can have a significant impact on the firm, as a result of their leadership position. For, example, one study argued that since CEOs operate as leaders of the top management team, they have a lot of influence in the coordination and functioning of the team (Simsek, Lubatkin & Dino, 2005). In their study, they found that a CEO’s collectivistic orientation was related to more integrated collaboration and joint decision making within top management teams (Simsek et al., 2005). This may ultimately lead to different corporate outcomes, compared to when a CEO has a more individualistic orientation. Other research found that a CEO’s transformational leadership qualities are positively related to a firm’s propensity to engage in CSR (Waldman, Siegel & Javidan, 2006).
These traits and qualities are likely to differ between CEOs, which is emphasized by upper echelons theory (Hambrick & Mason, 1984). As was previously explained, the theory states that top managers are likely to differ on things like their education, (career) experiences, and socioeconomic background. These characteristics are argued to develop top managers’ values and cognitions, which give direction to the corporate decisions they make (Hambrick & Mason, 1984). The values that lead a CEO to make certain decisions could be expressed in a political ideology (Chin et al., 2013). Studies have shown that internal values or beliefs are associated with someone’s political ideologies (Barnea & Schwartz, 1998; Layman, 1997). A good way to indicate this would be on a liberal (Democratic) to conservative (Republican) spectrum, making a clear distinction between two very different political conceptions. Furthermore, in an article from Goren, Federico and Kittilson (2009), they used a fundamental distinction between a liberal and conservative view. In their article they established a difference where a liberal view focuses more on equality and tolerance of diverging beliefs, whereas a conservative view puts more emphasis on self-reliance and traditional values (Goren et al., 2009). Also, as liberals are more concerned with social issues and economic equality, conservatives want to preserve what is established and
17 accept or even endorse social and economic inequality (Jost, Glaser, Kruglanski & Sulloway, 2003; Jost, 2006).
Clarifying the political beliefs of both sides gives the idea that liberal minded people are more inclined to support CSR practices and initiatives, in contrast to those with a conservative point of view. In fact, several studies found that a firm’s liberal political preference is positively related to its advances in CSR, taking into account most of its members (Gupta, Briscoe & Hambrick, 2017) or only the upper layers and headquarter state (Di Giuli & Kostovetsky, 2014). These findings are in support of a stakeholder perspective, where a liberal point of view is more likely to consider the interests of multiple stakeholders than a conservative point of view. Apparently, when liberal minded members of an organization have any influence on organizational outcomes, it may actually be linked with higher CSR scores. Regarding the CEO, to varying degrees, the organization’s CEO can be considered to be most influential, as he or she has a lot of decision-making power on an operational level. As it turns out, one study found a positive relationship between a CEO’s liberal political preference and the firm’s CSR scores (Chin et al., 2013). However, another study found that CEOs contributing to both the Democratic and Republican Party are more likely to invest in CSR, compared to CEOs contributing to either one of these Parties (Borghesi et al., 2014). That is, CEOs contributing to the Democrats were not more likely to invest in CSR than CEOs contributing to the Republicans, or vice versa.
Altogether, from an upper echelons perspective top managers or CEOs are likely to differ on their values expressed in a political ideology, which directs the corporate decisions they make. Whereas liberals are more concerned with social issues and economic equality, conservatives are more likely to accept inequalities on these aspects. This suggests that CEOs with a liberal political ideology are more likely to engage in CSR than conservative CEOs would. Research also shows that predominantly liberal firms have higher ratings of CSR.
Hypothesis 2: Firms with CEOs who have a liberal (Democratic) political ideology score higher on CSR performance compared to firms with CEOs who have a conservative (Republican) political ideology.
