1 Amsterdam Business School
The Relationship between Diversity in the Board of Directors and
Corporate Social Responsibility
Name: Maxime Gamelkoorn Student number: 10222057 Date: June 2016
Master Thesis
Supervisor: Alexandros Sikalidis
MSc Accountancy & Control, specialization Control
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Statement of Originality: This document is written by student Maxime Gamelkoorn 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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ABSTRACT
In November a new quota has been introduced for all listed European companies within the European Union, a minimum of 40% of the Board of Directors have to be females. Board diversity has been an continuing subject in the literature and whether this might influence corporate social responsibility. This study examines the relationship between women in the Board of Directors and corporate social responsibility. I hypothesize that firms with a higher percentage of women in their Board of Directors have higher scores on CSR. This hypothesis is
supported by the findings based on 827 firm year observations of listed companies in the European Union. No relation was found between the number of women managers and CSR
4 Dutch summary
In November 2013 is er in de Europese Unie een quotum ingesteld ten behoeve van het aantal vrouwen in de Raad van Bestuur. Binnen de Europese Unie moeten alle beursgenoteerde bedrijven voldoen aan het quotum van 4o% aantal vrouwen binnen de Raad van Bestuur. Diversiteit binnen de Raad van Bestuur is een onderwerp wat veelvuldig terugkomt in de literatuur.
Naast vrouwenemancipatie, schandalen zoals Enron, Worldom, Ahold en Shell wordt er ook aandacht geschonken aan de corporate governance structuur binnen bedrijven. Grote bedrijven hebben te maken gekregen met misleidende verslaggevingspraktijken. Hierdoor is de functionaliteit van de Raad van Bestuur veelvuldig onder vuur komen te liggen. Naast de Raad van Bestuur is hierdoor ook het zoeken van legitimiteit door bedrijven om hun activiteiten te kunnen voortzetten aan het licht gekomen. Hiermee gaat gepaard dat bedrijven steeds vaker zich bezig houden met maatschappelijk verantwoord ondernemen (corporate social responsibility, CSR).
Meervoudig onderzoek laat weten wat het aandeel van vrouwen in de Raad van Bestuur een positief effect heeft op de bedrijfswaarde. Maatschappelijk verantwoord ondernemen is gebaseerd op het idee dat bedrijven niet alleen maar een economische bedrijfswaarde moeten afgeven aan hun omgeving, maar ook waarde aan hun omgeving. Studies laten ook zien dat diversiteit binnen de Raad van Bestuur, een positieve impact heeft op maatschappelijk verantwoord ondernemen.
In dit onderzoek zijn de twee onderwerpen maatschappelijk verantwoord ondernemen en het aantal vrouwen in de Raad van Bestuur onderzocht aan de hand van een kwantitatief onderzoek. De centrale vraag hierbij is dan ook:
‘‘Hebben vrouwen invloed op maatschappelijk ondernemen?’’
Data is gebruikt van de jaren 2013 tot 2015 van beursgenoteerde bedrijven uit Europa. Uit dit onderzoek is gebleken dat het aantal vrouwen binnen de Raad van Bestuur een positief effect heeft op maatschappelijk ondernemen. Echter voor vervolg onderzoek, zou het de dataset kunnen worden uitgebreid.
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Table of contents
Abstract……….. 3 Dutch summary………….………….………….………….………….………….………4 1 Introduction….………….………….……….………….………….……….. 6 2 Literature Review ….………….………….……….………….………….……… 82.1Corporate Social Responsibility….………….………….………...………8
2.1.1 Definition of Corporate Social Responsibility………...………..8
2.1.2 Evolution of Corporate Social Responsibility………...……...9
2.1.2 Motivation for Corporate Social Responsibility………...……..10
2.3 Differences between men and women………...………...……...……...12
2.3.1 Gender Roles & Social Role...……....……....……....……….13
2.3.2 Characteristics that could influence Corporate Social Responsibility.14 2.4 Hypothesis………14
3 Data and Method………15
3.1 Sample Selection………...15 3.2 Research design……… 15 3.2.1 Proxies for CSR………..16 3.2.2 Regression model………17 4 Results………..18 4.1 Descriptive statistics………..18
4.2 Effect of board diversity on CSR………...20
4.3 Additional analyses………21
4.3.1 Second additional analysis, backwards regression………22
5 Discussion and Conclusion……….23
References………...24
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1 Introduction
Diversity, equality and inclusion are commonly accepted social outcomes for doing businesses. Despite the fact that women represent around 50% of the human population and 60% of the new university graduates, women are concentrated in narrow gender-typed jobs and represent only 21.2% of board members of the largest publicly listed companies in Europe in April 2015 (European Commission, October 2015). In November 2013 the members of the European Parliament voted for the legislation of attaining a 40% objective of female non-executive directors in publicly listed companies. A reason for this objective is the low percentage of female directors, despite an increasing number of women in the workforce and minimum changes over the past decade. Another argument for this quota is that talented women do not have the same opportunities as talented men have. Multiple researchers argue that when women are included in the Board of Directors, boards perform optimal (Carver, 2002; Cassel, 2000). If we look at listed American companies, the average number of women in the Board of Directors of S&P 1500 companies did not change in the period from 2005 till 2008 (Gillis, 2012). In this light, Europe takes a leading role when it comes to board diversity, and board diversity for listed comapnies has increased from 11.9% in 2010 to, as said above, 21.2% in 2015 in Europe.
