The effect of Gender Diversity on Corporate Social
Responsibility Reporting and the Moderating Role of
Participative Leadership
Abstract
Diversity on boards and CSR are two topics that are receiving considerable attention in
contemporary society. This research addresses both of these concepts as the relation between gender
diversity within a supervisory board and the extent of Corporate social responsibility reporting
(CSRR) is researched. Additionally, the influence of the extent of participative leadership on this
relationship is being analyzed. In doing so, this study has been conducted Dutch not-for-profit
organizations. The results indicate that the presence of women in a board has a positive influence on
the extent of CSRR, implying that women have a stronger relationship with their stakeholders than
men do. However, no evidence was found for the moderating effect of participative leadership from
the chairman of the board in strengthening this relationship. The findings serve as a ground for
further research in the context of the board and CSRR.
Keywords: Boards, Gender Diversity, Participative Leadership, Stakeholder theory
Master- Thesis Accountancy
University of Groningen
Faculty of Economics and Business
Author:
Abdou Achlaouchi
Student number:
2203286
E-mail:
A.Achlaouchi@student.rug.nl
Phone number:
06- 23127114
Supervisors:
Dr. D.B. Veltrop
TABLE OF CONTENTS
1. INTRODUCTION ... 4
2. THEORETICAL FRAMEWORK ... 6
3. METHOD ... 14
4. RESULTS ... 18
5. CONCLUSION & DISCUSSION ... 20
5.1 LIMITATIONS & FUTURE RESEARCH ... 21
6. REFERENCES ... 24
“Corporate Social Responsibility is a hard-edged
business decision. Not because it is a nice thing to do
or because people are forcing us to do it because it is
good for our business”
1. INTRODUCTION
Since the end of the 20th century, Corporate Social Responsibility (hereafter: CSR) has become a global hot topic (Lone, Ali, and Khan., 2016). In essence, CSR entails that a company has a certain responsibility in conducting its business; towards its direct stakeholders, but also to society as a whole (Rao and Tilt, 2016). According to this concept, companies should not merely focus on maximizing their shareholder value, but too take into account the interests of other stakeholders such as; customers, employees, suppliers, future generations, the environment, etcetera (Gill, 2008; Ofori and Hinson, 2007). In consideration of this broad spectrum of stakeholders, there is growing acknowledgement of the idea that companies should be scrutinized on both their economic performance, as well as their non-financial performance (e.g., CSR-performance) Carroll, 1979).
Considering the growing attention CSR is receiving, it should be no surprise that companies from all over the world have gradually started to publish CSR information (Belal, 2000). By doing this, companies inform their stakeholders and display how they are exercising their social responsibilities towards society as a whole (Alrazi, 2016; Villiers and Van Staden, 2016; Akbas, 2016). Rao and Tilt (2016) demonstrate however that despite the huge attention CSR and Corporate Social Responsibility Reporting (hereafter: CSRR) has received over the last years, a lot of companies only marginally apply it. This is problematic for stakeholders, as it obstructs them from giving an adequate ruling on the CSR performance of a specific company. The reason behind this lack of transparency is that the provision of information in the area of CSR- activities is a voluntary decision for the board of directors, which are seen as the major decision makers regarding CSR and CSRR (Herbohn et al., 2014). Consequentially the board of directors enjoys considerable freedom in the extent to which they choose to disclose their CSR-performances. Within the board of directors, the supervisory board (hereafter: board) is considered as an important CG-mechanism. The main responsibilities of the board are supervising the policy and governance, and the general order of business of an organization (Code Wijffels, 2005; Merchant en Van der Stede, 2007). As a result, the board has an important role in distinguishing the CSRR-policy of a company (Fuente et al., 2017). In consideration of this freedom of an organization to choose its governance mechanisms, it is important to research to what extent the board has influence on CSRR.
One theme that has generated much attention lately within the topic of board composition is the level of diversity within the board (Knippenberg and Haslam, 2003). In the current literature on this topic, there is consensus on the influence of board diversity on the extent of financial reporting. However, little research has addressed whether the same counts for non-financial reporting, such as CSRR (Rao and Tilt, 2016). This is surprising, considering that board diversity can be an important determinant of CSR and CSRR, especially since diversity fosters a broad and heterogeneous way of thinking with regard to the decision making process within boards (Cormier et al., 2015; Bear et al., 2010). When considering board diversity, the literature differentiates between ‘directly observable’ and ‘indirectly observable’ diversity. Examples of the former are age, ethnicity, and gender, whereas the latter comprises traits as education, personality, and skills (Milliken et
al., 1996). In this research, the focus will be on gender diversity. First, because the number of women on boards has steadily grown, which makes it important to gain a deeper understanding of how gender diversity influences board functioning (Triana et al., 2013). Furthermore, it is expected that the number of women on boards will continue to increase, as there is a growing body of legislation that promotes female participation in the board (Adams and Ferreira, 2009; Kang et al., 2007; Rao and Tilt, 2016). Besides, gender diversity is widely researched theme in the current academic debate on board diversity (Rao and Tilt, 2012). For instance, Barako and Brown (2008) argue that the participation of women in boards might have a positive impact on the extent of socially desirable behavior a specific organization demonstrates. This argument is in line with the work of Ntim et al. (2017), in which a positive relation is established between the number of women in a board and the extent of CSRR. This research is contradicted however by publications of Akbas (2016) and Ammad et al. (2016), in which no positive relationship between the level of gender diversity of the board and the level of CSRR. Considering these opposing conclusions, there is a need for more research that explores the relationship between gender diversity and CSRR, which is exactly what this research aims to do, by explicitly examining the role of gender diversity within the board.