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CEO Duality
Up till now, it has been argued in what way board diversity and CEO political ideology determine a firm’s CSR performance. In this paragraph it will be discussed how a third variable, affecting both the CEO and board of directors, influences these relationships. That is CEO duality, meaning that a CEO simultaneously chairs the board of directors. Such a construction has implications for a CEO’s power relative to the board. When a CEO is also the chairman of the board, he or she has a lot of power over the kind of information that is shared or not shared with board members, because the chair of the board most often decides on the agenda and content of board meetings (Finkelstein & D’Aveni, 1994). This may be problematic for (outside) board members, as they receive most of the organization’s information from the chairman and board meetings (Mallette & Fowler, 1992), challenging their monitoring ability (Finkelstein & D’Aveni, 1994). Therefore, following an agency perspective, CEO duality could make it easier for CEOs to act in line with their own interests or beliefs. Agency theory assumes that managers are self-interested and risk-averse, as their investment fully relies on being a manager, in comparison with a principle who could easily diversify its investments in other firms (Eisenhardt, 1989). Reducing the risk of being replaced, managers or CEOs may already have a tendency to make themselves essential to the firm, by entrenching themselves (Shleifer & Vishny, 1989). Management entrenchment means that managers make themselves valuable to shareholders and costly to replace. As a result, managers become better able to further their own interests, possibly neglecting shareholder interests (Weisbach, 1988). One structural arrangement for a CEO to have more power and become more entrenched is promoted by CEO duality, challenging a board’s monitoring function (Finkelstein & D’Aveni, 1994).
Supporting the previous line of reasoning, prior research found that the relationship between the breadth of board capital and firm strategic change was less positive when the CEO had high power (Haynes & Hillman, 2010). To measure CEO power, the researchers used CEO duality as one of the indicators. This finding shows that when a board of directors has intentions to pursue certain goals, such as exploring new strategic avenues, their actions to achieve this could
19 be hampered when a powerful CEO is in charge. Additionally, seen from a more CSR related point of view, another study found that a CEO’s environmental expertise is negatively related to a firm’s damaging environmental impact (Walls & Berrone, 2017). Most interestingly however, the authors found that when CEOs also had high power over the board of directors (measured by CEO duality as well), the impact of firms on the environment was even lower. It was argued that the environmental knowledge and expertise of CEOs is a reflection of their values and shape firm behavior. Apparently, when CEOs have more power as opposed to the board of directors, they get in a stronger position to steer the firm in the direction that is in accordance with their own expertise and values. Similarly, a study by Muttakin, Khan and Mihret (2016) showed that CEO duality negatively affects a board’s influence in disclosing CSR activities. Powerful CEOs in a dual position were argued to choose new directors based on personal connections, eventually supporting the CEO’s preferences, diminishing a board’s capital and their propensity to engage in CSR activities.
Each of these studies show that a board of directors may have less influence over the (strategic) actions of the firm when a CEO has high power relative to the board through CEO duality. That is, when a situation occurs where the interests or values of a CEO do not align with the strategy the board of directors tries to pursue. For example, when the CEO is not as inclined to strive for a CSR incorporated strategy as the board might be. This may be reflected in a CEO’s political ideology. It is argued that a conservative ideology puts more emphasis on shareholder property rights than on stakeholder needs (Tetlock, 2000). The article found that conservative (middle) managers judged top management more favorably when their policy favored shareholder wealth, compared to liberal managers (Tetlock, 2000). This shows that conservatives put less emphasis on stakeholder needs and may therefore be less likely engage in CSR related activities. Other research showed that conservative CEOs do sometimes engage in CSR, as they cannot completely ignore it (Chin et al., 2013). It was found that this occurs when the firm’s financial performance allowed it, but even then, liberal CEOs would still yield higher CSR scores with their firm (Chin et al., 2013). These findings show that CEOs with a conservative ideology are
20 less likely to engage in CSR, compared to CEOs with liberal ideology. Then, if such a conservative orientation is combined with a more powerful dual position, these CEOs may become able to obstruct a diverse board’s efforts to integrate CSR into the corporate strategy. Consequently, the board of directors’ ability to monitor the CEO on the pursuit of such a CSR integrated strategy can be challenged. Therefore, it is predicted that the relationship between board diversity and CSR is less positive when a conservative CEO holds the board chair position. To combine CEO duality with a conservative ideology in a moderation analysis, the data sample will be split such that the analysis only includes firms with conservative CEOs. This will be further explained in the methodology section.
Hypothesis 3a: CEO duality moderates the relationship between board gender diversity and CSR performance, such that in the presence of a conservative CEO simultaneously holding the chair position, the relationship becomes weaker.
Hypothesis 3b: CEO duality moderates the relationship between independence and CSR performance, such that in the presence of a conservative CEO simultaneously holding the chair position, the relationship becomes weaker.