Despite women emancipation, scandals like Enron , Worldcom, Ahold and Shell made, also have drawn the attention to corporate governance (Unerman & O’Dwyer, 2004). Companies faced allegations of misleading accounting practices and interest conflicts in their corporate governance practices. Functionality of boards in monitoring management and advising the Chief Executive Officer has been reviewed severally as result of the recent financial crisis and the aligned scandals. Because of these scandals, companies tried to seek legitimacy in their activities, so that they could keep doing them (Carroll & Shabana, 2010). Primary function of the Board of Directors is to advise on strategy formulation and making decisions (Holmstrom, 2005; Adams and Ferreira, 2007). The 2000s affected CSR trough scandals and a new theme sustainability (Carroll & Shabana, 2010). Companies tried to seek legitimacy in their activities so that they could continue doing them.
Multiple research showed that the presence of women in the Board of Directors has a positive effect on firm value (Carter, Simkins & Simpson, 2003; Adams & Ferreira, 2007).
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Corporate social responsibility is based on the notion that corporations do not only have an economic value toward their surroundings, but also social and environmental. Corporate social responsibility means the social contract between a corporation and society. Gender diversity within the Board of Directors has a positive relationship with a firm’s performance and corporate responsibilities (Gillis, 2012). Because of this positive relationship this thesis will study if a greater number of women in the Board of Directors affects corporate social responsibility within the European Union.
This study is based on two research topics, women in the Board of Directors and corporate social responsibility. These two topics have been research topics in prior literature frequently. Board diversity has been a contentious topic in both research and politically recent years. There are several studies that examine the relationship between women and CSR, but is mostly limited to listed companies of America. The most commonly used database in CSR-studies is the KLD database, which provides only limited ratings to listed American companies. The ASSET4 ESG database of Thomson Reuter does provide scores on environmental, social and governance scores for listed European companies and has been used by different scholars, but not in combination with board diversity and women managers in Europe. This gap in the literature leads to the following research question and will be addressed in this study:
‘’Do women have influence on Corporate Social Responsibility in Europe? ‘’
Besides the theoretical contribution, examine this research question contributes to society, as both topics, CSR and diversity, are becoming more and more popular.
In the following chapter, the literature behind the two topics is constructed. In the first paragraph of the following chapter, the theory behind CSR is constructed. In the second paragraph the difference between men and women are set out, which result in different CSR scores. In the third chapter method and data is set out. I will explain the sample selection process, the proxies for CSR and the variables that I constructed for the regression models. Chapter 4 contains the results of the regressions and here I analyze those results. The final chapter, chapter 5, contains the conclusion and discussion, in which I will summarize the findings of this study, the limitations of this study and suggestions for further research.
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2 Literature Review
In this chapter the theoretical background in this study is explained. In the first paragraph corporate social responsibility is explained by combining different theories. First is explained what CSR is, next the evolution of CSR and finally the motivation for CSR. In the second paragraph de difference between men and women, what can influence CSR is explained. This chapter ends with the two hypotheses about the effect that women have on CSR.
2.1 Corporate Social Responsibility
Corporate social responsibility has been taken place within doing business since the second half of the 20th
century. More firms are not only providing financial data to the outside world, but also sustainability reports. It is well known that just doing business for the profit is out of date and becoming more socially responsible is a must.
2.1.1 Definition of Corporate Social Responsibility
According to Carroll (1991) CSR builds upon four main pillars: economic responsibilities, legal responsibilities, ethical responsibilities and philanthropic responsibilities. Throughout existing literature, Carroll is being referred to mostly, and therefore this paper uses Carroll’s description of CSR. The four components of CSR start with economic responsibilities. Historically, businesses have a principal role; making profit. Businesses were set up to produce goods and services to fulfill customers’ needs All other responsibilities are based upon ensuring economic profits, without the purpose of making economic profit the other responsibilities are debatable.
The second component, legal responsibilities, refers to comply with existing laws and regulations. Legal responsibilities can be seen as codified ethics, because legal restraints maintain doing business in a fair way.
