The relationship between the degree of stakeholder interests by non-executive directors and CSR disclosure in a Dutch context

The relationship between the degree of stakeholder

interests by non-executive directors and CSR

disclosure in a Dutch context

Student name: Thom Scholten

Student number: s3014746

Supervising lecturer: dr. D.B. Veltrop

Co-assessor: S. Mukherjee, PhD

Date: June 16, 2017

Word count: 9.446 words

MSc Accountancy & Controlling

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Abstract

Currently, the scientific literature devotes a lot of attention to CSR disclosure. The vast majority of studies have focused on how executive directors shape CSR disclosure. This study, on the other hand, investigates the relationship between non-executive stakeholder interests and CSR disclosure. Based on the stakeholder theory, it is expected that boards with higher stakeholder interests will report more on CSR. This relationship is expected, because reporting on CSR ensures that stakeholders’ information needs are met. Using content analysis, I analyze for 141 Dutch organizations the extent of CSR disclosure. In order to determine the board stakeholder interests, an online tool with survey-data about Dutch boards has been used. The result of this study do not show a significant relationship between board stakeholder interests and CSR disclosure. Furthermore, no evidence was found for a stronger positive relationship between the degree of primary stakeholder interests an organization’s board and CSR disclosure than total board stakeholder interests and CSR disclosure. In contrast, evidence was found for a negative significant moderation effect of board size. This significant negative relationship indicates that if boards become larger this will result in a strengthening of the negative relationship between total board stakeholder interests and CSR disclosure. Finally, a significant negative relationship was found between firm size and CSR disclosure.

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Table of content

1 Introduction ... 4

2 Literature review and hypothesis development ... 6

2.1 Corporate social responsibility ... 6

2.2 Non-executive directors and CSR ... 8

2.3 Stakeholder orientation by non-executive directors ... 9

2.4 Board size ... 11

2.5 Board size and primary stakeholders ... 13

3 Methodology ... 13

3.1 Sample ... 13

3.2 Variable measurement ... 14

3.2.1 Dependent variable ... 14

3.2.2 Independent variable ... 16

3.2.2.1 Total board stakeholder interests ... 16

3.2.2.2 Primary board stakeholder interests ... 17

3.2.3 Moderating variable ... 18 3.2.4 Control variables... 18 3.2.4.1 Firm size ... 18 3.2.4.2 Profitability ... 19 3.2.4.3 Audit committee ... 19 4 Empirical results ... 19 4.1 Descriptive statistics ... 19

4.2 Regression results hypothesis 1 and 3 ... 20

4.3 Regression results hypothesis 2 ... 24

4.4 Additional analysis ... 25

5 Discussion and conclusions ... 26

6 Limitations and directions for future research ... 28

References ... 30

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1 Introduction

In recent years, an increasing number of organizations recognize the importance of Corporate Social Responsibility (hereafter CSR). The rationale behind CSR is that organizations not only have to consider the financial and economic consequences of their decisions (Carroll, 1999, Van Marrewijk 2003), but also the legal, ethical and philanthropic consequences, which will benefit the people, communities and overall society (ISO, 2002). Organizations will also benefit from CSR, short-term benefits include: efficiency gains, tax advantages, risk reduction and improved employee productivity (Schaltegger and Burritt, 2005;Heal 2005). CSR

activities do also have long-term benefits for organizations, such as building corporate/brand image, strengthen stakeholder-company relationships and a higher shareholder value

(Schaltegger and Burritt, 2005; Du et al., 2010). In addition, organizations can lose their legitimacy if they do not report on issues relevant to stakeholders in their annual reports (Deegan et al., 2000). Also, scandals could have been avoided if organizations had more attention to CSR, for example the BP scandal in the Gulf of Mexico (2010) or the diesel scandal of Volkswagen (2015) (Clarke, 2005). In short, CSR provides advantages for both the organization and overall society.

In the scientific literature there are many research studies that focus on the drivers of CSR, with particular attention for the role of executive directors within organizations. The paper of Deckop et al. (2006) examined the effects of CEO pay structure on CSR, another study investigated the relationship between political ideologies of CEO’s and CSR (Chin et al., 2013) and finally a study examines the relationship between CEO-narcissism and CSR (Petrenko et al., 2015).