More research showed that powerful CEOs can exert a stronger influence on the selection of newly appointed board members, or even their own compensation, in their own favor. For example, Westphal and Zajac (1995) showed that when a CEO holds a dual position, newly appointed directors seemed to be more similar to the CEO on demographic indicators, including age, functional background, and insider/outsider status. In turn, increasing resemblance between the CEO and board members was associated with higher total CEO compensation. A similar result was found by Boyd (1994), where a lower amount of board control was related to higher CEO compensation. Moreover, the author found that CEO duality was negatively associated with board control.
Together with the research by Walls and Berrone (2017), these articles show that when CEOs are powerful relative to the board through duality, they are better able to pursue their own
21 interests through corporate actions, whether this regards personal gain or personal values. Such corporate actions may involve the appointment of new board members, the amount of executive pay, or the environmental impact of the firm. As previously argued, if in line with a CEO’s personal values and ideologies, it may even influence a firm’s CSR performance. In contrast to conservative CEOs, liberal CEOs could become even better equipped to pursue CSR initiatives, when they have more power within the firm by chairing the board as well. Therefore, it can be imagined that when liberal CEOs have more power in the form of duality, they become better equipped to achieve CSR related outcomes with their firm.
Hypothesis 4: CEO duality moderates the relationship between firms with liberal oriented CEOs and CSR performance, such that in the presence of CEO duality, the relationship becomes stronger.
Methodology
The sample consists of all U.S. based firms that were listed in the Fortune 500 at least once between the years 2010 and 2016. This resulted in a total sample of 635 firms for which data was collected. Data on CEO political ideology was split and collected by seven students, after which the average intercoder reliability was 0.98. All other relevant data did not require any additional Figure 1a. The relationship between board diversity (gender and independence) and CSR, moderated by CEO duality if the CEO has conservative political ideology.
22 collecting. Due to missing data on the dependent variable (CSR), and after removing outliers, the final dataset consisted of 516 firms. Classifying firms on two-digit industry SIC codes created 10 different industries of which Manufacturing (183) was by far the most represented industry group, followed by Finance, Insurance, Real Estate (79), Transportation & Public Utilities (73), and Services (58).
Several databases were used to collect the relevant data. CSR scores were obtained from the Kinder, Lydenberg Domini (KLD) database. Information on corporate governance structures, such as information on boards and CEO’s, is collected from Asset4 ESG. The information on CEO political ideology was obtained from the Fortune 500 website and the Center for Responsive Politics. Lastly, data for control variables such as firm size was collected from Compustat. How each of these variables are measured and calculated is explained in more detail below.
Dependent Variable
Corporate Social Performance. A firm’s CSR scores were measured by means of the KLD
database. KLD evaluates corporate social performance since 1991 on a growing number of U.S. firms. These firms are assessed on several categories relating to a diverse set of stakeholder groups, which are corporate governance, employee relations, community, human rights, diversity, product quality, and environment. In the current sample, however, data on diversity was to a large extent missing and therefore not included in the CSR score. Corporate governance was excluded as well, as it does not fully capture the construct of CSR from a stakeholder perspective. This approach is consistent with many previous studies (e.g. Di Giuli & Kostovetsky, 2014; Chin et al., 2013; Johnson & Greening, 1999; Gupta et al., 2017). Within these categories, firms are rated on a number of strengths and concerns. Independent raters evaluate how firms score on these strengths and weaknesses, ultimately assigning a “1” in the presence of a certain strength or weakness and a “0” in the absence of either of those. Having a strength means that a firm has an exemplary quality in this area, while being assigned with a concern means that a problematic issue is present. For example, strengths can be thought of as generous contributions to charity or having
23 a strong policy on pollution prevention, whereas concerns focus more on allowing harm or even causing it, such as producing toxic wastes (Boulouta, 2015). Even though there is still debate how CSR can be measured best, an overall CSR score has been calculated by subtracting the sum of all concerns from the sum of all strengths, following the same method used in previous articles (Harjoto et al., 2015; Gupta et al., 2017; Borghesi et al., 2014; Chin et al., 2013). This way of measuring CSR captures both a firm’s positive and negative CSR profile. The overall CSR score is calculated and averaged for the years 2015 and 2016, as these were the most recent and comparable years.
Independent Variables
Board Diversity. As previously mentioned, board diversity is investigated on two different
levels, gender and independence. The data on these variables were obtained from Asset4 ESG database. For gender diversity, a percentage was calculated for the number of female board directors divided by the total number of board directors. The same was done for board independence, the number of independent board members as a percentage of the total board size, as reported by the firm. For this data a mean score was calculated for the years 2014 until 2016, to allow for some time to have its impact on CSR.