Ethical responsibilities are the third component in Carroll’s (1991) CSR pyramid. Ethical responsibilities comprise all the actions beyond legal duties. Ethical responsibilities embody all standards, actions and norms what stakeholders see as fair and the responsibility to protect stakeholders’ moral rights. In paragraph 2.3 ethical responsibilities are further illustrated.
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The final component of the pyramid embody philanthropic responsibilities. Philanthropy embody the actions of businesses that are a reaction of expectations of society which make the business a good citizen (Carroll, 1991). The difference between philanthropic and ethical responsibilities is that when a company does not contribute to society in a mostly desired way, companies are not immediately seen as unethical firms. Philanthropy is more voluntary, even though there are always societal expectations that companies contribute to society.
2.1.2 Evolution of Corporate Social Responsibility.
When CSR made its appearance in literature it first was referred to as social responsibility (SR). Carrol (1999) notes that this could be due to unnoted or not present dominance of corporations in the business sector. The publication of the book Social Responsibilities of the Businessman
(1953) by Howard R. Bowen is seen as the first publication in the modern literature on this
subject. As the title refers, there were no businesswomen during that time, or they were ignored in literature. Which makes the transition to the present even more interesting, since this paper highlights the relationship between women and CSR.
Bowen’s (1953) work was based on the idea that all those businessmen affect many citizens by their power. He therefore raised the question what responsibilities to society can we reasonably expect from businessmen? Bowen stated social responsibilities of businessmen as: ‘It
refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society (pp.6).
During the 1960s CSR was attempted to be more accurately defined. One of the most dominant writers during that time was Keith Davis (1960), who stated that social responsibility is a vague idea but should be seen in a managerial context. He also argued the long-run economic gain that can be obtained by a company when it involved into doing business in a socially responsible way. A view that flowed through the 1970s and 1980s as well. Another influential contributor to the definitions social responsibility during this time was William C. Frederick. Frederick (1960) described that ‘Social responsibilities mean that businessmen should oversee
the operation of an economic system that fulfills the expectations of the public. And this means in turn that the economy’s means of production should be employed in such a way that production and distribution should enhance total socio-economic welfare’ (pp. 60.). Also during this time
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In the 1970s the corporations were added in different definitions of social responsibility. Social responsibility was seen as an act of the company in its whole, instead of limiting it to businessmen. Davis (1973) defined CSR as: ‘For purposes of this discussion it CSR refers to the
firm’s consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm (pp. 312)’. Davis (1973) argues that it is the firm’s obligation in its
decision-making process that the firm accomplish social benefits beside the economic gain, but should do that without law constraints. This time period defines CSR as a business should function in a way that it is expected, fulfilling its economic mission within the framework of legal and extend its mission in a social manner further than law requirements.
CSR was combined with operationalization and financial performance during the 1980s. More empirical studies were seeking the relation between CSR and profitability and researches sought ways to implement CSR (Carroll, 1999). During this time period attempts were made to eliminate the vagueness in the CSR concept. Socially responsible behavior can be argued in many different ways and therefore give rise to different interpretations (Jones , 1980). Therefore Jones (1980) argued that CSR should not be seen as a set of outcomes, but as a process and illustrated how a firm could implement CSR. A good example of the two growing interests mentioned before was the research of Philip Cochran and Robert Wood (1984). Cochran and Wood (1984) surveyed the combination between social and financial performance that had been operationalized and based a reputation index as a measure of CSR on those surveys.
During the 1990s the CSR concept changed into alternative themes such as stakeholder theory, business ethics theory, CPS, and corporate citizenship (Carroll, 1999). Also concerns about CSR started to grow during this decade (Campbell, 2007). Carroll (1999) formed a description n of CSR while combining different elements from previous literature and research. Carroll (1999) describes CSR as a true total when a firm combines four kinds of social responsibilities: economic, legal, ethical and philanthropic. Also the 1990s became the decade of global corporate citizenship and global outreach of CSR accelerated (Carroll & Shabana, 2010).
The 2000s affected CSR trough scandals and a new theme sustainability (Carroll & Shabana, 2010). Companies tried to seek legitimacy in their activities so that they could continue doing them.
11 2.1.2 Motivation for Corporate Social Responsibility
As stated in the paragraph before, CSR has become a popular topic over the years. However, this growing attention, does not immediately imply that businesses actually changed their practices since worldwide still scandals occur, like Enron , Worldcom, Ahold and Shell scandals. In the article of Graafland and van de Ven (2006) distinction is made between the management’s view on CSR and actual CSR efforts. Graafland and van de Ven (2006) note that there can exist a profit motive for CSR and a deontological motive, which is seen as the moral duty of the firm. Companies are more likely to implement CSR in their day-to-day businesses when they believe it will pay off over time in the long run. In the literature this is referred as the strategic view on CSR (Garriga and Melé, 2004; Graafland, 2002; McWilliams, Siegel and Wright, 2006). This financial motive derives from the company’s reputation which improves when a company involves in CSR practices ( Fombrum and Shanley, 1990). This results in a higher support of consumer or clients (Graafland and van de Ven, 2006). Not only from a consumer perspective, involving in CSR practices results in higher financial performance, from an employee perspective involving in CSR also results in higher financial performance. If a work climate is more ethical, the employees have more trust in the company and will be more committed (Sims and Keon, 1997).