While numerous studies have focused on how executive characteristics and executive decisions shape CSR, it is important to emphasize that non-executive directors play perhaps an even more important role in CSR for organizations. Indeed, it is the board of directors that have impact in CSR for organizations (Mackenzie, 2007). However, the board of directors consists mainly of non-executive directors, who are independent of the management team, and therefore they are considered as “outsiders” (Pearce and Zahra, 1992). The non-executive directors as highest governance body of organizations may hold executive directors

accountable for their decisions (Pass, 2004). This is because, every strategic- and major operational decision must go through the non-executive directors (Kassinis and Vafeas, 2002). The non-executive directors can thus be seen as the “watchdog” by supervising executives (Hooghiemstra and van Manen, 2004). Besides this monitoring role, the

non-5 executive directors also have the responsibility to support the executive directors through advice and counselling (Maassen and van den Bosch, 1999; Bezemer et al., 2007).

Since the board of directors as the highest governance body, has an important role with regard to the CSR strategy, by determining the appropriate responsible organization’s behaviour and accountability to its stakeholders (Hill and Jones, 1992). The scarcity of research on how non-executive directors’ impact CSR is surprising. In particular, because non-non-executive directors, due their independent position (Daily and Dalton, 1994), are supposed to not only take into account the interests of shareholders but all stakeholders (Haniffa and Cooke, 2005), which are central for CSR.

Essential for CSR is the degree that non-executive directors take stakeholder interests into account in their work as non-executives. Non-executive directors with more stakeholder interests are more likely to satisfy the interests of stakeholders (Ibrahim and Angelidis, 1995). To content the organization’s stakeholders, non-executive directors can provide information on CSR to stakeholders to satisfy the information needs of stakeholders (Unerman,

Bebbington and O'Dwyer, 2007; Guthrie et al., 2004).

Thus, while meeting the demands of stakeholders is essential for CSR, non-executive directors are likely to vary in the extent to which they take stakeholder interests into account in their work as non-executives. Therefore, there may be differences between the total board stakeholder interests of different organizations.

Despite the importance of non-executive stakeholder interests, to the best of my knowledge there is no scientific study which investigated this relationship between the board stakeholder interests and organizational CSR disclosure. Given the absence of this relationship, this gives me a motive to examine this relationship.

Therefore, in this study I investigate the relationship between the degree of board stakeholder interests and the amount of organizational CSR disclosure.

While much is unknown about the relationship between actual non-executive stakeholder interests and CSR disclosure, resource dependence theory suggests that larger boards are associated with more knowledge and experience (Buniamin et al., 2008; Pearce and Zahra, 1992). Based on this resource dependence argumentation, it can be assumed that larger boards have more experts with more knowledge about various disciplines which is required for the preparation of CSR reports (Dalton et al., 1999; Pearce and Zahra, 1992; Frias-Aceituno et

6 al., 2013). However, some other studies suggest a negative relationship, because due to the communication- and coordination problems in larger boards, non-executives cannot perform their roles effectively (Said et al., 2009), making them less control on CSR disclosure.

Because there is no clear evidence of the effect of board size1, therefore board size may act as an important moderator for the relationship between board stakeholder interests and

organizational CSR disclosure.

The contribution of this study, is to fill a research gap, that exists concerning the relationship between stakeholder interests by non-executive directors and CSR disclosure. While

numerous studies have focused on secondary data about board characteristics, this study has access to unique survey data about the actual dynamics within boards. Therefore, this is in my opinion, the first study that establishes a link between the inner workings of boards and the amount of CSR disclosure. What makes this study more relevant is the importance of board size in moderating the relationship between stakeholder interests by non-executive directors and CSR disclosure. This study provides a new interpretation whether the composition of non-executive directors as governance mechanism influences the degree of CSR disclosure. In this study, I analyzed a sample of 141 Dutch non-profit organizations. I used the database of BoardResearch.org, this database contains unique survey-data about stakeholder interests by non-executive directors of Dutch non-profit organizations. Through analysis of the firms’ annual reports, I collected manually data of the amount of CSR disclosure and some board characteristics.

This paper is structured as follows. In the next chapter the conceptual framework will be discussed, based on this I will develop hypotheses. The section then, I will discuss the research method. Finally, the results of the study will be discussed and the paper ends with a conclusion and discussion.

