Gender Diversity in the Boardroom and
Corporate Social Responsibility Performance
in the Netherlands
2
Master Thesis
Tessa van der Lande
s1384821
tessavdlande@me.com
06-43019199
Supervisor: drs. H.C. Stek
2
ndSupervisor: dr. F.A.A. Becker-Ritterspach
University of Groningen
MSc International Business & Management
April 24, 2011
Groningen
Gender Diversity in the Boardroom and
Corporate Social Responsibility Performance
TABLE OF CONTENTS ABSTRACT TABLE OF CONTENTS 1. INTRODUCTION 4 1.1 Background 4 1.2 Relevance 5 1.3 Problem statement 5
1.4 Structure of the thesis 6
2. LITERATURE REVIEW 7
2.1 Gender diversity in the board of directors 7
2.2 Corporate Social Responsibility 9
2.3 The Relationship between Gender Diversity and Corporate Social Responsibility 11
2.4 Dutch context and hypotheses 12
2.6 Conclusion 15
3. RESEARCH METHODOLOGY 16
3.1 Research Approach 16
3.2 Data selection and sample
17
3.3
Variables17
3.3.1 Dependent variable (CSR)18
3.3.2 Independent variables18
3.3.3 Control variables19
4. RESULTS 20 4.1 Descriptive statistics 20 4.2 Testing Hypotheses 22 5. CONCLUSION 25 5.1 Conclusion 255.2 Limitations and future research 26
4 1. INTRODUCTION
1.1 Background
Research has increasingly paid attention to strategic decisions of companies. Hambrick and Mason (1984) stated in their upper echelon theory that strategic decisions and organizational outcomes are reflected by its top managers. A stream of research emerged focusing on these top managers and their characteristics (Ibrahim & Angelidis, 1995). Since the failure of large American multinationals such as Enron, WorldCom or the Dutch multinational Ahold, the monitoring role of the board of directors has received increased interest (Campbell & Minguez-Vera, 2008). The effectiveness of the board depends upon a variety of factors; diversity in the boards is one of these factors (van der Walt & Ingley, 2003). Literature often supports the idea of diversity, in particular in a moral and social sense (van der Walt & Ingley, 2003). Diversity in a board of directors can be categorized in two groups, observable and observable diversity. Gender, age, race and ethnicity belong to observable diversity, whereas non-observable diversity generally includes education, knowledge, values, perception etc. (Milliken & Martins, 1996). The focus of this research will lie on gender diversity, the most debated type of diversity (Kang, Cheng & Gray, 2007).
The failures of large multinationals have not only led to a focus on the role of the board of directors and their monitoring, but also to a call for internal codes of conduct (Rodriguez-Dominguez, Gallego-Alvarez, Garcia-Sanchez, 2009). The internal codes of conduct are to uphold the reputation, ethical behaviour and integrity of companies (Rodriguez-Dominguez et al., 2009). Thereby, corporate social responsibility (hereafter CSR) has changed from ideology to reality for companies (Lindgreen & Swaen, 2010). As strategic directions are a reflection of top managers (Hambrick et al., 1984), it is interesting to know that female directors have shown stronger orientation toward CSR than their male counterparts (Ibrahim & Angelidis, 1994).
Dutch Sustainability Research conducted a study where Dutch companies appeared to be frontrunners in the world when it comes to CSR. United Kingdom, Scandinavia and France have also shown high scores; their scores were all above world average, while the United States has revealed a score below world average (DSR, 2006).
According to Mishra & Smyth (2010) the ratio of women in the workforce in 2005 was 44.5% in the Netherlands. The Female Board Index shows 5.2% for gender diversity in the board of directors in the Netherlands (Lückerath-Rovers, 2009). In 2006 Sweden had shown a rate of 85% and the UK just below 70% for female participation (Mandel & Semyonov, 2006). At the same time, they had shown a percentage of 21.3% female directors in Sweden and 15,2% in the UK (Heidrick and Struggles, 2007). These numbers may suggest that the Netherlands scores relatively low on participation of women in the work force and in the board of directors, but the Netherlands scores a lot higher on these rates than for example Spain does (Mandel et al., 2006; Heidrick et al., 2007).
1.2 Relevance
This research tries to make a number of contributions on the topic of gender diversity and corporate social responsibility. Although a lot of research exists on the topic of gender diversity and on corporate social responsibility, research on the relationship between gender diversity and CSR is relatively scarce. Most of the studies concerning this relationship derive their data from the U.S. The majority of those researches show a positive relation. The topic of women in the boardroom has been an actual theme of debate in the Netherlands, as well as CSR has increasingly been discussed in media and scientific research. This research could add to this debate by demonstrating the relation of female directors and CSR in this country.
1.3 Problem statement
The Netherlands show a relative low percentage of gender diversity compared to many countries like UK, Sweden and the U.S., However, they proved to be frontrunners in CSR performance (DRS, 2006), leaving UK, Sweden and the U.S. behind. According to the literature, female directors tend to show more social responsibility than male directors, but how does this relation hold in the Netherlands? It is therefore interesting to investigate to what extent gender diversity on the board influences CSR performance in the Netherlands.