An important condition for gender diversity to be a relevant factor for the functioning of a board, is that all members of the board are actively involved in the decision making process by the chairman (Dywer et al., 2003). So although gender diversity may crucially impact CSRR, it will only impact CSRR if female directors are able to contribute to decision making in board meetings. The chairman of the board plays an important central role within the board. The chairman has the possibility to include all board members in the decision making process as a result of its leader position. The style of leadership that has the ability to achieve this, is participative leadership. Participative leadership can be conceived of as a leadership style in which employees are regularly invited to think, talk, and at times decide with the leaders of an organizations (Schipani and Fort, 2003). Thus, the leader often makes his or her decisions on the basis of the input of employees. As a result, the impact of gender diversity on CSRR might be contingent on participative leadership. The higher the participative leadership, the stronger the relationship between gender diversity and CSRR can be. A diverse board is unlikely to capitalize on its differences if board members are not given the chance to participate during board meetings.
This research will complement the existing academic literature in the field of CG and CSR (Gray et al., 1995; Godfrey et al., 2009; Li et al., 2010; Orij, 2010; Jizi et al., 2014). Much of the existing literature mainly focuses on the influence of CSR committees on CSR disclosure (Gill, 2008; Spitzeck, 2009; Li et al., 2010; Kolk and Pinkse, 2010). Most of the literature however does not research the important characteristics of the board and how these might influence CSRR (kahn et al., 2013; Jizi, Salama, Dixon and Stratling, 2014).
This research is original in the sense that participative leadership is included as a moderator in the research on the relationship between gender diversity and the degree of CSRR, a feature that has not been included in earlier research (Gray et al., 1995; Orij, 2010; Jizi et al., 2014; Madhani., 2015; Alfraih and Alfraih, 2016; Akbas, 2016; Fuente, 2017). This is remarkable, because the relationship between gender
diversity and CSRR depends on board leadership (e.g. participative leadership). This had not been acknowledged, but it crucially impacts board functioning. By including participative leadership as a moderator, this research can assess to what extent participative leadership influences the relationship between gender diversity and the amount of CSR disclosures. In addition, there is research that delves into board characteristics and CSR, which mostly focuses on one or a number of countries (Mallin et al., 2011; Galbreath, 2011; Villiers et al., 2011; Zhang et al., 2013; Boulauta, 2013). As a result, the authors of these publications highlight the limited generalizability of their results, and advise to explore the situation in additional countries. This research answers to that advise, by utilizing generated data on the situation in the Netherlands. Finally, it should be no surprise that CSR-disclosure is a rather trending topic among academics (Wiseman, 1982: Freedman and Wasley, 1990; Belal, 2000; Gray et al., 2001; Deegan, 2002; Kolk et al., 2001). Notwithstanding the fact that CSR- disclosure enjoys considerable interest, most studies have mainly focused on the influences of company characteristics on CSR- disclosure. Research on the relations between board diversity and the extent of CSR- disclosure however are relatively uncharted territory (Khan et al., 2013; Jizi et al., 2014).
For this research I will focus on studying the role of the board. In pursuance of this objective my research question is: ‘’What is the relationship between board diversity (gender diversity) and voluntary
CSR-disclosures in not-for-profit firms in the Netherlands, and what is the moderating effect of participative leadership on this relationship?’’
In order to answer this research question, the structure of this thesis will be as follows. Chapter two addresses the theoretical framework. Subsequently, chapter three describes the selected research methods. Thereafter, chapter four will discuss the results of the research. Finally, chapter five gives a number of concluding remarks, and underlines the main limitations and recommendations of this study.
2. THEORETICAL FRAMEWORK
In this study, the influence of gender diversity in the board on the extent of CSRR will be researched. In addition, there will be examined to what extent there is a moderating effect of participative leadership on this relationship. But before analyzing these two subjects, the theoretical foundations of this thesis will be examined in this chapter. Since concepts like CSR are essentially contested, the following chapter should provide the reader with some definitional clarity, serving as a general guideline on the interpretation of these concepts for the remainder of this research. After this, I will explain the relation between the board and CSRR, using the agency theory and stakeholder theory. Thereafter, a hypothesis will be presented on the basis of the theories. The chapter finishes with the presentation of a conceptual model that graphically represents the expectations with regard to this research.
CSR(R)
At the end of the 80s, the concept of sustainable development started gathering broad attention, as a result of the publication ‘Our Common Future’ by the World Commission on Environment and Development of the UN - often referred to as the Brundtland commission. The Brundtland report constitutes the basis for the notion of sustainable development, which is defined as follows:
‘’A development that meets the needs of the present without compromising the ability of future generations to meet their own needs’’ (World Commission on Environment and Development, 1987).
By operationalizing this definition, the Commission acknowledged a new stakeholder, i.e., future generations. Over the years, sustainable development has come to be acknowledged as a mainstream issue that is not just important for concerned citizens, but vital for society as a whole. Consequentially, businesses have started to join the sustainable development ‘movement’ by exploring more sustainable policy directions. A prime example of this is the wave of fossil fuel divestment as a result of the Paris agreement, which since the closure of this agreement has resulted in more than 700 organizations – with assets totaling over $7 trillion - committing to divesting their energy portfolios.1 Consequentially, the concept of sustainable development has developed into an important pillar of CSR, a concept that has become a conventional term in contemporary society and connotes a vital element of modern entrepreneurialism (Aras & Crowther, 2008; Jones et al., 2014). Mr. Lageweg, the former director of CSR Netherlands, contends that CSR has become commonplace over the years, and that it entails finding a correct balance between people, planet, and profit2. Two pioneering multinational corporations in the field of CSR were Shell and C&A. In 1996 the board of directors of C&A has decided to develop a new supplier code, while the board of directors of Shell published two years later its first sustainability report (MVO Nederland, 2016). The actions of these companies are considered as constituting the first steps of CSR, which has nowadays developed into an integral part of business operations (Kolk and Pinske, 2010).
As mentioned earlier in this research, there is no uncontested definition for the concept of CSR. This has made CSR somewhat of a ‘catch-all concept’. Barnard (1938) was among the first authors to draft a definition of CSR: ‘’CSR analyses economic, legal, moral, social and physical aspects of environment’’
.
Decades after Barnard, the famous economist Milton Friedman (1970) came with his own definition of CSR. Friedman describes CSR as follows: ‘’ CSR is to conduct the business in accordance with shareholders’
desires, which generally will be to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom’’
.