2 Literature review and hypothesis development

2.1 Corporate social responsibility

The last few decades, CSR is gaining interest from both organizations and society. There is also a high amount of interest from researchers for CSR

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7 still evolving (Kercher, 2007). Clark (1926) was the first who mentioned the concept CSR, Clark argues that organizations have the duty for the wellbeing of society. Over the years McQuire (1963, p. 144) came up with a broader definition: “CSR extends beyond economic and legal obligations, corporations must be interested in the welfare of the community, take an interest in politics, education, and the “happiness” of employees”.

However, nowadays the concept of stakeholders is increasingly being added in the definition of CSR (Dahlsrud, 2008). Stakeholder theory proposes that an organization should align their actions on the needs of a large group stakeholders (Freeman, 1984; Jensen, 2001). The definition of a stakeholder is according to Freeman and Reed (1983, p. 91): “an individual or group who can affect the achievement of organization’s objectives or who is affected by the achievement of an organization objectives”. The basic idea behind the stakeholder theory is that organizations treat their stakeholders appropriately (Öberseder et al., 2013). Due the importance of stakeholders for organizations, the Commission of the European Communities (2001) defines CSR as: “a concept whereby companies integrate environmental and social concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”. What emerges from the various definitions of CSR, is that organizations not only have to focus on achieving profits and complying with the law, but also have a

responsibility to their society and its environment (Kercher, 2007).

The growing CSR awareness has led to a large increase in the number of sustainability reports, or other forms of disclosure that publish CSR related information (Kolk, 2005). The definition of CSR disclosure is according to the paper of Gray et al. (1987, p. 3):

“the process of communicating the social and environmental effects of organizations´ economic actions to particular interest groups within society and to society at large”. The great attention to CSR disclosure by organizations can be explained by the fact that CSR disclosure can be viewed as a communication mechanism to satisfy the information needs of stakeholders (Unerman, Bebbington and O'Dwyer, 2007; Popa et al., 2008). This

argumentation is based on the stakeholder information model (Morsing and Schultz, 2006). This model assumes that stakeholders are critical for organizations, because they can show organizational loyalty or they can boycott the organization (Smith, 2003). Thus, to ensure a positive stakeholder perception, organizations have to report on CSR related issues (Morsing and Schultz, 2006), because for changing the perception of stakeholders there is always disclosure needed (Deegan and Unerman, 2006).

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2.2 Non-executive directors and CSR

Executive- and non-executive directors differ in terms of their duties in the board of directors (Hooghiemstra and van Manen, 2004). Executive directors are the officers of the firm and actually employees of the organization (Pearce and Zahra, 1992;Zelechowski and Bilimoria, 2004). In contrast, the non-executive directors need to ensure accountability to the company’s stakeholders, because executive directors do not always take into account the interests of stakeholders (Pass, 2002; Roberts et al., 2005; Cooper and Owen, 2007)

Non-executive directors are often recruited for their skills, expertise and reputation (Pearce and Zahra, 1992). The non-executive directors perform important functions within

organizations. The scientific literature focuses primarily on the non-executive role which ensures that the agency problem is reduced. The agency problem means that it is difficult for owners to monitor the operations of executive directors, this enables executive directors to make decisions which do not benefit the owners (Eisenhardt, 1989). To prevent this

opportunistic behaviour, non-executive directors have been allocated the monitoring role to validate and monitor the decisions of executive directors. (Fama and Jensen, 1983; Li, 1994). In addition, non-executive directors execute also the “strategic role” within organizations (Zahra and Pearce, 1989). This strategic role means that non-executive directors are involved in selecting and implementing an organizational strategy, designing a mission and setting policies (Harrison, 1987; Tricker, 1984).

The final function that is allocated to non-executive directors is the “service role” (Zahra and Pearce, 1989). According to the paper of Zahra and Pierce (1989, p. 292), the “service role” is characterized by: “enhancing company reputation, establishing contacts with the external environment, and giving advice and counsel to executives”. According to the paper of Pfeffer (1972) service activities are aimed to connect the organization with its environment. CSR disclosure may be used for this purpose, because organizations can show how their actions affect their environment (Gray et al., 1987).

Therefore, non-executive directors have an important role with regard to the CSR strategy, by determining the appropriate responsible organization’s behaviour and accountability to its stakeholders(Hill and Jones, 1992). Because, according to the paper of Ibrahim and Angelidis (1995) non-executive directors are more independent and more objective in comparison with executive directors, therefore they are more likely to satisfy the interests of their

stakeholders. Johnson and Greening (1999) suggest in their paper that non-executive directors are more interested in complying with environmental standards and that they have more knowledge of the changing demands of stakeholders.