CEO political ideology. To measure CEOs’ political ideology two different databases were
used. First of all, the CEO of a firm had to be determined using the Fortune 500 website. Then, to determine the political orientation of CEOs, a scale was created ranging from a Democratic preference at one end to a Republican preference at the other end. This intended to represent someone’s preference towards a conservative point of view versus a more liberal point of view. As previously explained, liberals are more concerned with social issues and economic equality, whereas conservatives want to preserve what is established and accept social or economic inequality (Jost, et al., 2003; Jost, 2006). To indicate how CEOs were arranged on this scale, data on political contributions was collected from the Center of Responsive Politics (www.opensecrets.org). For the years 2014 and 2016, parallel to the election cycles, donations
24 from each CEO were looked up. Again, this allowed CEO intentions and beliefs some time to have its effect on CSR. The database contains all donations made above 200 U.S. dollars, either to individuals or to Political Action Committees (PACs). Determining the contributions made by each CEO, the search was set up such that particular donations were only included when the name and occupation matched with those of the CEO.
Finally, to indicate a CEO’s political ideology all contributions to the Democratic and Republican Parties and individuals and PACs were included. For many PACs it was unclear what their political orientation was, and thus were excluded from further calculations. Then, all Democratic contributions (+ 0.1) were divided by the contributions to both parties (+ 0.2), creating scores between zero and one. The “0.1” and “0.2” were added to the formula, to prevent errors when no (zero) contributions were made. Automatically, this resulted in scores of 0.5, representing no clear liberal or conservative ideology. In contrast, a score below 0.5 down to zero was indicative of a conservative (Republican) ideology, whereas a score between 0.5 and 1 indicated a liberal (Democratic) ideology. An average political ideology score was created over the years 2014 and 2016. This methodology is consistent with previous measures of political ideology (Chin et al., 2013; Di Giuli & Kostovetsky, 2014; Gupta et al., 2017). Additionally, resembling Chin et al. (2013), a (non-normal) distribution was found with a mean political ideology score of 0.39 (as shown in the Appendix), which is relatively conservative.
Moderator Variable
CEO duality. As with board diversity, CEO duality can be considered as a corporate
governance structure, and thus data was obtained from Asset4 ESG as well. For this variable, the question whether the CEO simultaneously chaired the board and if the chairman has been the company CEO as well, was answered with yes or no. This data was then translated to a dummy variable coded as “0” when the CEO in fact did not chair the board, and “1” if the CEO held both positions. Covering the years 2014 and 2016, firms were included in the analysis only when the
25 duality structure was the same in both years. That is, a dummy score of either “1” or “0” for both years.
As previously mentioned concerning Hypothesis 3a and b, to test these specific moderation effects, analyses were performed over a smaller sample size consisting only of firms with conservative CEOs. In other words, the data sample was split up such that all firms with a political ideology score above 0.4 were excluded from the analysis. All scores below 0.4 are considered to represent stable conservative ideologies (Chin et al., 2013).
Control Variables
Industry. As reviewed by Margolis and Walsh (2001), industry is one of the variables most
controlled for in previous CSR research. In the sample many different industries are represented, where each might deal with CSR differently. It may be that the nature of a firm’s business or industry already determines in some ways whether it will be more likely or not that certain strengths or concerns are present. For example, chemical and oil companies have a higher chance of accidents involving (toxic) pollution, compared to Real Estate companies. Of course, in the latter business other potential concerns may arise. However, the argument here is that these possibilities are most likely unequal across industries, and therefore should be controlled for. Dummy variables were created for the first two digit SIC codes,
Firm size. Similar to industry, firm size is another variable which has been controlled for
many times before. Although the sample in this research may consist of the biggest firms in the U.S., considerable differences within this sample still exist. Furthermore, it may very well be that bigger firms are better able to engage in CSR related activities, due to a wider network and more financial resources. Indeed, empirical research found a positive relationship between firm size and CSR (Brammer & Millington, 2004; 2006). As the authors argue, another reason could be that bigger firms are more visible, and therefore more vulnerable to public scrutiny and demands to enhance CSR activities. Firm size was measured by the natural logarithm of firm total assets, as is consistent with previous studies (Walls et al., 2012; Jo & Harjoto, 2012; Brammer & Millington,
26 2004). This data was also available from Compustat, taking the average over the years 2014 to 2016.