A more recent definition of CSR comes from the European Commission (2002), which defines it as follows: ‘’CSR is a concept wherebycompanies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’’
.
Besides these different definitions of CSR, in general it relates1 http://divestinvest.org/wp-content/uploads/2016/12/Global-Divestment-Report-2016-Final-12.9.pdf 2 http://mvonederland.nl/nieuws/mvo-zijn-ethische-roots-vergeten
to serving people, communities, and the environment, without a legal obligation to do so (Jo and Harjota., 2012), which is also how CSR will be interpreted in this thesis. For the remainder of this thesis, CSRR will refer to: ‘the voluntary information provided in a company’s annual report relating to its activities, programs
and application of resources deemed to affect both the public in general and particular stakeholder groups. The disclosures extend beyond traditional financial accounting information and typically include details pertaining to the environment, energy usage, employees, products, community services, and fair business practices’ (Chan et al., 2013; Ernst and Ernst, 1978).
Role of the Board
In the Netherlands, the role of the board is codified in the Dutch corporate governance code. The Monitoring Commission of the corporate governance code 2016 lays out the task of the board as ‘supervising the policy and governance, the general order of business in a company and the businesses connected to the partnership’. Among other things, this supervision encompasses overseeing the ‘for the company relevant societal aspects of entrepreneurism’ (Monitoring Commissie Corporate Governance Code, 2016). Thus, the board has a supervising function with regard to the company’s CSR policy, which, according to the governance code, entails addressing the interests of the company itself, as well as the different stakeholders with which the company has a relation.
In order to explain the role of the board, academic writing has often utilized agency theory (Jensen & Meckling, 1976). Agency theory assumes a clear separation between leadership and ownership. As a result, a company consists of a manager (the agent) and the board, who represents the shareholders (principal) (Hung, 2011). Shareholders appoint supervisors (the board members) that take place in the board, in order to ensure supervision of management by a third party. These board members control the expertise and the authority to supervise management as opposed to the shareholders. The theory is based on two core assumptions. The first is often labeled as conflict of interest. The principals (the board) provide the agent with the authority to make decision in order for the agent to be able to effectively govern the company, which makes the principals dependent on the decisions of the agent (Lim et al., 2007). The theory goes on to assume that the agent will have a tendency to pursue decisions that are in its own best interest, which creates suboptimal outcomes for the principals (Jensen and Meckling, 1976). The second core assumption regards the asymmetry of information between the principal on one side, and the agent on the other (Eisenhardt, 1989). The separation between leadership and ownership has created a situation in which the principal is dependent on the information that is provided by the agent. In case of a lack of full transparency from the side of the agent vis-à-vis the principal, a case of information asymmetry occurs (Jensen and Meckling, 1976). In such a case, the agent displays selfish behavior by willingly withholding information from the principal to maximize his own interests (Jensen and Meckling, 1976).
The board its goal is to minimalize the level of information asymmetry. In doing so, the board is executing one of its key tasks, namely, the monitoring of management. If the board succeeds in effectively monitoring management, the chance of opportunistic behavior by the management is reduced. To the extent
that the board is able to function independent of the management, it will be more effective in executing its monitoring function. This is the case because a more independent board will be more objective and critical vis-à-vis the governance of management, which reduces information asymmetry, benefiting the shareholders. Also, the extent of information asymmetry can be minimized by an additional function of the board, composing and determining compensation plan of a manager (Jensen & Murphy, 1990). Ndofor et al. (2013) and Zhang et al. (2008) argue that by creating adequate income incentives, such as stock options and salary revisions, the board can potentially reduce the abovementioned agency problem. In order to do so however, it is important for these performance dependent rewards to have a stimulating effect.
In this research, the focus is on not- for profit organizations. According to Forbes en Milliken (1999) however, there is a substantial difference between boards of profit organizations and those of not-for-profit organizations. The main difference lays in the fact that the supervising function of boards within the not-for-profit branch is less extensive than in the case of not-for-profit- organizations, whereas the advisory function is more extensive for profit organizations (Oster, 1995). This is a logical difference, considering that not-for-profit organizations do not have shareholders or investors that provide capital in order to generate dividends. As a consequence, the agency problem within not-for-profit organizations is less extensive, which makes that there is relatively less supervision on management necessary. Nevertheless, effective supervision within a not-for-profit organization remains of essential importance, because not-not-for-profits also have to deal with various important stakeholders. In order to explain the importance of a board in a not- for profit organization and her stakeholders, the next section will elaborate on stakeholder theory.
Stakeholder Theory
Where agency theory focuses on the relationship between management and shareholders, stakeholder theory concerns all parties that are stakeholders to a corporation. The rationale behind stakeholder theory is that besides their economic profile, corporations have to justify their ethical profile (Kolk and Pinske, 2010). In 1984, Freeman defined the term stakeholder as ‘any group or individual who can affect or is affected by the
achievement of the organization’s objectives’. The main idea behind the theory is that organizations are
accountable to their shareholders, as well as to the wider group of stakeholders that have an interest in the realizations of a company. The concept of stakeholders comprises a wide range of different interest groups.3 On one side there are the more direct stakeholders, such as employees, suppliers, consumers and shareholders. On the other side there are more indirect stakeholders, such as public interest groups, society and future generations (Freeman, 1984).
Organizations have a certain influence on stakeholders as a result of the activities they conduct, which makes them responsible for the consequences of these activities (Roberts, 1992). Stakeholder theory
3 It should be noted that the term ‘stakeholder’ is generally perceived as a very broad and under-defined concept, because every organization gives its own interpretations to it. Some organizations limit themselves to those stakeholders directly affected by their organizations, whereas other adhere to a broader interpretation where all the parties that can potentially be affected are considered as stakeholders. In most cases however, organizations prioritize by regarding mainly the biggest and most influential stakeholders. In such cases, those stakeholders that will have the largest impact on an organization are perceived as the most important ones.
elucidates that organization are dependent on stakeholders for their continuity. In line with stakeholder theory, Chan et al. (2013) argues that the long-term susceptibility, continuity, and success of an organization are dependent on the support it gets from its stakeholders. As a result, an organization should aim to get the approval of its (most important) stakeholders in its (strategic) decisions. In correspondence with this argument, Freeman (1984) argues that both the board has an important task in this, by valuing and fulfilling the demands of stakeholders. In most cases, such demands are materialized in the form of information disclosure (Fuente et al., 2017). Information, both financial and non-financial, is regarded as one of the most important means an organization can use to cherish the relationship with its stakeholders (Fuente et al., 2017). By disclosing sufficient information, an organization ensures that stakeholders are able to make a more adequate ruling on their policy.