Besides a financial motive, a moral motive exists when choosing for CSR practices. In many businesses a business culture is present, which is aligned with CSR. This moral motive derives from intrinsically motives (Graafland and van der Ven, 2006). Aguilera, Rupp and Ganapathi (2007) distinguish moral motives into four different levels: individual, organizational, transnational. In line with this study, I focus on the individual level. Anguilera, Rupp and Ganapathi (2007) examined why employees might influence the company where they work to engage in CSR practices. In this study three types concerns are highlighted that influence CSR, the basic psychological needs for control, belongingness and meaningful existence. The individual motive that a manager within a company can have to implement CSR, firstly aligns with the instrumental motives of the company itself. The CSR focus derives then from enhancing shareholders wealth, increasing firm competiveness and profitability. In this way managers can ensure that the firm will financially grow and therefore set their own bonuses in line with this financial growth. There is also an external pressure that relates to CSR practices from management. These external pressure comes from stakeholders and other organizations, that create more attention to CSR. However, the motivation for CSR always comes from a downward hierarchical ordering (Anguilera, Rupp & Ganapathi, 2007). An individual can only be motivated
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to develop CSR initiatives when the instrumental value is understood. Then the relational an moral motives follow.
How CSR initiatives then are conducted, the basic physiological needs are of determination. First an individual will seek for control. Multiple research show that the presence of control influences individuals decisions, because having control leads to maximization of the outcomes for self-interest motives (Folger, 1998; Bell & Staw, 1989). This combined with CSR in manner of self-interest through the view that when a company cares about all their stakeholders, the internal stakeholders and the external stakeholders, the employee itself will view that the conditions will be good for them as well. Therefore, an individual within a company would want to engage in CSR practices in order to maximize outcomes that are in line with their own interest (Anguilera, Rupp & Ganapathi, 2007).
The second physiological need is belongingness. Multiple research show that individuals will trust the organization they work in more when they have the feeling they are treated fairly (Konovsky & Pugh, 1994; Masterson, Lewis, Goldman & Taylor, 2000). One of the outcomes of CSR, is that it results in positive social relationships internal and external. An individual would therefore want to practice CSR initiatives, because it provides a concern of the organization towards them and work together towards the same goal (Anguilera, Rupp & Ganapathi, 2007).
The final physiological need is the need for meaningful existence. Most human beings have a standard for human dignity and worth. In this line, the purpose is to not fulfill an economic self-interest goal, but to act in an ethical matter (Cropanzano et al, 2003). Different studies show that individuals are concerned with doing business in a fair matter, even though there is a lack of economic gain (Anderson, 1977; Freeman & Evan, 1990; Kahneman, Knetsch & Thaler, 1986). In line with CSR practices, this results in individuals will want to work for companies that have the same morals and ethics as themselves (Anguilera, Rupp & Ganapathi, 2007).
2.3 Differences between men and women
As illustrated in the previous paragraph different motives exists for CSR initiatives. In this paragraph I start with addressing differences that exist between men and women. Since the focus of this research is the effect of women on CSR, difference between women and men that can lead to significantly affecting CSR are set out. The first subparagraph addresses gender and social
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roles that men and women have and where they differ, the second subparagraph explains the difference that can lead to different CSR.
2.3.1 Gender Roles & Social Role
Men and women behave like the stereotypes and beliefs in line with the social role they occupy Eagly, 1987). Gender roles are shared beliefs that are applicable to individuals based on his or hers socially identified sex. Gender role beliefs are descriptive and prescriptive. Descriptive indicates what men and women usually do and prescriptive indicates what men and women should do. When we look at the descriptive perspective of gender roles, we often refer to stereotypes. Stereotypes tells us what is typical behavior for the sex of the individual (Eagly, 2009). The prescriptive perspective of gender roles indicates what kind of behavior is desirable. Individuals may follow this desirable behavior to gain social approval or to improve their own self-esteem ( Eagly, 2009).