The research question for this study is the following:
6 1.4 Structure of the thesis
2. LITERATURE REVIEW
2.1 Gender diversity in the board of directors
In the board of directors, women and men behave differently from each other (Adams & Ferreira, 2009). As outlined in the previous chapter, the level of gender diversity can have an influence on specific board performance outcomes (Adams et al., 2009) and is measured by the percentage of women on the board.
The board of directors is the highest authority in an organization and according to Mallin (2004) the board is responsible for the company‟s aims, strategies, plans and policies to achieve those aims. While board structure differs between countries, the most common are one-tier board structures and two-tier board structures. Most of the boards of companies in Anglo-Saxon countries, like the U.S., Ireland, U.K., and Australia, as well as in Japan and Russia are based on a one-tier board structure (Aras & Crowther, 2010). Other countries often use a two-tier board structure, in which the board is separated into a managing board comprised of executive directors, and a supervisory board comprised of non-executive directors. The managing board is responsible for the day-to-day operations of the company, while the supervisory board primarily monitors the executives. As the managing board is responsible for the daily activities, directors can only sit on one managing board. In contrast, directors on supervisory boards can also act serve on supervisory boards for multiple companies. Additionally, corporate governance codes emphasize the importance of independence in the supervisory board, and especially the importance of board diversity. In the Netherlands more specifically, companies that are stock-listed fulfill the criteria of the Dutch Corporate Governance Code and are mandated to have a two-tier board structure (Commissie Corporate Governance, 2010). Throughout this thesis, unless the supervisory board or the managing board are mentioned, the word “board” or “board of directors” refers to both boards together.
8 high masculine culture no equal share is to be expected in contrast to a country with a high feminine culture. The cultural values of Hofstede (1980) can explain whether a country has a high or low masculine culture and thus how the role of gender in the board is perceived.
While women are increasingly joining the workforce around the world (Economist, 2006), there is still a global lack of female representation in the boardroom (Terjesen & Singh, 2008). Women represent less than 15% of the corporate board members in many European countries as well as in the U.S., U.K., Canada, and Australia (Terjesen et al., 2008). It is one of the reasons why gender diversity in the boardroom has received increased attention from both the popular press and academic researchers (Francoeur, Labelle & Sinclair-Desgagné, 2008). Most of the literature concerned with gender diversity examines the causes of women‟s underrepresentation in the boardroom (Terjesen, Sealy & Singh, 2009), and point to the “glass ceiling” as the primary reason why women do not reach the top level of an organization (Morrison, White, Van Velsor, and the Center for Creative Leadership, 1987). Among other considerations, to examine the causes of women‟s underrepresentation in the boardroom (Terjesen, Sealy & Singh, 2009), and point to the “glass ceiling” as the primary reason why women do not reach the top level of an organization (Morrison, White, Van Velsor, and the Center for Creative Leadership, 1987). Traditionally, board directors are selected from ranks of existing Chief Executive Officers (CEOs) (Gutner, 2001). One of the explanations for glass ceiling is homosocial reproduction, by which is meant that in case of imperfect information on a potential candidate, managers generally prefer to hire or promote someone who looks and thinks like them. Since CEOs are mostly men, they choose for directors with similar general characteristics, including age, gender, and background (Daily, 1995). Although female are increasingly promoted to executive positions, they are still kept away from corporate advancement and the informal networks of communication (Heffernan, 2002). In particular, this “old boys‟ network”, in which board members share social and familial backgrounds and occupy at least two board positions, has a long and large history in the Netherlands. This network is used to recruit new directors, but women are mostly excluded from these networks and thus for the role of a new director (Oakley, 2000). By limiting board directors to seat supervisory boards with a maximum of 5, the new Dutch Corporate Governance Code has tried to break through the glass ceiling, but it has not yet led to a large increase in female board directors. There are still a large number of Dutch corporations connected through a single network of interlocking directorates (Heemskerk & Fennema, 2009).
Hambrick (1996) et al. have stated that greater board diversity can harm organizational group performance, as homogeneous top management teams outperform heterogeneous teams. One of the examples that were given by Hambrick et al. (1996) is that the heterogeneous teams are slow in acting and decision-making and less likely to respond to competitors‟ initiatives than homogeneous teams.