9 In addition, the paper of Galbreath (2017) found evidence that board structure influences the extent of CSR in organizations. Galbreath (2017) found evidence that non-executive directors proceed earlier to CSR in organizations than executive directors. The reasoning of Galbreath (2017) for this evidence is that the careers of non-executive directors are independent of the organization and its management, this results in a longer-term thinking which is required for CSR in organizations.

Thus, what appears from the scientific studies is that non-executive directors have a stronger CSR orientation than executive directors, what makes the presence of non-executive directors an important determinant with regard to CSR disclosure (Zhang et al., 2013).

2.3 Stakeholder orientation by non-executive directors

Generating profits for shareholders is important for organizations, but perhaps even more important is that organizations are also subject to broader stakeholder interests (Maon et al., 2009). For this reason, there is a great attention to a stakeholder orientation within

organizations. According to Luk et al. (2005, p. 90) an organization’s stakeholder orientation is defined as: “An organization’s stakeholder orientation represents how much a company attends to the interests of all its relevant stakeholders, and thus it attempts to address such interests”.

Due to the importance of non-executive directors within organizations and the importance of stakeholders for organizations, Wang and Dewhirst (1992) examined on the basis of a survey, to what extent non-executive directors in large companies in the United States are stakeholder oriented. Non-executive stakeholder interests is the extent to which non-executive directors take into account the interests of stakeholders in their work as non-executives. Wang and Dewhirst (1992) concluded in their study that non-executive directors have very high stakeholder interests.

However, it may be that some boards differently weigh stakeholder interests than other boards, because there may be variety between the individual stakeholder interests of non-executive directors belonging to a board. This reasoning can be supported by some studies focusing on behavioural research. A study of Borden and Francis (1978) shows that

individuals with a strong selfish are less aware of ecological thinking and that individuals are likely to act more ecologically if they have met their individual needs. Fietkau and Kessel (1981) describe that pro-environmental behaviour of individuals is influenced by five

10 values, perceived consequences of behaviour, incentives for pro environmental behaviour, possibilities to act pro-environmentally and environmental knowledge (Kolmuss and Agyeman, 2002). For this study, individual stakeholder interests of non-executive directors are aggregated to board level, which indicates differences between the stakeholder interests of boards.

Thus, non-executive directors with a higher degree of stakeholder interests are more objective and independent and therefore more likely to satisfy the interests of stakeholders (Ibrahim and Angelidis, 1995). Due to this, it can be expected that boards with higher stakeholder interests recognized by non-executive directors, will result in more organizational CSR disclosure. Therefore, the following hypothesis can be formulated:

Hypothesis 1: There is a positive relationship between the degree of stakeholder interests by non-executive directors in an organization’s board and CSR disclosure

Conversely, the stakeholder theory of Freeman (1984) does not distinguish between certain stakeholder groups. Many scientific studies suggest that not all stakeholder groups are equally important for organizations (Clarkson, 1995; Mitchell et al., 1997; Rowley, 1997), therefore many studies discuss the terms primary- and secondary stakeholders (Buysse and Verbeke, 2003). The definition of primary stakeholder groups are according to Clarkson (1994, p. 5): “the stakeholder groups who bear some form of risk as a result of having invested some form of capital, human or financial, something of value, in a firm”. In his next study Clarkson (1995) broadened his definition of primary stakeholders with the following: “without the primary stakeholder groups the corporation cannot survive as going concern” (p. 106). Therefore, according to Clarkson (1995) the following stakeholder groups are seen as the primary stakeholder groups: shareholders and investors, employees, customers, suppliers, government and the society.

The secondary stakeholder groups are the remaining stakeholders, the groups “who are claiming an interest in corporate behaviour”, such as the media and activists (Berry, 2003). Clarkson (1995, p. 107) defines in his study secondary stakeholder groups as: “the groups who are influenced or affected by the corporation but they are not critical for the survival of the organization”.

Thus, based on the definitions, it can be concluded that primary stakeholders are more important for organizations than secondary stakeholders. Alexander and Buchholz (1982) show in their study that organizations can decrease their explicit costs if they show more

11 responsibility to their primary stakeholders. In addition, Buzelli (1991) shows in his paper that the success of an environmental strategy depends on the perception of the primary stakeholders.