When we look at women, women tend to be more communal. Communal behavior indicates that behavior is more friendly, unselfish, concerned with other and emotionally expressive (Spence & Buckner, 2000). Men tend to be agentic, which implies more masterful, assertive, competitive and dominant behavior (Spence & Buckner, 2000). These gender roles provide a general framework for understanding the different behavior between men and women. The social role theory acknowledges that men and women can have multiple social roles. In these multiple social roles, a social role can override the gender role. If we look for example at an organizational role an individual may have (Eagly, 2009). Boulata (2012) states that because men and women tend to behave sex-typical, when a situation is confusing, ambiguous or when a person wants to gain social approval or improve self-esteem, so therefore we need to discuss what sort structural forces or influences operate on corporate boards that may result in sex-typical behavior.
Gender-related theories about the influence of women on the Board of Directors suggest that women in the Board of Directors can adopt behavior that initially suits men and so adaptation of masculine characteristics follow because of the leadership position (Schein et al., 1996; Lamsa et al., 2000). When women in a leadership position behave more masculine, it is not seen and evaluated the same way as when men act masculine in the same position. Men with masculine behavior are seen as good leaders and, while women are seen as pushy (Ryan &
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Haslam, 2007). Because of this, women have to deal with the gender stereotype and the managerial one.
2.3.2 Characteristics that could influence Corporate Social Responsibility
As stated above, there are difference between men and women we can address as stereotypes and as managerial types. In line with this study, what kind of differences in characteristics are present that could influence CSR? If we look at the gender stereotype women, women tend to meet the standard stereotype in board tasks for CSR. That is because a lot of companies view CSR as a more soft part of the business, since it involves in manners like environment and the well-being of different stakeholders (Boulouta, 2009). Female directors tend to have values that are more aligned with CSR, because they feel a higher responsibility for others (Byron & Post, 2016). Compared to men, women tend to be more concerned about social performance and when women enter the Board of Directors, they usually do not bring previous business experience to the board. The experience they do bring to the board, are community experiences. Women, more than men, have a higher experience in community services and thus provide a non-business view to the company (Byron & Post, 2016). Combining these differences with the three psychological needs an individual have to practice CSR initiatives, the third psychological need seems to be the most appropriate in addressing the difference between men and women that could influence CSR. This meaningful existence is in line with the more caring about the surroundings, as stated before.
2.4 Hypothesis
In summary, the meaning of CSR has been changing over the decades, but in conclusion CSR focuses on being socially responsible for all the stakeholders a firm has. Different motives for individuals to practice CSR initiatives are conducted, as well as the differences between men and what can lead to different levels of CSR initiatives. This study examines whether women in the Board of Directors have a positive impact when it comes to CSR practices. Therefore the following hypotheses is conducted:
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H: Firms with a higher board diversity will have higher CSR scores than firms with lower board diversity
In the next chapter, the data and method is explained to test the above hypothesis
.
3 Data and method
I have performed a quantitative archival study to answer my research question. I have used data from DataStream and the specific database of Thomson Reuter, named ASSET4 ESG. In this chapter the sample that I have used is pointed out and afterwards the design of my study. In the design the measurement of CSR is pointed out, as well as the regression model.
3.1 Sample Selection
For this study I have used data from Europe from 2013 till 2015. I have used this timeframe because of the quota the European Union has set for board diversity for listed companies in Europe, and 2015 is the most recent year for available data.
The database of Thomson Reuter has a template ASSET4 ESG which provides environmental, social and government information about different industries per firm. These scores reflect information gathered from corporate sustainability reports, annual reports, external sources, news sources and self-developed questionnaires. The self-developed questionnaires prevent potential bias that could result from the exclusive use of self-reported information (Mervelskemper & Streit, 2015).
The ASSET4 ESG dataset is a worldwide dataset of listed firms, thus I had to eliminate data from countries outside Europe. My initial sample contained 1103 firms. After removing firms because of missing data, my final sample contains 827 firm year observations. After this sample selection, I used the DSN codes of the different firms and performed a static request so I could download the control variables that were needed for the regression analysis.
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To answer the research question, I designed a regression model that is a combination of the model used by Cheng, Ioannou and Serafeim (2014). In this model, the proxies for CSR are showed, and I have used different control variables to control for CSR which are commonly used.
3.2.1 Proxies for CSR
In this study environmental, social and corporate governance scores are the proxies for CSR. The definitions of the three pillars: ‘’The environmental pillar measures a company's impact on
living and non-living natural systems, including the air, land and water, as well as complete ecosystems. It reflects how well a company uses best management practices to avoid environmental risks and capitalize on environmental opportunities in order to generate long term shareholder value. The social pillar measures a company's capacity to generate trust and loyalty with its workforce, customers and society, through its use of best management practices. It is a reflection of the company's reputation and the health of its license to operate, which are key factors in determining its ability to generate long term shareholder value. The corporate governance pillar measures a company's systems and processes, which ensure that its board members and executives act in the best interests of its long term shareholders. It reflects a company's capacity, through its use of best management practices, to direct and control its rights and responsibilities through the creation of incentives, as well as checks and balances in order to generate long term shareholder value’’ (Thomson Reuter, 2015). Cheng, Ioannou and
Serafeim (2014) used the Thomson Reuters ASSET4 dataset for their empirical analysis to measure CSR performance. In their analysis the above three pillars are used to composite CSR index. Chang, Ioannou and Serafeim (2014) used the weighted average of those three pillars combined are the proxy for CSR. The equation then follows:
In the appendix the different metrics that determine the environmental, social and governance score are presented.