have been divided in two categories by Campbell et al. (2008): economic and ethical arguments. From an economic point of view, failing to select from the most able candidates for board seats could harm the firm‟s financial performance (Campbell et al., 2008). In addition, Adams & Ferreira (2008) state that gender diverse-boards assign more time and effort on monitoring CEO financials. Besides, they can enhance effectiveness because the directors can be derived from broader talent pools (Adams et al., 2008). Robins and Dechant (1997) describe how greater diversity in the board, including gender diversity, can enlarge a firm‟s competitive advantage: greater diversity in the board generates creativity and innovation, because these characteristics are systematically spread over demographic variables, like gender. Likewise, Robins et al. (1997) argued that greater diversity amongst boardmembers provides a better understanding of the marketplace, which thereby increases the ability to penetrate markets. A more gender diverse board can also improve the image of a firm and thereby have a positive effect on customers‟ behavior and firm performance (Smith, Smith & Verner, 2006). From an ethical point of view, it is immoral to exclude women from corporate boards simply because of their gender: to reach an equitable outcome for society, firms should increase gender diversity in the boardroom (Campbell et al., 2008). In addition, Rodriguez-Dominguez et al. (2009) state that female directors tend to be more sensitive to ethics, which is beneficial for all corporations and society at-large.
What researchers do agree on is that female directors behave differently than male directors and as a result their behaviour leads to strategically different firm outcomes (Adams et al., 2009), for example on firm financial performance (Bohren & Strom, 2005), on firm value (Simkins and Simpson, 2003) and CSR performance .
The increasing interest in research on gender diversity in the board comes together with a movement in the world on becoming socially more responsible. As stated before, female directors tend to be more sensitive to ethics and socially responsible behaviour, which is beneficial for all corporations and society at-large (Rodriguez-Dominguez et al., 2009).
2.2 Corporate Social Responsibility
10 Wright, 2006). Given the diversity of discussions about CSR, the concept along with several definitions will be addressed more below.
After writers became worried about the power of business and their negative effects on society, the concept of CSR was born (Wood, 1991). Carroll (1979) argues that the modern idea of CSR started around 1950, where it was more known under the name of “social responsibility”. De Waard (2008) has mentioned Bowen (1953) as one of the founders of CSR with his book Social Responsibilities of the
Businessmen. Bowen (1953) argued that businessmen should take action and decisions that are desirable
in terms of objectives and values for society. In 1973, Davis specified the definition of CSR as: “social responsibility begins where the law ends” (p.313), by which he meant that a firm is not socially responsible if it “merely complies with the minimum requirements of the law, because this is what any good citizen would do” (Davis, 1973, p.313). During the 1980s, a shift emerged regarding social responsibility in which the measurability of CSR became the focus of researchers (Carroll, 1999). Furthermore, the attention was no longer simply focused on social responsibility but moved toward social responsiveness: focusing exclusively on responsibility would overlook action and performance (Carroll, 1991). Carroll (1991) argued that a definition of CSR must include all economic, legal, ethical, and discretionary categories of business performance. Otherwise it cannot be seen as a definition that fully addresses the entire range of obligations businesses have to society (Carroll, 1979). However, adding an economic component to the definition of CSR conflicts with the definitions of Davis (1973) and Turker (2009), who state that CSR goes beyond the economic interest. As Daft (2003) has indicated, a business is an economic unit which produces goods and services in a society and gains profit in return. Meaning that the economic concern is the reason for existence of a business (Turker, 2009). And according to Mahoney and Thorne (2005) this is not a responsibility to society and thus the economic component is excluded from the definition of CSR.
“The real question is whether valid and reliable measures can be developed” (Carroll, 2000, p.473), but according to Carroll it should be made measurable because of its importance for business and society (2000). Also supported by Wolfe and Aupperle (1991), who state that there is no one best way to measure CSR. That is why researchers came up with many different methods. Turker (2009) classified the different approaches to measure CSR in reputation indices or databases, single- and multiple-issue indicators, content analysis and scales measuring CSR (p.414). Among the most widely used methods for approaching corporate social performance are reputation indices and databases of which the Kinder, Lydenberg & Domini Social Performance rating (KLD-rating) is a very popular example (Turker, 2009). The KLD-rating uses equally weighted components, namely community, corporate governance, employee relations, diversity, environment, human rights, and product/customers to measure CSR performance1 To accept the KLD-rating as a measurement of CSR performance, the rating has been tested on validity by
1
Sharfman (1996). The research of Sharfman (1996) states that researchers can have confidence in the KLD-rating as a measurement of CSR performance.
Taking a look at the development of CSR in the Netherlands, it has a long history, and gained increased importance in mid- 1990s (Habbisch et al. 2005). At the end of the 19th century the concept of work council was introduced and the rise of trade unions started. There are a number of reasons why CSR is relatively important in the Netherlands. According to Habbisch et al al. (2005) “Dutch people generally have a great societal consciousness and expect from industry a responsible behavior” (p. 89). This is in line with the fact that a high number of people (80%) are members of non-governmental organizations. The Dutch government also promoted the importance of CSR by giving financial support to many initiatives on CSR. The Dutch decision-making is often based on the polder model, in which consensus is reached by negotiation. This socio-political climate has encouraged stakeholders to become more active in CSR. Furthermore, the traditional view on the role of business in society transformed in the 1960s by the process of secularization. CSR became more a strategic character (Habbisch et al., 2005).