Hill & Jones (1992) argue that if one combines the perspective of agency theory with that of stakeholder theory, the stakeholders can be viewed as the principals, and management as the agents. In doing so, one develops a stakeholder-agent relationship. This entails that the board, in executing its function, should also analyze whether management operates in the interest of stakeholders. Between the management of an organization and stakeholders there is also a certain form of information asymmetry (D’amico et al., 2016). This asymmetry makes it problematic for stakeholders to assess whether organizations operate in their interests. CSRR has as its primary goal to inform stakeholders about the company’s activities in the field of CSR (D’amico et al., 2016). In doing so, CSRR creates a more equal deviation of information, hence it decreases the information-asymmetry between management and stakeholders (Donelly et al., 2008). As means of summary of this section, one can conclude that if the board succeeds to effectively execute its monitoring function, this will increase transparency. At the same time however, the effectivity of the board- according to several researchers - is dependent on the composition of the board (Carter et al., 2003; Lim et al., 2007). The composition of the board and the provision of more information (e.g., provision of CSRR) are therefore perceived as complementary (Patelli and Prencipe, 2007). From this perspective, a board would mainly insist on CSRR maximization because it plays a vital role in the relation of a company with its stakeholders (Gray et al., 2016). This relationship between stakeholders and the organization makes an effective board all the more important.
Functioning of Boards & Board diversity
As should have become clear from the elaboration on stakeholder theory (and agency theory), an effective board is quintessential for the provision of sufficient public disclosure of information. However, for large part, the functioning of the board is dependent on composition and group interaction. Boards consist of a group of people and as a result, social interactions between the different individuals in the board are a key factor in the functioning of a board. This claim is supported by Goodman, Ravlin and Schminke (1987) and Forbes and Milliken (1999) who argue that boards human-decision making groups and because their output is entirely cognitive in nature, their effectiveness is likely to be dependent on social- psychological processes.
These social-psychological processes are influenced by different elements of group composition, which affect group participation and interaction, the exchange of information, and critical discussion.
One important element of board composition is that of board diversity. When a board is more diverse, different perspectives are considered in a board, impacting different aspects of the functioning of the board, such as the overall effectivity and the decision making process. Indeed, research shows that the level of diversity of a board influences the effectivity of a board, and that a more diverse board results in an expansion of both the level of independence and the quality of the decision making (Andres et al., 2005). A more diverse board can result in higher independence, because people of different gender, ethnicity, and cultural backgrounds, have a different perspective and ask different questions than those members that have a more traditional background (Kang et al., 2007). Also, other research on this topic found that diversity within a team leads to more consultation, a broader variety of ideas, and better performance (Knippenberg et al., 2004). According to Carter et al., (2003), diversity within the board adds to the value of an organization. Because of the presence of different views and perceptions, a better understanding of the relevant environment is created, creativity is boosted, and problems are tackled more effectively (Carter et al., 2003). Furthermore, because the board is designed to guard the interests of stakeholders and shareholders, it is important that a board is composed in such a mixed way that as many as possible interest groups are represented (Knippenberg et al., 2004). To summarize, there is substantial literature that claims that a more diverse board is more effective and better equipped to look after the interests of different stakeholders. In doing so, a diverse board is likely to realize sufficient disclosures in the field of financial information and non- financial information (Lim et al., 2007; Ho and Wong, 2001).
Besides academic literature, diversity has also received attention within the field of corporate governance in the Netherlands. With regard to the composition in the board, the code states that; ‘the board of directors aims for a mixed composition, including with regard to gender and age’. This statement clearly discerns that a company should endeavor a mixed composition of its board. It is thus clear that the Monitoring Commission, which has as its task to improve the applicable Dutch corporate governance code, highly values diversity with regard to the internal supervision of a company.
Gender Diversity
There is a significance amount of literature emphasizing the importance of gender diversity in boardrooms (Catanzariti and Lo, 2011). Gender is an important dimension in boardrooms, not in the last place because men and women have not enjoyed the same cultural and social privileges historically (Liao et al., 2014). Women with a position in a board for instance often do not have experience in the business world, whereas their male counterparts do (Hillman et al., 2002). In their research, Adams and Ferreira (2009) concluded that a board functions differently when the extent of woman increases. The main reason for this is that men are present more often when the number of women in a board increases. Furthermore, women are absent less often during meetings than men. These findings suggest that women invest more time and energy in the execution of their function as a board member. In line with these facts, Bear et al. (2010) and Boulata (2013)
conclude that the number of women in a board has a positive correlation on the execution of the board’s responsibilities, such as monitoring management. Adams & Ferreira (2009), complement these findings by claiming that women are stricter in executing their supervisory function. Another relevant aspect that has a potential positive effect on the effectivity of the board is that women are not part of the ‘old boys’ network, which makes them more independent and objective in their decisions. Thus, the academic literature on this topic suggests that there is a general positive correlation between the number of women in a board and the effectivity of a board.
As discussed in the section on stakeholder theory, a more effective board results in a more transparent organization, which is manifested in more public information disclosure (i.e., CSRR). The interrelationship between gender diversity, board effectivity, and transparency is confirmed by the research of Lückerath-Rovers (2010), which claims that women in a board contribute to a more transparent organization. Additionally, their research claims that women have a better connection with the relevant stakeholders of an organization, which makes them more inclined to meet the demands of stakeholders to publicly disclose information. This finding corresponds with the research of Galbreath (2011), which claimed that women have a better understanding of the needs of consumers and the possibility of companies to fulfill these needs. In other words, women seem more inclined to take into account the demands and expectations of stakeholders.