Board size. As previously mentioned, board size should be taken into account, as
arguments exist on how the size of a board is related to their effectiveness. For example, Lipton and Lorsch (1992) propose that board size should be limited to a maximum of ten directors, to maintain a decent level of corporate governance. Indeed, research found that as the board grows they become less involved in strategic decision making (Judge & Zeithaml, 1992), or initiate strategic change (Goodstein et al., 1994). Moreover, Yermack (1996) finds that an increasing board size is related to firms’ decreasing market valuations. On a more CSR related note, firm environmental concerns were found to increase when the size of the board increased as well (Walls et al., 2012). Lastly, when board size increases, the quality of their collaboration may decrease and the risk of free-riding arises. Harris and Raviv (2006) argue that an increased number of outside directors reduces their perceptions of making an important contribution to the board and firm as a whole, creating a free-rider problem. To maintain their efforts, higher incentives are required to compensate for this free-rider effect (Boone, Field, Karpoff & Raheja, 2007). As it is unknown whether and how such free-rider effects are dealt with, variations may exist between boards on their (monitoring) effectiveness. Therefore, this research controls for board size by taking the total number of board directors for each firm as an average over the years 2014 to 2016.
Statistical Analysis
Before testing any of the hypotheses, a few adjustments had to be made to some of the variables in the dataset. In the first place, all variables except CSR, industry (SIC), and duality, were mean centered to allow for making comparisons meaningful, and also to enable moderation analysis. Then, for actually testing the hypotheses, hierarchical regression analyses were conducted to test the direct relationships, entering control variables in the first step and the independent variable of interest in the second step. Finally, to test for any moderation effects,
27 multiple hierarchical regression analyses were performed, entering control variables in the first step, the independent and moderator variable in the second step, and an interaction term between those two in the third step. Again, for Hypothesis 3a and b, the sample was split such that the regression analysis only included firms with conservative CEOs.
Results
Assumptions
To remove any outliers from the sample, a boxplot was created for CSR scores. Also, some scores on political ideology were below 0 or above 1, due to a few cases where CEOs made negative contributions, or apparently receiving the donation. These cases were removed as well, and as previously stated resulting in a final sample of 516 firms. To test whether assumptions were met, a few tests were performed. First of all, the multicollinearity assumption was met, as VIF and tolerance scores were both around 1. Then the assumption of independence was met as well, as the Durbin-Watson score was 1.917. Finally, the assumption for homoscedasticity was met fairly well, whereas the assumptions for normality seems to be violated, as the data dots did not fit the diagonal line that well.
Descriptive Statistics
In Table 1 means and standard deviations are presented for each of the control variables, independent variables and CSR, as well as Pearson correlations between them. Some interesting findings appear, for example that the average CSR score is 1.67, while the lowest CSR score is -3.5 and the highest is 9. Another interesting finding is that the average percentage of independent board members (M = 82.16, SD = 10.31) is a lot higher than the average percentage of women on the board of directors (M = 19.51, SD = 8.97).
Concerning correlations between variables, it is worth noting that CSR is positively and significantly related to the control variables firm size (r = 0.285, p < 0.001) and board size (r = 0.19, p < 0.001). Apparently, bigger firms do engage more in CSR than relatively smaller firm do,
28 and as a board grows bigger, the firm’s CSR rating increases as well. So overall there appears to be no severe free-riding issues as previously discussed, although this might be explained by the fact that the average board size was not too high (M = 11.04, SD = 1.92). Another interesting finding is that as firm size increases, the percentage of women on boards (r = 0.220, p < 0.001), the percentage of independent board members (r = 0.185, p < 0.001), and the total board size (r = 0.469, p < 0.001) increases as well. For the independent variables, both board gender diversity (r = 0.228, p < 0.001) and board independence (r = 0.155, p < 0.001) were positively related to CSR, providing some preliminary evidence that both are positive predictors of CSR. However, for CEO political ideology no significant relationship was found with CSR (r = 0.053). To reach any conclusive results, these relationships will be further investigated in the regression analyses.
Table 1.
Means, Standard Deviations, and Pearson correlations between the most important variables.