In subsection 2.1 a low masculinity score was explained in terms of a low level of differentiation and discrimination on gender. However, Hofstede (1980) has another possible explanation for a low score on the masculinity ranking. In „feminine cultures‟, people value relationships and quality of life rather than achievements and quantity of possession. It also shows that such a culture is a more openly nurturing society.
2.3 The Relationship between Gender Diversity and Corporate Social Responsibility
Despite the increase in research on gender diversity, the relation to social responsibility has received much less attention (Webb, 2004). Empirical studies on the relation between gender diversity and CSR are almost all based on data from the U.S. (Ibrahim et al., 1994; Ibrahim et al., 1995; Siciliano, 1996; Stanwick and Stanwick, 1998b; Williams, 2003; Webb, 2004).
12 may bring different backgrounds into the boardroom, the minority position of Dutch female board directors is often larger than for example in the U.S. or Sweden. A minority position could lead to less influence on board performance (Huse, Nielsen & Hagen, 2009).
Research has made relatively clear that female board directors tend to influence CSR performance.
2.4 Dutch Context and hypotheses
Research mostly based on the data from the U.S. has shown that gender diversity has an influence on CSR performance. The Netherlands and the U.S. are comparable countries in the way they look at gender diversity and CSR. Both countries put these concepts high on the agenda and the debate is very active. Both in the U.S. and in the Netherlands grass roots organizations are founded to stand up for women and to realize higher amounts of women in the board, for example in the U.S. by „2020 Women On Boards‟ and in the Netherlands by „Opportunity in Bedrijf‟, „Vrouwen in beeld‟ en
„Vrouwenbelangen‟. Also the amount of women in boards is these two countries are continuously monitored (Lückerath-Rovers, 2009; Lückerath-Rovers, 2010), and widely discussed in the media. After the introduction of the Coproporate Governance Code in the Netherlands in 2003, the code was revised by the Committee Frijns after high social and media pressure, to put more emphasize on the composition of boards, on age and gender. A gender quota, such as implemented in the Norway, or partly quotas, such as in Spain and Belgium, do not apply to the U.S. and the Netherlands.
However, there are also remarkable differences between the U.S. and the Netherlands that might have an influence on whether the relationship is applicable in the Netherlands. The most remarkable difference is of course the fact that the Netherlands score a lot lower on gender diversity but higher on CSR performance. Taking a closer look on the Dutch and U.S. situation, the most important differences include the scores on the dimensions of Hofstede, the old boys‟ network, and the percentages of non-executive directors.
of Hofstede (1980) can thus be explained in the direction of how gender differences are perceived in a country as well as in the quality of life of country.
Figure 2.1 Masculine Dimension for United States and Netherlands (http://www.geert-hofstede.com, 02-12-2010).
Another important difference between the Netherlands and the U.S. can be found in the activity of the earlier mentioned “old boys‟ network”. The network in which new directors are recruited, but of which women are mostly excluded is still very active in the Netherlands according to Heemskerk (et al., 2009) and Dutch media (FEM Business, 29-10-2005). However, this is not the case in the U.S. according to Gamba & Kleiner (2010). Although it did not completely disappear in the U.S., it has been largely reduced and many women have found their way to the board of directors. This difference could have an influence on whether the relationship between gender diversity and CSR performance holds in the Netherlands.
Furthermore, an important difference can be found in the fact that the U.S. has one-tier board structure like all of the Anglo-Saxon countries (Aras & Crowther, 2010), while the Netherlands has a two-tier board structure. Companies in the Netherlands have to comply with the Dutch Corporate Governance code and therefore are mandated to have more non-executive directors than executive directors. There is no regulation on the number of non-executive directors in the U.S. such as in the Netherlands. Ibrahim et al. (1995) investigated the difference in CSR orientation between executive directors and non-executive directors, and found that having more non-executives on the board resulted in a corporation‟s higher engagement in social responsible activities. This is in line with findings of Zahra and Stanton (1988), who state that boards that are dominated by non-executive directors show greater social responsibility.
14 The conclusion from the literature review in which is stated that female board directors tend to influence CSR performance leads to Hypothesis 1a. However, the researches were mainly conducted in the U.S. and when taking a look at the Dutch context, there are certain important differences between the U.S. and the Netherlands. This leads to the development of hypothesis 1b.
The formulation of the hypotheses:
Hypothesis 1a: Gender diversity in the boardroom does affect CSR performance in the Netherlands. Hypothesis 1b: Gender diversity in the boardroom does not affect CSR performance in the Netherlands.
When the hypothesis is tested, there will be controlled for firm size, firm financial performance and industry.