It is thus clear that gender diversity is likely to result in a more effective board, making an organization more transparent for its stakeholders. Besides this facet, the literature on gender diversity also provides additional arguments on why women in general will have a positive effect on CSRR (Rao and Tilt, 2016; Bear et al., 2010; Mikko, 2010; Williams, 2003; Bernardi and Threadgill, 2010; Liao, et al., 2014; Fernandez-Feijoo et al., 2014). Bernardi and Threadgill (2010) suggest that the female gender within the board influences non- financial performances, and CSR performance in particular in a positive way. This suggests that gender diversity has a positive influence on the performance of an organization. In turn, better performance creates an incentive to do more in the field of voluntary disclosure, as the organization has the tendency to share its accomplishments with the outside world in order to build on its reputation (Qiu et al., 2016; Roth, 2014). Furthermore, women are on average more sensitive to reputational damage, the risk of which can be decreased by publishing CSR information (Roth, 2014). In addition, several publications indicate that women tend to focus more on ‘community activities’, whereas men tend to focus more on profitable activities (Betz et al., 1989). Williams (2003) for instance found that a higher level of gender diversity contributes to the weight that is given to charitable causes. With this research, Williams contributes to the existing body of literature by suggesting that women tend to be less economically and more philanthropically wired than men. In line with this argument, Liao et al., (2014) state that it is often contended that women are more empathic than men, and as a result, care more about the preferences and feelings of others. The argument continues by contending that because of these qualities, women tend to be more dedicated to the pursuance of CSR-goals (Fernandez-Feijoo et al., 2014). Other research of Bear et al. (2010), finds a positive relation between the percentage of female board members and the extent of CSRR. In this
research Bear et al. (2010), claim that women complement the board with increased sensitivity and participative decision making styles, positively affecting CSR-policy.
To summarize this section, there is a wide body of academic research that claims that women tend to stimulate CSR disclosure and that a more diverse board (in terms of gender diversity) will have a positive effect on the extent of CSRR. Therefore, the first hypothesis is:
H1: There is a positive relationship between the proportion of women directors on the board and the extent of CSRR
Participative leadership
Although the previous section argued why a more gender diverse board is likely to have a positive influence on the CSR disclosure of an organization, this influence is possibly rather limited (Rao and Tilt, 2016). As mentioned before, Akbas (2016) and Ammad et al. (2016) for instance do not find a positive correlation between gender diversity and the level of voluntary disclosures in the field of CSR. Earlier research on the extent of gender diversity in a board and the level of CSR disclosure, shows somewhat mixed results. An explanation for this can be that, this positive influence is however not only dependent on the level of gender diversity on the board, but also on the actual level of influence they are able to exert in the board. It is commonly accepted in corporate governance literature that women have to overcome considerable barriers, such as discrimination and a very limited influence in decision making processes (Galbreath, 2011). The majority of the literature in the field of gender diversity claims that there are significant differences in norms, values, and perception between men and women (Eagly et al., 1995). These aspects are also present in the board and can lead to social categorization, subgroups and more tensions. In order for the female board members to be able to influence the board decision making on CSRR however, the chair of the board needs to exercise a high degree of participative leadership (Richard et al., 2013). Participative leadership is a relatively well-known and popular form of leadership. This leadership style implies that the chairman of a board takes into account the information that other board members give him or her when making a decision (Arnold et al., 2000). Distinctive for this style is that team members are very vocal in expressing their opinions, doing suggestions, and providing ideas with regard to particular issues. A high degree of participative leadership entails that the members of the board are included in the decision making process, which creates an enabling environment for specific board characteristics such as gender diversity to thrive. The goal is to provide the followers (in this research the female board members) with more discretionary and participatory power in making decisions (Nystrom, 1990). Thus, in a case of participative leadership, the chair of the board really stresses the participation of each of the board members. When a chair pursues this leadership style, women will be able to exert more influence in the board, which will increase the positive effect of gender diversity on the extent of CSRR. Bedside, this leadership style brings together the different perspectives, takes away tensions from social categorization, and therefore moderates the relationship between gender diversity and
CSRR. To summarize, one can argue that participative leadership can be an important prerequisite for the ability of female board members to exert influence. Based on this, the second hypothesis is:
H2: The positive relationship between gender diversity and the extent of CSRR is strengthened by the extent of participative leadership from the chair of the board.
Conceptual model
The following model graphically represents the main expectations of the writer with regard to this research on the basis of the theories and ideas elaborated upon throughout this chapter:
FIGURE 1: Conceptual model
3. METHOD
The following chapter elaborates on the research methods employed for this thesis. First, it will highlight the procedure and population central to this research. Thereafter, the different instruments of measurement will be explained and their selection justified.
Sample and Procedure
For its core analysis, this research utilizes data of 131 not-for-profit organizations settled in the Netherlands. These organizations consist mainly of educational institutions and housing corporations. Dutch educational institutions and housing corporations have a two-tier structure. Such a structure is characterized by a division between the management board and the supervisory board. A one-tier structure on the contrary is characterized by the presence of one board of directors, which consist of executive and non-executive directors. In general, the tasks of a supervisory board in a two-tier structure concur with the tasks of a non-executive board in a one-tier system.
The data that is necessary for the analysis of this thesis is gathered through two main sources. First, a considerable part of the data is gathered through an online survey instrument prepared by a team of researchers affiliated with the University of Groningen. In order to preserve the reliability, at first instance researchers tested the survey by letting organization participate that were not yet part of the database. Furthermore, each participating organization was explicitly informed that the information given in the survey would be treated confidentially. Data was gathered for the period of 2013 till 2016. In total, 711 board members (non-executives) from 131 organizations have participated in the survey. Among these, 236 (33,2%) were women. The remainder of the data is gathered through publicly available annual reports. The majority of these reports are collected by using the database of company.info.