N Mean SD 1 2 3 4 5 6
1. CSR 516 1.67 2.05
2. Board gender diversity 504 19.51 8.97 0.228**
3. Board independence 502 82.16 10.31 0.155** 0.220** 4. CEO political ideology 515 0.39 0.25 0.053 0.051 -0.006
5. CEO duality 379 0.72 0.45 0.007 0.028 0.020 -0.095
6. Firm size 515 4.26 0.58 0.285** 0.220** 0.185** -0.046 0.094
7. Board size 504 11.04 1.92 0.185** 0.166** 0.114* -0.054 0.110* 0.469** Note. *p < 0.05, **p < 0.01.
Regression Analysis
To find out whether and how the independent variables have any predictive value for CSR, hierarchical regression analyses were performed to test for any of the direct relationships. Table 2 shows the results for Hypothesis 1a, 1b, 2 and 4. Analyzing Hypothesis 3a and b required splitting the sample, which are therefore tested separately.
Taking the mean centered variables, except for industry, CEO duality and CSR, model 1 in Table 2 shows the amount of variance explained by the control variables, industry, firm size, and board size. Together, they explain roughly 18% of the variance (R² = 0.182, F (11, 502) = 9.933, p
29 < 0.001). Model 2 tests Hypothesis 1a, which predicted that board gender diversity is positively related to CSR performance. On top of what is already explained by the control variables, board gender diversity positively predicts CSR (B = 0.037, F (12, 502) = 10.583, ΔR² = 0.024, p < 0.001), providing preliminary support for Hypothesis 1a. Then, model 3 tests Hypothesis 1b, which predicted that board diversity in terms of independence is positively related to CSR performance. The results show that board independence does not significantly predict CSR (B = 0.016, F (12, 500) = 9.437, ΔR² = 0.006, p = 0.053), providing no preliminary support for Hypothesis 1b. Model 4 tests Hypothesis 2, which predicted that firms with a liberal CEO score higher on CSR than firms with a more conservative CEO. The results show that CEO political ideology does not predict CSR (B = 0.625, F (12, 501) = 9.560, ΔR² = 0.006, p = 0.065), again not providing preliminary support for Hypothesis 2.
Finally, model 5 consists of all variables, eventually supporting only Hypothesis 1a (B = 0.035, p = 0.001). These results show that when the percentage of women on corporate boards increases, a firm’s CSR performance increases as well. Hypothesis 1b was not supported, as board independence only marginally predicted CSR (B = 0.020, p = 0.063), which means that a higher number of independent board directors is not related to higher CSR ratings. Hypothesis 2 also did not receive any support in de the final model (B = -0.084, p = 0.919), indicating that firms with liberal CEOs do not score higher on CSR than firms with conservative CEOs. Although CEO political ideology was not related to CSR performance, it was nonetheless investigated if there was an interaction between CEO political ideology and CEO duality on CSR. Specifically, Hypothesis 4 predicted that the relationship between CEO political ideology and CSR would be stronger when CEOs held the position of board chairman as well. The results in model 5 show that the interaction between CEO political ideology and CEO duality does not significantly predict CSR performance (B = 0.913, F (16, 377) = 5.689, ΔR² = 0.002, p = 0.334). Contrary to what was predicted, this means that a CEO’s position is not of any influence on the relationship between political ideology and CSR. Therefore, Hypothesis 4 was not supported.
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Table 2.
Hierarchical regression analyses of board diversity and CEO political ideology on CSR.
Predictor variable Model 1 Model 2 Model 3 Model 4 Model 5
Intercept 1.920 (0.250) 1.856 (0.247) 1.899 (0.249) 1.870 (0.249) 1.587 (0.431) Firm size 0.987*** (0.186) 0.884*** (0.186) 0.848*** (0.188) 0.858*** (0.188) 0.695** (0.224) Board size 0.094 (0.050) 0.078 (0.049) 0.084 (0.050) 0.089 (0.050) 0.083 (0.060)
Industry dummies incl incl incl incl incl
Board gender diversity 0.037***
(0.010) 0.035** (0.012) Board independence 0.016† (0.008) 0.02† (0.011)
CEO political ideology 0.625†
(0.338)
-0.084 (0.824)
CEO duality -0.065
(0.225)
CEO duality ⨯ CEO political ideology 0.913
(0.943)
R² 0.182*** 0.206 0.188 0.190 0.201
ΔR² 0.024*** 0.006† 0.006† 0.002
F value 9.933 10.583 9.437 9.560 5.689
Note. Statistical significance: †p < 0.1, *p < 0.05, **p < 0.01, ***p < 0.001. Unstandardized coefficients are reported with
standard errors in parentheses. Dummy variables were included but not displayed to maintain comprehensibility.