Firm Size
Siciliano (1996) used data from 240 YMCA organizations, Webb (2004) used the KLD-rating for 800 stock listed U.S. firms, Williams (2004) used Fortune 500 firms, and Ibrahim et al. (1994) used a sample of 398 directors from Standard and Poor‟s Register in the U.S. An exception to these U.S.-based studies is the research of Rodriguez-Dominguez et al. (2009). Their study is based on a sample of 351 quoted companies from Spain, Italy, and the U.K. Moreover, firm size is a consistent predictor of an organization having female board directors; comparisons between samples can be clouded because of differences in size of companies. It is questionable whether a valid comparison can be made between Fortune 500 companies and samples from another country because Fortune 500 companies are so large (Burgess & Tharenou, 2002). As most of the research is based on large companies from the U.S., it is unknown whether those results can be applicable to a sample of Dutch companies, but it can be expected that the firm size might have an impact on the outcomes of this study. Luoma and Goodstein (1999) have stated that organizational size is of great influence on the corporate responsiveness to the legal and normative environment, because larger organizations receive greater attention from external stakeholders and the risk of reputation damage (Habbisch et al., 2005). The influence of firm size on CSR performance was also confirmed Stanwick et al. (1998a), Orlitzky (2001) and Hyland et al. (2002).
Firm Financial Performance
stronger relationship between board characteristics, including gender diversity and CSR performance. The slack resources theory on CSR performance has found support in the studies by Waddock and Graves (1997) and Orlitzky et al. (2003). According to Orlitzky et al. (2003) firms that are financially successful have the freedom to spend more and thereby potentially invest more in CSR activities. This could eventually lead to improved CSR performance. This is in line with Fryxell and Wang (1994), who found that the CSR reputation of the Fortune‟s most admired companies is influenced by a company‟s prior financial performance. CSR was found to be positively associated by previous financial performance, supporting the slack resource theory (Waddock et al., 1997; Orlitzky et al., 2003).
Industry
The average scores of CSR performance differs between industries as CSR is more important in consumer-oriented industries than others (Cowen, Ferreri & Parker, 1987). Adams et al. (1998) have classified the different industries into four groups:
- Oil, chemicals, metals, and power (sensitive) - Manufacturing and autos (sensitive)
- Engineering and construction (less sensitive) - Service, food, and retail (less sensitive)
This classification is similar to the one by Deegan and Gordon (2006), where they classified companies operating in uranium mining, chemicals, transport, plastics manufacturing, paper merchants as the sensitive group, and the less-sensitive group included service companies, retail, telecommunication, IT hardware and electronic production. Deegan et al. (2006) found that the less sensitive group scores higher on CSR performance than the sensitive group. Some studies that have researched the relation between gender diversity and CSR have therefore taken into account the industry group by their sample selection (e.g. Webb, 2004).
2.5 Conclusion
16 3. RESEARCH METHODOLOGY
3.1 Research approach
This study is based on existing literature and theories that have been discussed in the previous chapter. In order to analyze the relationship between gender diversity and CSR in the Netherlands, hypothesis 1a and 1b have been developed. Literature has shown that gender diversity affects CSR performance (Webb, 2004) where gender diversity is treated as the independent variable and CSR performance as the dependent variable. As such, the research question in this study has been stated in the same way. Consequently, if the independent variable (e.g. gender diversity) changes, response in the dependent variable (e.g. CSR performance) is expected. A regression analysis is used to test hypothesis 1a and 1b as the analysis may significantly predict the measurement of the dependent variable from the independent variable (Field, 2005). As discussed in chapter 2, gender diversity in the board can possibly influence the score of CSR performance. The relationship will be controlled for firm size, firm financial performance and industry to exclude their effect on CSR performance.
Given these factors, a conceptual model has been designed that reflects the hypothesized roles of the variables in the regression model (below in Figure 3.1).
Figure 3.1: Conceptual Model
Figure 3.1 shows that it will be tested whether gender diversity on the board of directors affects CSR performance. This will be controlled for the industry, firm size, and firm financial performance.
Gender diversity on the
board of directors
CSR Performance
Firm Financial Performance
3.2 Data selection and sample size
The Dutch companies that have been selected for this sample are all listed on the Amsterdam Exchange Index (AEX), the Dutch stock exchange. These companies are deemed representative of the Dutch market due to their long history (with the exception of TomTom) and are major companies with specific Dutch presence having the highest values on regulated turnover (AEX, 2010, p. 2). The list encompasses 24 Dutch firms, differentiated over 13 industries. TomTom is excluded as they were added to the AEX in March 2006 and were too short-listed on the stock exchange to evaluate their CSR performance. The companies are obliged to publish their annual reports on their corporate website and comply with the Dutch Corporate Governance code. Bernardi, Bosco, and Vassill (2006) state that the boards of directors who are in place at the beginning of the year are responsible for the CSR performance over that year. For this research it means that the boards of directors who held seats on
1 January 2005 were responsible for the measured CSR performance. Thus information considering board characteristics was obtained over the year 2005. When the annual report was not sufficient for gathering data on board directors, the company‟s websites have been consulted.