17 3.2.2 Regression model
To test my hypothesis, that board diversity has a positive impact on CSR score, I conducted a regression analysis. I designed my model with the proxies of CSR according to the model of Chang, Ioannou and Serafeim (2014) and combined it with control variables and the variable of interest. The variable of interest is in this study board diversity. The model is stated below. The variables are discussed afterwards.
CSR = β0 + β1 BOARD DIVERSITY + β2 ECONOMIC SCORE + β3 INDUSTRY EFFECT + β4 SIZE + β5 RISK TOLERANCE
The first variable (BOARD DIVERSITY) is the most important variable for this study and is thus the variable of interest. The variable BOARD DIVERSITY is the percentage of the women in relation to the total board members. Through this variable, the outcome of this study is determined.
The second variable (ECONOMIC SCORE) is the fourth pillar of the ASSET4 ESG Thomson Reuters’ database. I have added this as an control variable because this score measres a company’s capacity and it is a reflection of the company’s overall financial health. It is not a determination of CSR, but should be included since financial health overall implies the ability to provide CSR practices (Carroll, 1991).
The three control variables I have used next, are three that are derived from Margolis and Walsh (2001) study. Margolis and Walsh (2001) argue that industry effects, company size and risk are three most popular control variables when social and financial performance are examined. Thus the third control variable (INDUSTRY EFFECT) is a variable that controls for the difference in performance and levels of R&D investment that exists in different type of industries (Waddock, 1997). The different industries are in this study a dummy variable, every different industry is coded by a different number. In total there are 53 different industries in this
sample.
The fourth control variable (SIZE) is measured by total assets and the number of employees. Size is a relevant variable since evidence exists that smaller firms not behave in the same socially responsible manner as bigger firms (Waddock & Graves, 1997). Evidence exists
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that smaller firms do not behave in the same social responsible manner as bigger firms do (Burke et al., 1986). A reason for this different behavior could be that firms that are bigger, draw more attention to themselves. More attention, means more stakeholders and that there should be a more openly respond to the demands of stakeholders (Burke et al., 1986).
The final control variable (RISK ) measured by long-term debt to total assets ratio. The risk tolerance a company has, determines elicit savings, incur future or present costs and build or destroy markets (Waddock & Graves, 1997). Waddock and Graves (1997) explain this, that when a company its liquidity ratio is not favorable, investments for, for example, water waste systems are not priority.
4 Results
In this chapter the results of the study are presented. First, an evaluation of the descriptive variables is conducted. Second, the results of the analysis are discussed, the effect of women in the Board of Directors and the number of women managers on CSR are discussed.
4.1 Descriptive statistics
The descriptive statistics of the used sample are shown in table 1. I performed a z-test in SPSS to control for outliers, there were no outliers in my sample so I did not have to remove any data. The final dataset consists of 827 firm year observations.
The mean of the percentage of women in the Board of Directors is around 20%, this is higher than the sample of Ioannou, Ioannis and Serafeim (2015). In their study, the mean was around 10%. This gap can be explained because a different region is used and only industrial firms are included in the study of Ioannou, Ioannis and Serafeim (2015).
The mean of the number of women managers is around 25%. I added this in the descriptives because of the additional analysis that I have performed which is evaluated in subparagraph 4.3.
The mean of the economic score is 62.17. This is not comparable to the study of Chang, Ioannou and Serafeim (2014) since they did not include this score as one of their variables.
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Chang, Ioannou and Serafeim (2014) here is 56. This difference could be due to the fact that the study of Chang, Ioannou and Serafeim (2014) is a worldwide study, while this study is limited to Europe. The environmental standards for Europe compared to different regions in the world are a higher, so a higher mean score could be expected (Delmas, 2002).
The mean of the social score in this sample is 68.83. Compared to the study of Chang, Ioannou and Serafeim (2014) this result is higher (54). This could be due to that in Europe is more socially oriented than for instance the more liberal United States of America (Pontusson, 2005).
The mean of the corporate governance score is slightly higher in this sample compared to Chang, Ioannou and Serafeim (2014), 61.5 compared to 58.
In the next paragraph the results of the regression are discussed.