Measures
The degree of CSRR. The data on the degree of CSSR is mainly gathered through public annual reports. An
important benefit of using annual reports is that they are publicly available (Unerman, 2000), which not only makes gathering data on CSRR possible, but it also aligns with the conceptual nature of CSRR in the sense that is reporting of CSR information. Furthermore, several researchers have acknowledged that the information contained in annual reports is of high validity (Neu et al., 1998; Unerman, 2000). In order to measure the dependent variable, a content analysis will be conducted, a method that is rather common for measuring CSR disclosure (Chan et al., 2013; Lone et al., 2016; Sundaresen et al., 2016). Content analysis is defined by Abbot and Monsen (1979) as ‘a technique for gathering data that consists of codifying qualitative information in anecdotal and literary form, into categories in order to derive quantitative scales of varying levels of complexity’.
The data used in the content analysis consists of the direction reports and board reports that are published in the annual reports of a specific organization, as these reports contain the most important information with regard to the mission and vision of an organization (Rajasekar, 2013). In line with the research Deegan and Gordon (1996) this thesis will utilize a word dictionary, in order to conduct a ‘words content analysis’. The dictionary is based on the GRI table for sustainability reporting, which was drafted by the Global Reporting Initiative (GRI). This GRI table is widely acknowledged by large organizations with regard to the reporting on non-financial standards (e.g., CSR). In the academic literature, the GRI table has become a common instrument for measuring the quality and quantity of ‘sustainability reporting’ (Ball et al., 2006). For instance, Guthrie and Fernatti (2008) use the GRI table for discerning whether the sustainability reporting of Australian non-profit organizations is sufficient. Another example is the publication of Gill et al. (2008), in which the extent of reporting on CSR related topics on the websites of Northern American and Asian companies is measured by conducting a content analysis with a dictionary. In addition, Mornhardt et al. (2002) use a GRI table to measure the quality of American sustainability reports, in which companies were assessed on the basis of a point system. Besides the GRI table, the analysis in this research is particularly inspired by the research of Akremi et al. (2015), in which the researchers explain the concept of CSR clear and concise. As mentioned earlier, the above sources have been utilized in order to draft a valid word
dictionary. In this dictionary, the focus has been on key concepts of CSR i.e., environmental protection, labour security, human rights, community involvement, and education and health promotion. In doing so, the GRI 300 (environmental) and GRI 400 (social) are used in order to obtain words per specific topic. Al these words together form the word dictionary4.
Gender diversity. The independent variable in this research will be gender diversity within the board,
which is operationalized by the method of Blau (1977). The method of Blau (1977) is usually used by researchers to measure diversity for categorical variables and has been supported by professionals in the area of diversity (Triana et al., 2013). The formula for calculating gender diversity on the board is displayed below:
In this formula, 𝐾 represents the number of diversity aspects, which in this research merely entails gender diversity. The x𝑖 connotes the number of board member. A board that consists of 6 men and 2 women accordingly giver a diversity score of 1 – ((6/8) ² + (2/8) ²) = 0.375. For board gender diversity the index can range from 0 to 0.50 (Triana et al., 2013).
In additional, there will be an alternative analysis for gender diversity which is operated by the percentage share of women in the board (Akbas, 2016). The literature on this topic claims that it is better to analyze the share of women than the absolute number of women in a board, since measuring the proportion tells more about the level of diversity than the absolute number. A sensible point, considering that it is likely that one woman in a board of four members has more influence than 2 women in a board of ten members (Amran et al., 2014).
Participative leadership: The moderator within this study is participative leadership of the chairman
of the board. The extent of participative leadership of the chairman of the board is measured by a set of propositions, based on research of Arnold, Arad, Rhoades and Drasgow (2000). The board members have received six proposition in an online questionnaire, in which the different propositions are measured on a 7-point Likert scale (in which 1 refers to totally agree and 7 to totally disagree). The Cronbach alpha was .80. The six propositions that are being used are as follows:
(1) ‘The chairperson encourages member of the board to express their ideas and suggestions’ (2) ‘The chairperson listens to my ideas and suggestions from the board’
(3) ‘The chairperson takes my suggestion into account when making important decision’ (4) ‘The chairperson gives all board members an equal opportunity to voice their opinion’ (5) ‘The chairperson considers ideas of the board when he or she disagrees with them’ (6) ‘The chairperson makes decision not only on the basis of his or her own ideas’
Aggregation of Participative leadership: Since a peer ratings approach was used with calculating the
extent of participative leadership, it is essential to conduct a complementary analysis with respect to the measurement assumption that the answers from fellow chairpersons converged (Veltrop et al., 2015). This was checked by calculating the intraclass correlation coefficients (ICC) with one- way analysis. The ICC for participative leadership was .16 (P<0.05). This result indicates that there was satisfactory agreement to justify aggregation (Veltrop et al., 2015).
Control Variables
In order to be able to accurately test the different hypotheses there are three control variables for this research. The control variables are the profitability of a company, the size of a company, and the size of the board. The selection of these control variables is based on academic literature, and will be justified in the remainder of this chapter.
Profitability. The first control variable taken into account in this research is the profitability of a
company. In Jizi et al. (2014), the researchers claim that it is of essential importance to take company characteristics into account as control variables when doing research to the extent of environmental disclosure. The reason for this is that such characteristics often are an important influence on the extent of non-financial reporting of a company. For this research, this argument is accepted and extended to the field of CSSR by including the profitability of a company as a control variable. Several other sources of academic literature confirm the idea that profitability influences the extent of non-financial reporting (Deegan and Gordon, 1996; Ho and Taylor, 2007). Indeed, it seems logical that when a company is economically viable, there are relatively more financial means available for CSR. Furthermore, such companies are likely to invest more in voluntary CSR disclosure in order to inform their stakeholders on their CSR performance (Kent and Chan, 2014). Furthermore, if one considers legitimacy theory, companies that are economically successful might have an incentive to demonstrate to society that their profits are not the result of irresponsible business practices that damage society. Thus, they have an incentive to justify themselves through sufficient disclosures. In line with the research of Zeeshan et al. (2014) profitability will be operationalized as earnings before interest and taxes (EBIT). The natural logarithm of EBIT is used to reduce the wryness of the data (Andres et al., 2005).