In the following section, the results of Hypothesis 3a and 3b will be discussed. As previously mentioned, this required splitting the sample. This section is twofold. In the first part, the interaction effect of CEO political ideology and board diversity (gender and independence) on CSR will be tested, selecting only CEOs in a dual position and vice versa. Note however, that this part does not test the Hypotheses, as the moderating effect of CEO duality is not considered (firms with and without dual CEOs were investigated separately). Then, in the second part, Hypothesis 3a and b will be tested by looking at the interaction effect of CEO duality and board diversity on CSR, while selecting only firms with conservative CEOs, as depicted in Figure 1a.
Before going into testing Hypothesis 3a and b, it was interesting to see whether the relationship between board diversity and CSR performance was dependent on CEO political ideology, while selecting only firms with dual CEOs and vice versa. In other words, if CEOs have
31 the power as their dual position implies, does their political ideology has any influence on the relationship between board diversity and CSR. To do this, all cases (firms) were selected in which CEOs had a dual position. Then, an interaction term between CEO political ideology and board diversity was created, to uncover its moderating effect on CSR. The results are depicted in Table 3 and show that, concerning women on corporate boards, no significant interaction was found between political ideology and board gender diversity on CSR, when the CEO simultaneously chaired the board (B = -0.013, F (14, 271) = 5.087, p = 0.819). Oddly enough, when only firms with non-dual CEOs were selected, a significant interaction effect was found (B = 0.233, F (12, 105) = 2.450, ΔR² = 0.052, p = 0.013). Figure 2 shows that the relationship between board gender diversity and CSR is positive when the CEO had a liberal ideology, and negative when the CEO had a conservative ideology, that is when the CEO did not chair the board as well. This latter result supports the idea that a liberal ideology improves any commitments to CSR, compared to a conservative ideology. However, this occurs only when CEOs do not hold both positions.
As for board independence, there was only a significant interaction when the CEO did actually hold both positions (B = 0.099, F (14, 271) = 4.999, ΔR² = 0.013, p = 0.043), as shown in Table 4. This interaction is visually displayed in Figure 3. It shows that the relationship between board independence and CSR is positive when CEOs had a liberal ideology, and negative when the CEO had a more conservative ideology, when the CEO held both positions. When the CEO did not hold both positions, there was no significant interaction of political ideology and board independence on CSR (B = 0.071, F (12, 105) = 1.783, ΔR² = 0.007, p = 0.360). These results support the idea that a liberal ideology improves the commitment of an independent board to engage in CSR compared to a conservative ideology, in the case that CEOs hold a dual position.
However, the previous findings do not test whether the relationship between board diversity and CSR is significantly different between dual and non-dual CEOs. This will be tested in the next part.
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Table 3.
Hierarchical regression analysis for the interaction effects of CEO political ideology and board gender diversity on CSR.
ΔR² F B SE t p
CEO holds chair positionᵃ
Intercept 1.167 0.416 2.804
Firm size 0.400 0.280 1.426 0.155
Board size 0.110 0.071 1.554 0.121
Industry dummies incl incl incl incl
Board gender diversity 0.050 0.015 3.350 0.001
CEO political ideology 0.770 0.463 1.662 0.098
Board gender diversity ⨯ CEO political ideology 0.000 5.087 (14, 271) -0.013 0.055 -0.229 0.819 CEO does not hold chair positionᵇ
Intercept 2.125 0.554 3.837
Firm size 1.298 0.403 3.218 0.002
Board size 0.029 0.116 0.249 0.804
Industry dummies incl incl incl incl
Board gender diversity 0.013 0.019 0.684 0.495
CEO political ideology 0.512 0.831 0.616 0.539
Board gender diversity ⨯ CEO political ideology 0.052 2.450 (12, 105) 0.233 0.092 2.531 0.013 ᵃN = 273
ᵇN = 106
Figure 2. Interaction effect of board gender diversity and political ideology on CSR when the CEO did not chair the board.
33
Table 4.
Hierarchical regression analysis for the interaction effects of CEO political ideology and board independence on CSR.