Table 1
Descriptives statistics full sample (n=827)
Variable Minimum Maximum Mean
Board Diversity (%) 0 60 21.05
Women Managers (%) 0 72 24.98
Economic Score 2 98 62.17
Environmental Score 9 95 66.70
Social Score 4 97 68.83
Corporate Governance Score 2 96 61.50
CSR score 4.99 94.2 65.68
Risk 0 1.47 .19
Employees 0 611366 31772.031
20 4.2 Effect of board diversity on CSR
The results of the regression analysis with are shown in table 3. The proxy that is used in this study to measure CSR is the sum of environmental, social and governance score divided by three, as I used the three scores in equally weights. The variable of interest is BOARD DIVERSITY, I expected that board diversity has a positive influence on CSR so the coefficient is expected to be positive. The BOARD DIVERSITY coefficient is in line with my expectation, 0.218. The p-value is 0.001 so there the variable BOARD DIVERSITY has a significant impact on CSR. Based on this regression can be stated that board diversity has a positive impact on CSR. In the study of Coffey and Wang (1998), charity contributions was also positively related to the percentage of women in the Board of Directors and had a coefficient of 1.374, this result is much higher.
Table 3
Regression result: dependent variable CSR
Variables Coefficient P-value
(Constant) 34.967 .000 Board Diversity .218 .000 Economic Score .390 .000 Industry -.078 .055 Employees 4.577 .000 Total Assets 6.926 .553 Risk 12.669 .000
21 4.3 Additional analyses
In the main analysis, I did not include the data I collected about women managers. I have performed an extra regression to test if the number of women managers is significantly positively related to CSR. Due to missing data in the dataset for the number of women managers, the sample for this regression contains of 500 firm year observations. The model I used is stated below:
CSR = β0 + β1 WOMEN MANAGERS + β2 ECONOMIC SCORE + β3 INDUSTRY EFFECT + β4 SIZE + β5 RISK TOLERANCE
Collecting data about women in management functions is hard to obtain (Shein, 2007). In this sample there was only data available about women managers of the 500 firms within the original sample. Most executive positions are taken by males, as can also be seen in the descriptive of this sample, 25% of the managers is women. This extra regression is of interest, since seats on the Board of Directors does not imply a meaning in CSR strategies.
In this second regression, the variable of interest is WOMEN MANAGERS. This variable shows a coefficient of -0.04 and is insignificant, since the p-value is 0.941. This is not in line with my expectations, I expected that the more women in the management, the higher the score for CSR. This result could be due to the small sample. The results can be found in table 4.
Table 4
Regression result: dependent variable CSR (adding women managers)
Variables Coefficient P-value
(Constant) 55.251 .000
Board Diversity -.004 .941
Economic Score .251 .000
Industry -.077 .071
22
Total Assets 1.809 .207
Risk 8.461 .034
4.3.1 Second additional analysis, backwards regression
To expand this study, I have performed a backwards regression where I have let CSR determine board diversity. Existing literature states that when a company has an active CSR strategy, a company also attracts more women in the Board of Directors (Carroll, 2010). The following model is to test this is presented underneath:
Board Diversity = β0 + β1 CSR SCORE + β2 ECONOMIC SCORE + β3 INDUSTRY EFFECT + β4 SIZE + β5 RISK TOLERANCE
The results of this backward regression can be found in table 5. I have found no significant relation that CSR has an impact on board diversity.
Table 5
Regression result: dependent variable Board Diversity
Variables Coefficient P-value
(Constant) 9.378 6.206 CSR SCORE .093 4.120 Economic Score .060 3.499 Industry .034 1.296 Employees 1.335 2.089 Total Assets 6.216 .815 Risk 2.123 .903
23
5 Discussion and Conclusion
From two angels the effect of women in a company on CSR has been presented in this study: one whether CSR score is determined by board diversity, and one whether CSR score is determined by women managers. Only board diversity has shown to have a significant impact on CSR, and the number of women managers did not have a significant impact on CSR. This missing relationship could be due to the fact there was no data available for over 300 companies whether there were women managers active in the company. This is one of the several limitations of this study. Another limitation of this study is that only listed companies are used in this sample. Results may have been different when non-listed companies were added in the sample.
In this study I have examined data from the fiscal years 2013 till 2015 from listed European companies because of the new quota the European Union has set for board diversity in 2013. This new quota is not mandatory, since there are no consequences for when the quota is not met. For further research it could be interesting to examine once the quota is mandatory, how companies score on CSR. Another suggestion for further research is to examine the board composition, whether a female fills a CEO function and how that influences CSR. The database ASSET4 ESG that I have used did not have this data available.