Gathering data on CSR performance is difficult because the data and information of companies is often not publicly available. Therefore, this research will make use of the Dutch Sustainability Index. In this index, the CSR performance of AEX-listed companies in 2006 has been measured and rated. They have interpreted CSR performance as a measurement that calculates to what extent companies have integrated CSR in their day-to-day business. The index has been developed by the Dutch Sustainability Research (hereafter DSR), an independent third party (2006). The ratings are derived from a range of sources, including company interviews, company websites and reports, non-governmental and civil society organizations, general and specialized news media, and databases, etc. Moreover, DSR has access to sustainability research and ratings of companies worldwide as they are a founding member and shareholder of the Sustainable Investment Research International Company (SiRi Company). In other words, DSR has access to certain data that is not readily available to researchers (this study included). Finally, Mahoney et al. (2005) have used CSR ratings based on a Canadian subsidiary of SiRi Company, Michael Jantzi Research Associates Inc., which based their sustainability ratings on the same criteria and definition of CSR as was used by DSR in the Netherlands. Therefore, the DSR ratings have a comparable equal in other published research.
3.3 Variables
18 and the control variables, specifically the industry, firm size, and firm performance will be discussed in 3.3.3.
3.3.1 Dependent variable (CSR2)
A dependent variable is thought to be influenced by an independent variable (Norusis, 2002). In this study, CSR performance is the dependent variable. As stated before, many researchers have tried to measure CSR performance in a variety of ways: behavioral and perceptual measures, forced-choice surveys (Aupperle, 1991), Fortune reputational and social responsibility indices (Webb, 2004), and case study methodologies. Graves and Waddock (1994) indicated that each of the above-mentioned techniques has its limitations: behavioral and perceptual measures can suffer from inconsistency and respondent bias; survey methods can possibly face problems with return rates and consistency among raters; fortune rankings as well as social responsibility indices have been criticized as being a measure of overall financial performance; and case study methods also have problems with inconsistency and generalizability (Graves et al., 1994). In this paper, CSR performance is measured by DSR (2006) with the KLD-rating , although rating indices, such as the KLD-rating, are limited because all of the CSR dimensions are equally weighted (Mahoney et al. 2005). However, the benefit of DSR is that they are a third, independent party with extensive research on CSR, and the validity of the KLD-rating has been tested by Sharfman (1996) and judged to be a secure measurement of CSR.
The CSR performance is measured as an absolute rating score scaled between 0 and 100 and measures to which extent a company has integrated CSR into their daily activities. The rating score is based on a sum of scores on 100 individual standard indicators. On every indicator a score between 0 and 1 is given. These standard indicators are equally distributed over seven CSR categories, namely business ethics, community, corporate governance, customers, employees, environment, and contractors. The indicators measure transparency and reporting, strategy and policy, and management and performance of the company on these seven categories. The rating is based on the same seven dimensions that are used in KLD-ratings, including the sample of the study by Mahoney et al. (2005). Assigning scores on the indicators was performed by DSR (2006), as explained in section 3.3. A higher score on this KLD-rating means a higher score on CSR performance.
3.3.2 Independent variables
Gender diversity (GENDERDIVERSITY)
3.3.3 Control variables
The literature suggests that CSR performance is affected by gender diversity on the board, but the strength of the relationship varies across studies and situations, suggesting that other variables might influence CSR performance. To filter the influence of those variables, this research will control for firm size, industry and firm financial performance. This is consistent with prior empirical research on CSR performance.
Firm Financial Performance (FINPERFORMANCE)
Fryxell et al. (1994) and Orlitzky et al. (2003) have found that prior financial performance influences the relation between gender diversity in the boardroom and CSR performance. The firm financial performance can have an influence on the CSR performance the year after. Waddock et al. (1997) have studied the link between CSR performance and financial performance and used return on equity (ROE) as a measurement of firm financial performance. To measure the firms‟ financial performance in this research, the ROE for the year 2004 has been used.
Firm Size (SIZE)
Based on earlier work from Stanwick et al. (1998a) and Hyland et al. (2002), the firm size will be measured by total revenue over 2005. Firms that are larger in size have shown higher CSR Performance (Hyland et al., 2002; Stanwick et al., 1998a).
Industry (INDUSTRY)
20 4. RESULTS
The hypothesis has been statistically tested and results of the tests will be presented in this chapter. In section 4.1 the descriptive statistics will be presented. Section 4.2 starts with explaining the two regression equations for hypothesis 1, followed up by the results of the regression analyses. Then the other hypotheses will be discussed along an extended regression equation and the regression analysis that have been performed. Due to the small sample size of 24 companies it is questionable whether outcomes can be computed with any level of significance.