Due to the dependence of organizations on primary stakeholders, it is essential for organizations to manage their primary stakeholders effectively to keep them satisfied (Galbreath, 2006), because if the primary stakeholders are dissatisfied this can result in an elimination of the organization (Clarkson, 1995). Therefore, the non-executive directors as “watchdog” (Hooghiemstra and van Manen, 2004) of the executive directors must ensure that the primary stakeholders are treated well by the executive directors.

Based on this reasoning, it can be expected that boards with higher primary stakeholder interests recognized by non-executive directors, will result in more organizational CSR disclosure. Therefore, I present the following hypothesis:

Hypothesis 2: There is a stronger positive relationship between the degree of primary stakeholder interests by non-executive directors in an organization’s board and CSR disclosure than total stakeholder interests by non-executive directors.

2.4 Board size

In the scientific literature there is currently much attention for the effect of board size on the decision-making process and effectiveness of boards (Dalton et al., 1999). Considering group dynamics, many researchers suggest that large boards are less effective in making board decisions, because if group size increases this will lead to more coordination- and

communication problems (Lipton and Lorsch, 1992 ; Jensen, 1993; Yermack, 1996; Jizi et al., 2014) Therefore, it can be claimed that smaller boards are more cohesive, more productive due to less communication- and coordination problems and therefore better in monitoring executives (Lipton and Lorsch, 1992, Jensen, 1993). Based on a sample of 452 U.S.

organizations between 1984 and 1991Yermack (1996) found a positive relationship between small boards and firm value, which is in line with the assumption that small boards are better in monitoring executives.

Ahmed et al. (2006) investigated the relationship between board size and earnings quality in a sample of New Zealand firms in 1991-1997. The authors found a negative relationship, because they claim that in smaller boards: “each individual will be more likely to take

12 personal responsibility… of the adequacy of financial reports and associated disclosure” (Ahmed et al. 2006, p. 421).

Thus, due to the communication- and coordination problems in larger boards, non-executives cannot perform their roles effectively (Said et al., 2009). Therefore, I present the following hypothesis:

Hypothesis 3A: Board size weakens the relationship between the degree of stakeholder interests and CSR disclosure.

However, there are also studies that claim based on a resource dependence argumentation, that larger boards have a positive effect on the extent of CSR disclosure. The paper Buniamin et al. (2010) argues that large boards have more non-executive directors with experience that may represent a “multitude of values on the board” (Halme and Huse, 1997, p. 142). Pearce and Zahra (1992) argue that the quality of corporate board decisions will increase if boards become larger, because larger boards have more non-executive directors with more specific knowledge. The paper of Dalton et al. (1999) suggests that large boards are associated with the planning of new strategies and therefore they are more likely to report strategic

information to publish their new strategies. The paper of Frias-Aceituno et al. (2013)

elaborates further on the argumentation of Pearce and Zahra (1992) and Dalton et al. (1999), they claim based on a resource dependence view that larger boards have more experts with more knowledge about various disciplines which is required for the preparation of CSR reports and therefore larger boards are more likely to report CSR related information. In addition, the paper of Zhang et al. (2013) claims that the presence of non-executive directors result in more attention for stakeholders, they argue: “a greater presence of non-executive directors likely elevates a firm’s effectiveness in managing its stakeholders through heightened salience of stakeholder claims” (p. 384).

The expected positive relationship between larger boards and CSR disclosure is supported by the study of Akhtaruddin, Hossain and Yao (2009), who investigated the relationship between corporate governance factors and voluntary disclosure in a sample of 110 Malaysian listed firms for the fiscal year 2002. The results of this study show that the most significant

corporate governance factor was board size. They found a positive relationship between board size and voluntary disclosure, indicating that large boards have more board capability to influence managers to engage in voluntary disclosure (Akhtaruddin, Hossain and Yao, 2009). A study by Buniamin et al. (2010) also investigated the relationship between corporate

13 governance factors and the extent of environmental reporting in a sample of Malaysian firms in 2005. They found that board size was the only factor that had a positive significant impact on environmental reporting. Thus, board size can be seen as an important moderator in the relationship between the degree of stakeholder interests by non-executive directors and CSR disclosure.

In short, what can be concluded from the above studies is that based on a resource dependence argumentation larger boards “brings greater opportunity for more links and hence access to resources” (Kiel and Nicholson, 2003, p. 7), what is required for the preparation of CSR reports. Therefore, the following hypothesis can be formulated:

Hypothesis 3B: Board size strengthens the relationship between the degree of stakeholder interests and CSR disclosure.