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26 Appendix
Metrics ESG score
Pillar Metrics
Environmental CO2 Equivalents Emission Total (Tonnes, thousands) Energy Use Total (GJ, thousands)
Water Use Total (m3, thousands) Waste Total (Tonnes, thousands) Clean Energy Products (Y/N)
CO2 Equivalent Indirect Emissions, Scope Three (Tonnes, thousands) CO2 Equivalents Emission Direct (Tonnes, thousands)
CO2 Equivalents Emission Indirect (Tonnes, thousands) CO2 Reduction Reporting (Y/N)
Coal Energy Produced (GJ, thousands) Coal Energy Purchased (GJ, thousands)
Commercial Risks and or Opportunities Due to Climate Change (Y/N) Direct Energy Produced (GJ, thousands)
Direct Energy Purchased (GJ, thousands) Electricity Produced (GJ, thousands) Electricity Purchased (GJ, thousands) Emissions Reduction Policy (Y/N) Energy Efficiency Policy (Y/N) Energy Footprint Reduction (Y/N)
Environmental Expenditures (USD, thousands) Environmental Management System Certified (%) Environmental R&D Expenditures (USD, thousands) Environmental Supply Chain Management (Y/N) Green Buildings (Y/N)
Hazardous Waste (Tonnes, thousands)
Natural Gas Energy Produced (GJ, thousands) Natural Gas Energy Purchased (GJ, thousands) Non-Hazardous Waste (Tonnes, thousands)
27
NOx and SOx Emissions Reduction (Y/N) NOx Emissions (Tonnes, thousands) Oil Energy Produced (GJ, thousands) Oil Energy Purchased (GJ, thousands)
Ozone-Depleting Substances Reduction (Y/N) Product Impact Minimization (Y/N)
Renewable Energy Use (Y/N) SOx Emissions (Tonnes, thousands) Sustainable Transportation (Y/N)
Toxic Chemicals or Substances Reduction (Y/N) VOC Emissions (Tonnes, thousands)
VOC Emissions Reduction (Y/N) Waste Recycling Ratio (Ratio) Waste Reduction Total (Y/N) Water Efficiency Policy (Y/N)
Water Pollutant Emissions (Tonnes, thousands) Water Recycled (m3, thousands)
Water Technologies (Y/N) Social Turnover of Employees (%)
Average Training Hours (Hrs) Total Injury Rate (Number) Human Rights Policy (Y/N) Women Managers (%)
Bonus Plan for Employees (Y/N) Cash Donations (USD, thousands) Community Policy (Y/N)
Crisis Management Systems (Y/N) Customer Satisfaction (%)
Day Care Services (Y/N)
Diversity and Opportunity Policy (Y/N) Donations Total (USD, thousands) Donations (Y/N)
28 Employees Leaving (Number) Employment Awards (Y/N) Employment Quality Policy (Y/N) Flexible Working Hours (Y/N) Generous Fringe Benefits (Y/N) Health & Safety Policy (Y/N) Healthy Food or Products (Y/N) HIV-AIDS Programme (Y/N)
Human Rights Breaches Contractor (Y/N) Human Rights Contractor (Y/N)
In-Kind Donations (Reportign Currency) Internal Promotion (Y/N)
Lost Days (Number)
Lost Time Injury Rate (number) Management Training (Y/N) Positive Discrimination (Y/N) Product Access Low Price (Y/N) Product Responsibility Policy (Y/N)
Salaries (Salaries / Total No. of Employees) (USD, thousands) Salaries Distribution (Total Salaries $ / Net sales or revenue $) Trade Union Representation (%)
Training and Development Policy (Y/N) Training Costs Total (USD, thousands) Women Employees (%)
Corporate Governance
Percentage of Independent Board Members (%) CEO-Chairman Separation (Y/N)
Audit Committee Independence (%)
Ownership by a Reference Shareholder (Y/N)
Integrated Vision and Strategy Challenges and Opportunities (Y/N) Audit Committee Expertise (Y/N)
Audit Committee Management Independence (%) Background and Skills (Y/N)
29
Board Meeting Attendance Average (%)
Board Member Compensation (USD, thousands) Board Structure Policy (Y/N)
Classified Board Structure (Y/N)
Compensation Committee Independence (%)
Compensation Committee Management Independence (%) Compensation Policy (Y/N)
CSR Sustainability Committee (Y/N) CSR Sustainability External Audit (Y/N)
CSR Sustainability Report Global Activities (Y/N) Experienced Board (Yrs)
GRI Report Guidelines (Y/N)
Highest Remuneration Package (USD, thousands) Nomination Committee Independence (%)
Nomination Committee Management Independence (%) Non-Executive Board Members (%)
Number of Board Meetings
Senior Executive Long-term Compensation incentives (Yrs) Shareholder Rights Policy (Y/N)
Size of Board (Number)
Staggered Board Structure (Y/N) Stock Option Program (Y/N)
Vesting of Stock Options/Restricted Stock (Yrs) Voting Rights (Y/N)