Abbreviations:
CSR2 Corporate Social Responsibility Performance Score GENDERDIVERSITY Gender Diversity
INDUSTRY Industry (dummy)
BOARDSTRUCTURE Percentage of Non-Executive directors FINPERFORMANCE Firm Financial Performance
SIZE Firm Size
4.1 Descriptive statistics
In this study the board of Dutch companies, listed at the AEX, have been investigated. The sample consists of 24 companies with a two-tier board structure. Table 4.1 shows the descriptives for the amount of directors and the diversity in the two different boards as well as the total board. These companies have 281 directors of whom 172 are seated the supervisory board and the other 109 are seating the managing board. The average board gender diversity was 6,29 % and the highest gender diversity was found at Royal Ahold with 25%. The variation was quite large within the supervisory board. On average, gender diversity was 7,79%. There were 13 companies with 0% gender diversity, meaning there were no female directors seating in the supervisory board in those companies, but also companies with a gender diversity of 40%; the managing board showing 4,07% as average and 33% as a maximum.
Total Amount of Directors Average Gender Diversity Maximum Gender Diversity Supervisory board 172 7,79% 40% Managing board 109 4.07% 33% Total board 281 6,29 % 25%
The dependent variable is checked on normally distribution through an one-sample Kolmogorov-Smirnov test and has shown a normal distriubtion. Based on this check, the data is good and will not lead to abnormal outcomes. An unstandardized residual test has not shown any deviations and again shows a normal distribution. Because of the small sample size, 10% is used as a significance level. The log is taken from the data on SIZE, to filter the extreme scores.
The descriptive statistics of the 24 companies are shown in table 4.2. The data results reveal that the average financial performance (based on ROE) was 18,25 and average firm size was €30 billion. The average Industry score shows a number closer to 1, meaning on average companies are less sensitive to CSR. The average gender diversity of this study is 6,29% which is quite similar to the 5,2% found by Lückerath-Rovers (2009) over 113 companies. As expected, all of the supervisory boards have a higher (or at least the same) amount of directors compared to the managing boards. This is required by the principles of the Dutch corporate governance code.
Descriptive Statistics
N Minimum Maximum Mean SD
CSR2 24 44,80 82,20 62,5333 8,80951 GENDERDIVERSITY 24 0,00 ,25 ,0629 ,07498 INDUSTRY 24 0 1 0.63 0.495 BOARDSTRUCTURE 24 0,50 0,75 ,6117 ,08218 FINPERFORMANCE 24 -7,93 45,04 18,2521 12,07729 lnSIZE 24 0.41 5,54 2.4836 1.30399 Valid N (listwise) 24
Table 4.2 Descriptive Statistics of CSR performance in 24 AEX-listed companies over 2005.
Something that is so complex, is really difficult to explain by only a few variables, which is represented by the r adjusted square score of 0.061 in Table 4.3.
Model R R Square Adjusted R Square Std. Error of the Estimate
1 ,515a .265 .061 .08538
a. Predictors: (Constant), INDUSTRY, BOARDSTRUCTURE, lnSIZE, FINPERFORMANCE, GENDERDIVERSITY b. Dependent Variable: CSR2
22 4.2 Testing hypotheses
As explained in the methodology section, the hypothesis will be tested through a regression analysis.
The hypotheses were formulated as following:
Hypothesis 1a: Gender diversity in the boardroom does affect CSR performance in the Netherlands. Hypothesis 1b: Gender diversity in the boardroom does not affect CSR performance in the Netherlands
The regression equation for the hypothesis tests the influence of the gender diversity (independent variable) on CSR performance (dependent variable) in a multiple regression model. Thereby CSR performance is controlled for firm size, firm financial performance and the industry.
Equation I:
Yi = α + ßxGD+ ßxii+ ßxiii + ßxiiii + ε
The results of the regression analysis for hypothesis 1 can be found in table 4.4 and table 4.5.
Depedent Variable = CSR2
Independent variable Beta T-value Sig. R Squared
GENDERDIVERSITY -0,097 -0.348 ,335 ,075
Regression is significant at the 0.05 level (1-tailed)
Table 4.4 Output of Single Regression Model
Table 4.4 shows the output of the regression analysis to test whether gender diversity in the board can explain the CSR performance of a company. This regression analysis was one-tailed, because in the hypothesis CSR performance was a function of gender diversity. Hypothesis 1a will be accepted when the the CSR performance is a result of movement in the gender diversity score at a significance level of 0,05. The p-values have been divided by two because the regression analysis is one-tailed. Table 4.4 shows that no significant relationship could be found. Furthermore, a negative beta has been found (–0,097), but no
where
Yi= Corporate Social Responsibility Performance
GD = Gender Diversity xi= Industry
conclusions can been drawn because of the significance level. The R Squared is very low with 0,075, meaning that only 7,5% of the variation in CSR performance can be explained by gender diversity. Based on the output Hypothesis 1a must be rejected and Hypothesis 1b will be accepted. The above results prove that there is no evidence that gender diversity in the board has an influence on CSR performance. This contradicts with the research of Siciliano (1996) who found a positive relation between gender diversity in the board and the CSR performance of firm (see subsection 2.3).
In Table 4.5 the (independent) control variables that will be used in this model will be: firm size, firm financial performance and the industry.