2.5 Board size and primary stakeholders

Due to the importance of primary stakeholders for organizations (Clarkson, 1995), it is of great concern to measure whether board size affects the relationship between primary board stakeholder interests and CSR disclosure. Therefore, in accordance with hypotheses 3A and 3B, the following two hypotheses can be formulated:

Hypothesis 4A: Board size weakens the relationship between the degree of stakeholder interests and CSR disclosure.

Hypothesis 4B: Board size strengthens the relationship between the degree of stakeholder interests and CSR disclosure.

3 Methodology

3.1 Sample

In order to examine the relationship between stakeholder interests by non-executive directors and the degree of CSR disclosure I used a sample of 155 Dutch organizations. After

observations with missing data are eliminated, the final sample contains 141 Dutch organizations. The organizations included in the sample are generally Dutch non-profit

14 organizations, such as housing associations, health-care institutions, educational institutions and other non-profit organizations.

In the Netherlands, organizations have a two-tier board structure, that means there is a

separation made between the management board and the supervisory board (Maassen, 1999). The management board is composed of executive directors and the supervisory board is composed of non-executive directors (Maassen, 1999).

To determine the stakeholder interests by non-executive directors I used an online tool that obtains information by conducting board evaluations. Through this online tool, I have obtained the survey data of Dutch boards for the fiscal years 2013-2015. The date on which the non-executive directors of an organization have participated the survey is leading for collecting data on the degree of CSR disclosure. CSR disclosure is measured by content analysis of the annual reports of the organization, therefore I used the annual report whereby the end of the fiscal year is closest to the date when the non-executive directors have

participated the survey.

Because there is no database for the financial data of the organizations in the sample, this data is collected manually by using the annual reports and financial statements of the

organizations.

3.2 Variable measurement

3.2.1 Dependent variable

The dependent variable in this study is the degree of CSR disclosure by Dutch organizations. The extent to which organizations use CSR is often measured on the basis of CSR disclosure (Dutch Transparency Benchmark), because disclosure is the primary means for organizations to communicate with its stakeholders (Popa et al., 2008).

The scientific literature contains various methods to measure CSR disclosure. In US studies the KLD database is often used, the database contains environmental, social, and governance information of large US companies (Harrison and Freeman, 1999). Another method for measuring CSR disclosure is by using the Dutch Transparency Benchmark. The Dutch Transparency Benchmark is an annual study to the content and quality of sustainability reporting by large Dutch organizations (Dutch Transparency Benchmark).

However, the above-mentioned methods are not applicable to this study, because the

15 was no database available, I collected the data manually on CSR disclosure. The most

commonly used research method for assessing CSR disclosure is content analysis (Milne and Adler, 1999). The definition of content analysis is according to Krippendorf (2004, p. 18): “ a research technique for making replicable and valid inferences from texts (or other meaningful matter) to the contexts of their use.”.

In this study I perform the content analysis based on the work of Deegan and Gordon (1996). Deegan and Gordon (1996) have measured environmental disclosure by counting words in the annual reports of organizations.

I compiled a Dutch CSR dictionary - with words that say something about CSR disclosure – based on the GRI-table for sustainability reporting (GRI, 2015). The GRI-table consists of 7 parts: strategy and analysis, organizational profile, governance, stakeholder engagement, identified material aspects and boundaries, report profile and ethics and integrity (GRI, 2015). All these parts of the GRI-table have been analysed and based on this, all important words from the GRI-table are noted. The GRI-table consists of English-speaking words, so all noted words are translated into Dutch-speaking words because the annual reports from the

organizations are written in Dutch. This resulted in a Dutch CSR dictionary. Appendix 1 shows an overview of the Dutch CSR dictionary. The GRI-table has been drawn up by the Global Reporting Initiative (GRI). The GRI-table is recognized worldwide by large

organizations, regarding disclosure on non-financial information. This is supported by the paper of Ball et al. (2006, p. 268): “the GRI-table claims to provide the basis of worldwide standardized, comparable reporting of the sustainability of organizations”. Therefore,

numerous studies used the GRI-table to determine CSR disclosure (Guthrie and Farnati, 2008; Morhardt et al., 2002; Gill et al., 2008; Dickenson et al. 2008). The method I used is similar to that of Dickinson et al. (2008) who compiled a dictionary based on the GRI guidelines of 2006.