Company size. The second control variable, the size of a company, has also been used as such in
several other researches (He and Huang, 2011). This variable is included here because other research has indicated that the size of a company influences the extent of disclosure (Brick and Chidambaran, 2010). Galani et al. (2011) claim that larger organizations tend to be more transparent. For starters, the collecting and publishing of information is a costly process. Larger organizations command more means than smaller organizations, which makes it easier for them to finance this. Furthermore, larger organizations are more exposed to society, which also makes them more exposed to pressure from (external) stakeholders. By including the size of a company as a control variable it is prevented that found correlations are explained by
the size of a company. Company size is operationalized as the logarithm of total sales of a company at the end of the financial year (Triana et al., 2013).
Board size. The third and final control variable in this research is the size of the board. Research of
Amran et al. (2014) and Ntim et al. (2013) shows that board size is an important determinant for the effectivity of the board, and can be seen as a crucial corporate governance mechanism that influences the extent of environmental disclosures. In addition, the research of Jizi et al. (2014), Sun et al. (2010), and Liao et al. (2014) establishes a positive relationship between board size and the extent of CSRR. Just as in the works of Akbas (2016) and Cheng (2006), the size of the board is defined as the sum of the absolute number of directors in the board.
Table 1: Summary of variables
Variables Code Measurement
Dependent Variable
- Degree of CSRR CSRR Words content analysis Independent Variables
- Gender Diversity GEND Blau- index & Percentage of share women - Participative Leadership PARL Questionnaire
Control Variables
- Profitability PROF The natural logarithm of EBIT - Company Size CSIZE The natural logarithm of total sales. - Board Size BSIZE The total number of directors on board level
4. RESULTS
In this chapter, the results of the research are presented. The results are generated through the use of the statistical program SPSS. By using the results of the regression analysis the hypotheses and conceptual model are tested. In the first section the descriptive statistic is shown. The second section presents the results of the regression analysis.
Descriptive statistics and correlation analysis
In table 2 the results of the bivariate correlations are shown. The mean and standard deviations are not given in the table because the data is standardized. The most important reason behind the standardization of the data is the promise that was made to the directors of participating organizations to keep their responses anonymous. As a result, the mean is zero and the standard deviation is 1.
Considering that the data for this research is generated on the individual level, there is a need needs to aggregate this to the group level (i.e., board level) in order for the results of this research to be representative.
Furthermore, the variables (Profitability, Firm size) in this research are judged on their extreme values (outliers). By using winsorizing techniques, the variables are corrected to the average of +/- 3 times the standard deviation, limiting the effect of possible disruptive outliers.
Table 2 shows us a significant positive relationship between the degree of CSRR and board size (r =.16, p<.1). Further more, the correlation table shows that a decrease in company size is significantly related with a decrease in profitability (r =.55, p <.01). The third significant relation exists between board size and participative leadership (r=-.17, p<.1). The correlation analysis gives us a first indication of the relationship between the different variables.
Before the regression was conducted the multicollinearity was tested. Table 2 depicts that there are no correlations that are larger than 0.55. Furthermore, table 3 shows that the highest VIF value is 7.1. Since this value is well below 10, we can conclude that there is no case of multicollinearity (Sinan and Alkan, 2015).
Regression
Table 3 presents the results of the linear regression analysis. By using the 3 models, we can make conclusions on whether to accept or reject the hypotheses. Model 1 examines the dependent variable and solely the control variables. Model 2 examines hypothesis 1 and model 3 examines hypothesis 1 and hypothesis 2. For the explanatory power of the models the R² and the F-values are also considered.
Model 1: By looking at model 1 from table 3, one can conclude that all control variables ‘board size’ (b=.16 p<.1), ‘Profitability’ (b=-.25 p<.05) and ‘Company size’ (b=.18 p<.1) are significant with regard to the dependent variable.
Model 2: Model 2 from table 3 examines hypothesis 1 of this research. There was a significant relationship between gender diversity and the degree of CSRR (b=.14 p<.1). This means that an increase in one gender diversity will lead to an increase in degree of CSRR. So based on the regression analysis, hypothesis 1 is accepted. Concerning the direct relationship between participative relationship and the degree of CSRR, we can conclude that there is a non- significant relation between these variables (b=-.04, P>.1). In addition, table 3 shows the adjusted R-square of 6% (R²=.06), which is accompanied by an F-value of 3.3. This entails that 6% of the variation in the degree of CSRR is explained by both the control variables and the
independent variables. The delta adjusted R- square (∆ R²=.02), indicates that 2% of the variance in CSRR is explained by the independent variables.
Model 3: In order to capture the total picture of this research in which all variables are included, one has to look at model 3. When doing this, one can see that the direct relationship between participative leadership and the degree of CSRR is not- significant (b=.11 P>.1). In addition, there was a significant interaction between gender diversity and the degree of CSRR (b=.16 p<0.1). However, the interaction variable has no significant impact on the relationship between gender diversity and the degree of CSRR (b=-.17 P>.1). This leads to conclude that hypothesis 2 can be rejected.
5. CONCLUSION & DISCUSSION
In this chapter the main research question as postulated in the introduction of this thesis will be answered. Furthermore, the limitations of this research and possibilities for future research will be addressed.
Conclusion
The main goal of this research has been to answer the following question: ‘’What is the relationship between
gender diversity in the board and voluntary CSR-disclosures in not-for-profit firms in the Netherlands, and what is the moderating effect of participative leadership on this relationship?’’. As discussed earlier, the topic
of gender diversity within the field of corporate governance is the subject of fierce (academic) discussion. In order to contribute to this discussion, this research utilized data of Dutch not- for profit companies. In chapter 3, it was concluded that the average percentage of women within the board of the used sample lies around
33.2%. This is a relatively high percentage when taking into account the provision in book 2 of the Dutch Civil code, that prescribes to strive for a minimum of 30% of female directors in the board5. In the sample of this research, there was one board in which the female gender dominated (i.e., a board consisting solely out of women). This particular board scored rather high in their degree of CSRR, which corresponds with the assumptions and expectations of this research.