ΔR² F B SE t p
CEO holds chair positionᵃ
Intercept 1.282 0.406 3.156
Firm size 0.487 0.279 1.746 0.082
Board size 0.121 0.071 1.698 0.091
Industry dummies incl incl incl incl
Board independence 0.032 0.013 2.458 0.015
CEO political ideology 0.955 0.456 2.097 0.037
Board independence ⨯ CEO political ideology 0.013 4.999 (14, 271) 0.099 0.049 2.038 0.043 CEO does not hold chair positionᵇ
Intercept 2.333 0.570 4.091
Firm size 1.363 0.417 3.270 0.002
Board size 0.045 0.120 0.377 0.707
Industry dummies incl incl incl incl
Board independence 0.020 0.019 1.034 0.304
CEO political ideology -0.294 0.840 -0.350 0.727
Board independence ⨯ CEO political ideology 0.007 1.783 (12, 105) 0.071 0.078 0.920 0.360 ᵃN = 273
ᵇN = 106
Finally, to test Hypothesis 3a and b, all cases with a political ideology score above 0.4 were excluded from further analysis, so that the analysis only included firms with relatively conservative CEOs. Starting with gender, Hypothesis 3a predicted that CEO duality weakens the relationship between board gender diversity and CSR performance, when the CEO has a
Figure 3. Interaction effect of board independence and political ideology on CSR when the CEO simultaneously chaired the board.
34 conservative ideology. Table 5 shows the results for the moderation analysis of both board gender diversity and board independence on a sample size of 172, as a result of excluding cases with political ideology scores above 0.4. There was a significant interaction effect of board gender diversity and CEO duality on CSR (B = 0.096, F (12, 171) = 3.443, ΔR² = 0.031, p = 0.014). In Figure 4 this interaction is displayed graphically. It shows that when CEOs are considered conservative and hold a dual position, the relationship between board gender diversity and CSR is positive, whereas this relationship was negative when the CEO did not hold a dual position. This is the opposite of what was predicted in Hypothesis 3a, that the relationship between board gender diversity and CSR would be less positive when a conservative CEO holds both positions. This means that Hypothesis 3a is not supported. The results indicate that conservative CEOs who chair the board as well, support the tendency of gender diverse boards to engage in CSR. At the same time, conservative CEOs who do not hold both positions are more likely to counter the efforts of gender diverse boards to engage in CSR.
Table 5.
Hierarchical regression analysis for the interaction effects of CEO duality and board diversity on CSR
ΔR² F B SE t p
Board gender diversityᵃ
Intercept 1.038 0.537 1.932
Firm size 0.256 0.346 0.740 0.461
Board size 0.057 0.086 0.666 0.506
Industry dummies incl incl incl incl
Board gender diversity -0.030 0.032 -0.962 0.338
CEO duality -0.301 0.344 -0.875 0.383
Board gender diversity ⨯ CEO duality 0.031 3.443 (12, 171) 0.096 0.039 2.492 0.014 Board independenceᵃ
Intercept 4.390 0.715 6.137
Firm size 0.360 0.357 1.009 0.315
Board size 0.057 0.089 0.646 0.519
Industry dummies incl incl incl incl
Board independence 0.013 0.026 0.483 0.630
CEO duality -0.267 0.357 -0.748 0.455
Board independence ⨯ CEO duality 0.000 2.657 (12, 170) -0.003 0.034 -0.083 0.934 Note. ᵃN = 172
35
Then, regarding board independence, Hypothesis 3b predicted that CEO duality weakens the relationship between board independence and CSR performance, when the CEO has a conservative ideology. As can be seen in Table 5, the results show that the interaction between CEO duality and board independence does not significantly predict CSR (B = -0.003, F (12, 170) = 2.657, ΔR² = 0.000, p = 0.934). Therefore, no support was found for hypothesis 3b. Apparently, conservative CEOs in a dual position do not affect the relationship between board independence and CSR differently from when they merely act as CEOs.
Discussion
Findings and Implications
The aim of this research was to integrate corporate governance with an upper echelons perspective by investigating the predicting effect of board diversity and CEO political ideology on CSR. Furthermore, it was examined how both of these relationships were influenced by CEO duality, which was argued to have implications for a CEO’s power relative to the board. In other words, whether a trade-off existed between the board and the CEO regarding their influence on the firm’s CSR engagement. The findings of this study have implications on a theoretical and practical level. First, it seems that having more women on the board of directors, making the board as a whole more diverse, is positively related to firms performing better on measures of CSR. Figure 4. Interaction effect of board gender diversity and board duality on CSR when CEOs were conservative.