Three variables are included in the regression analysis to control the dependent variable CSR performance. 95% (P<0.05) has been used as the confidence coefficient. The multiple regression analysis shows that no significant relations can be found. The test is statically not significant as the F-test is 1,526. None of the significance coefficients comes close to the level of 0.05. The R-square has only measured ,100, meaning that only 10% of the CSR performance can be accounted by the model. This is only a little higher than the single regression analysis. The control variables can thus not explain the CSR score in this research. The sample size and amount of female directors were probably too small to find any significant relationship in these regression analyses.
Dependent Variable = CSR2
Independent Variable Beta T-value Significance
GENDERDIVERSITY -,319 -1,282 ,215 INDUSTRY ,182 ,693 ,497 FINPERFORMANCE -,046 -,177 ,862 lnSIZE ,036 ,141 ,889 Model F-value 1,526 Model R Squared 0,100
Regression is significant at the 0.05 level (1-tailed)
Table 4.5 Output of the regression analysis.
The hypothesis has related gender diversity to CSR performance. A negative Beta of -,319 was found, meaning that higher gender diversity would lead to negative CSR performance. In those researches, a positive relationship was found, but that is not supported by this Beta although with a very low level of significance. Also for the other control variables, no significant results can be found. Therefore, no evidence can be found for the Hypothesis 1a and Hypohtesis 1b is accepted.
24 relationship between gender diversity and CSR performance in the Netherland, it was also tested. The effect of X1 (=BOARDSTRUCTURE) on GD1 (=GENDER DIVERSITY) is explained by the variable GENDERDIVERSITYMBOARDSTRUCTURE. The M in the middle between the two variables means multiplied. If there is a significant change in the R Squared, the percentage of non-executive directors has a significant moderating effect.
Depedent Variable = CSR2
Independent variable Beta T-value Sig.
GENDERDIVERSITY -1,666 -0,948 0,335
BOARDSTRUCTURE -0,260 -0,637 0,505
GENDERDIVERSITYMBOARDSTRUCTURE 1,921 -1,140 0,268
Model F-value 2,354
Model R Squared 0,120
Regression is significant at the 0.05 level (1-tailed)
Table 4.6 Output of the regression analysis with effect of the percentage of non-executive directors.
5. CONCLUSION
5.1 Conclusion
The literature has proven there is still a lack of knowledge when it comes to the relationship between gender diversity and corporate social responsibility performance, especially in the Netherlands and other non-U.S. countries. Literature on this topic has mainly been focusing on the U.S., while there are important differences on this topic with the Netherlands
In this thesis the following research question has been examined:
To what extent does gender diversity on board of directors affect Corporate Social Responsibility performance in the Netherlands?
Based on the work of different researches (Ibrahim et al., 1994; Webb, 2004; Rodriguez-Dominguez et al., 2009) in Hypothesis 1a it was expected that gender diversity on the board of directors affects CSR
performance. However, because of important differences between the U.S. and the Netherlands Hypothesis 1b expected that gender diversity on the board did not affect CSR performance in the
Netherlands. The relationship is controlled for the following variables: the industry, the firm size and the firm financial performance as these variables could possibly have an effect. The sample consisted of 24 AEX-listed companies of which the CSR performance was measured in 2005. The gender of 281 directors was related to CSR performance. The outcomes have shown that that gender diversity does not affect CSR performance in the 24 Dutch stock-listed firms. However, none of the results were found to be significant. The control variables did not explain the level of CSR performance in the Netherlands.
When answering the main research question, no significant result could be found on whether gender diversity affects CSR performance. This has partly to do with the many limitations that this research faced, but also shows that that the proposed relationship from the U.S. could not directly be found in the Netherlands. Thereby, Hypothesis 1b has been accepted. As pointed out, this could be a result of certain reasons including the old boy‟s network, the board structure and different masculine values between the Netherlands and the U.S.
26 (Ibrahim et al., 1994). That no relationship could be found between gender diversity and CSR performance could be a result of the different board structures.
And another explanation could be found in the fact that the Netherlands score very low on the masculine dimension of Hofstede (1980) and the Dutch society possibly puts more value on the quality of life than on the quantity of possession. The U.S. does score above the world average on this dimension.
5.2 Limitations and future research
Due to limited resources with regard to CSR data, the sample size was too small to be empirically
representative. If one company shows divergent values, it could have a great effect on the outcomes which can lead to less representative results than with a larger sample. The Dutch companies have relatively few women in the board, especially in the managing board. More extensive research on a larger sample is recommended. Using only large stock-listed companies in this sample, it is hard to generalize the results to smaller firms. Other way around, conclusions based on research carried out over Fortune 500 firms might not be applicable in the Netherlands. Moreover, many differences exist between small and large firms, and between listed and unlisted companies. For example, the Dutch corporate governance code is mandatory for stock-listed firms. Is therefore interesting to see how smaller and unlisted firms deal with corporate governance. It would also be interesting to look at other countries to be able to make more generalizations. For example in Norway, where very high levels of gender diversity can be found.
Although this thesis has not proven any relationship between gender diversity and CSR
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