By integrating corporate governance literature and stakeholder theory, the results suggest that gender diversity has a positive influence on the degree of CSRR. This finding is in line with the research of Bernadi & Threadgill (2010), Bear et al. (2010) and Fernandez- Feijoo et al. (2012) which showed that a higher number of women in the board leads to a more socially responsible policy. On the basis of these first results, one can claim that a growing percentage of female members in a board leads to a higher degree of transparency in the annual reports in the field of CSRR. This leads to better accountability towards the diverse groups of stakeholders (and shareholders), which is in line with the stakeholder theory (D’amico et al., 2016).
Additionally, this research investigated the interception relation of participative leadership. The most important aspect in this regard is the fact that the merits of gender diversity are unlikely to flourish when the chairman of the board does not provide sufficient opportunity for input of its fellow (female) directors. Contrary to the expectations, the results suggest that the leadership style, participative leadership, has no effect on the relation between gender diversity and the degree of CSRR. A possible explanation for the lack of such a correlation might be found in the research of Virtanen (2012), in which it is argued that in general, female directors participate more actively in board meetings. Additionally, other research indicates that female board members perceive a sense of power over their male counterparts (Bernardi et al., 2002; Bradshaw et al., 1992). Additional, in an Australian study, male CEO’s stated that they tend to welcome input from women board members on ‘soft-issues’, like human resources, corporate donations, ethics and health and safety issues (EOWA, 2008). Related to these findings, Rao and Tilt (2016) and Ibrahim and Angelidis (1991) suggesting that women are more likely to influence issues related to CSR, and that men are more concerned about economic performance. These findings might lead to the conclusion that female board members are likely to be able to express their ideas and perspectives through CSR, notwithstanding the leadership style of the chairman.
5.1 LIMITATIONS & FUTURE RESEARCH
As is the case with every research, this thesis suffers from a number of limitations. First, this research explicitly stresses the degree of CSRR. Thus, there is a clear focus on the quantity of reporting, without taking into account the quality of the reporting. However, a higher degree of CSSR does not necessarily mean a higher quality in reporting. This research is purely directed towards assessing the extent of transparency of a
company with regard to CSR reporting to its stakeholders. Consequently, one recommendation for future research would be to take into account both the quantity and quality of CSRR, in order to generate a more complete picture of the status of CSRR in companies.
Second, this research utilizes a content analysis in order to measure the degree of CSRR. This content analysis is drafted through the consultation of particular guidelines (see chapter 3). One important limitation in this regard is that despite maintaining these guidelines, the composition of a word dictionary is an inherently subjective process. The main reason for this is that making a word dictionary entails making personal decisions based on one’s own preconceptions and knowledge, which makes a content analysis using a word dictionary an endeavor that is open to contestation. A review of the literature detects 2 other methods that may be considered for calculating the amount of CSR disclosure, that is, measurement in terms of sentences (Ingram and Frazier, 1980; Hackston and Milne, 1996; Tsang, 1998), and measurement in terms of ratio of a page (Cowen et al., 1987; Patten, 1991). Even though, there are limitations for al these methods, Chan et al. (2014) argues that all three are adequate for assessing the amount of CSRR. Connected to this is the aspect that the data of the dependent variable (the degree of CSRR) is exclusively generated from annual reports of companies. Future research on this topic could utilize additional communication channels for measuring this variable; such as websites and separate sustainability reports.
Third, this research focuses only on one aspect of diversity within the board (i.e., gender diversity). One of the main arguments for including gender diversity in this particular research is that it has been a widely discussed theme in the field of corporate governance (Triana et al., 2013). However, other diversity characteristics in the field of corporate governance also enjoy ample of attention. The government of the Netherlands for instance argues that there are relatively few individuals of foreign decent in top positions in Dutch businesses (Ministerie van economische zaken, 2017). Research in the field of board diversity can reveal the importance and the potential merits of diversity in Dutch businesses, stimulating diversity at the work floor. In order to further develop knowledge in the field of CSRR, future research could take into account other forms of diversity and assess how these relate to the degree of CSRR. For instance, one could look at functional diversity, assessing the degree to which there is diversity in previous functions and experience within the board.
Fourth, the analysis has been conducted by using cross-sectional data, mainly because this research is limited to analyzing one year. Future research could focus on longitudinal data in assessing the relation between board characteristics and the degree of CSRR for Dutch not-for-profit organizations. In doing so, more insight in trends and developments over time can be generated. One could for instance research whether companies have become more conscious of the importance of diversity in the board over the years, and if this has generated a significantly higher degree of CSRR in the long term. Finally, qualitative research can be conducted, focusing on the motivations of companies to do CSR reporting. Is there an intrinsic motivation to justify the conducted policy, or is there mainly awareness with regard to the reputational mechanisms that influence public opinion?
Finally, there are important limitation with regard to the external validity of the results. The organizations that participated in this research were mainly housing corporations and educational institutions. These are all not-for-profit organizations, meaning that private organizations are left out of the analysis. Such organizations are however important actors that need to be analyzed in order to be able to give a more comprehensive judgment about the degree of CSRR. Since the utilized dataset is limited to the industry of housing corporations and educational institutions, Future research could contribute by utilizing datasets that include additional industries. A supplementary issue with regard to the external validity of the research findings is that most organization in the Netherlands have a two-tier board structure (Veltrop et al., 2015). Other countries like the USA however, are known for their one-tier board structure. Generalizing the results of this research for countries with alternative board structure could therefore present some limitations, even though differences between a one- and two-tier board are purely formal6 (Veltrop et al., 2015). Thus, although there are some limitations with regard to the external validity of the research findings, future research could contribute to this by focusing on different types of organizations and taking into account alternative board structures.
6 In general, the tasks of board members in a two-tier board correspond to the tasks of the non-executive directors in a one-tier board (Veltrop et al., 2015).
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