I will perform the content analysis on the management report and the supervisory board report. Counting the number of words can be done manually or automatically. However, manual counting has some disadvantages, it is often a long and time-consuming process and may lead to an incorrect application of coding rules (Potter and Levine-Donnerstein, 1999). For this reason, I decided to use automatic word count software. The scientific literature often uses the word count software Linguistic Inquiry and Word Count (LIWC) (Robinson et al., 2013; Zavyalova et al., 2012). The word count software LIWC can automatically analyze words from a text. Applied to this research, LIWC analyzes the management report and supervisory report of the organizations from the sample and shows how often the words from

16 the Dutch CSR dictionary are mentioned in these two reports. Finally, for each organization in the sample it is insightful to what extent they report on CSR.

3.2.2 Independent variable

The independent variable in this study are the total board stakeholder interests in Dutch non-profit organizations. Through an online tool, the non-executive directors of Dutch

organizations have filled in a survey. The part of the data survey that I use, are the answers that individual non-executive directors have given to the following question: “to what extent do you as individual non-executive director take the interests of stakeholders into account in your work as non-executives?”

The non-executive directors had to answer this question for every single stakeholder group. This is done for each of the following stakeholders: executive directors, employees, middle management, shareholders, lenders, workers council, suppliers, customers, media, creditors, competitors, consultants, national government, local government, society, non-governmental organizations and external supervisors. The non-executive directors had to answer on a response scale of 7, to what extent they took into account the interests of these above mentioned parties.

To make sure that the extent to which the different underlying items (the stakeholder interests by non-executive directors of the 16 different stakeholder groups) are well enough related to be combined in a single variable (the total stakeholder interests by non-executive directors), a reliability analysis has been performed. The reliability analysis shows that the scale was highly reliable (α = 0,86).

3.2.2.1 Total board stakeholder interests

The total board stakeholder interests by individual non-executive directors is calculated by taken the average of all stakeholder groups. However, this study focuses on “board level”. Therefore, I calculated the average board stakeholder interests. A factor analysis has been conducted to analyze whether there are separate stakeholder groups within the total

stakeholder group. In the factor analysis I included the sixteen stakeholder groups, further I used an orthogonal rotation (varimax). The rotated component of the factor analysis show 4 factors. Thus, the results of the factor analysis show that the total group of stakeholders can be subdivided into 4 separate stakeholder groups. Research has been conducted by using

17 scientific literature, to examine why these four separate stakeholder groups emerged from the factor analysis. However, the scientific literature could not explain why some stakeholder groups belong to a separate factor. As a result, these subgroups have little meaning and therefore it is justifiable to merge the individual stakeholder groups into one construct: total board stakeholder interests.

The calculation for calculating the total board stakeholder interests (TOSTAK_IN) is done by the following formula:

𝑇𝑜𝑡𝑎𝑙 𝑏𝑜𝑎𝑟𝑑 𝑠𝑡𝑎𝑘𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑠 =𝑇ℎ𝑒 𝑠𝑢𝑚 𝑜𝑓 𝑎𝑙𝑙 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙 𝑠𝑡𝑎𝑘𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑠 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑛𝑜𝑛 − 𝑒𝑥𝑒𝑐𝑢𝑡𝑖𝑣𝑒 𝑑𝑖𝑟𝑒𝑐𝑡𝑜𝑟𝑠

With this formula, the average board stakeholder interests are calculated. Because you converge from individual- to board level, it is important to test whether there is variance on board level. Thus, you measure whether there are major differences between non-executive directors in the board. To test this, I used in accordance with the paper of Veltrop et al. (2015) an intra-class correlation coefficient. (ICC1). The paper of Veltrop et al. (2015, p.152) states:

“the intra-class correlation (ICC1) can be used to determine whether aggregation to the

group level was accurate”.

An ICC1 of ,01 might be considered as a “small” effect, an ICC1 of ,10 might be considered

as a “medium effect”, and finally an ICC1 of 0,25 and higher can be considered as a “large”

effect (Murphy and Myors, 1998; LeBreton and Senter, 2008). The ICC1 shows a value of

0,13 for the total board stakeholder interests. So based on the above studies, the ICC1 for the

board stakeholder interest can be considered as a “medium effect”. This means that there are differences between board members, but the differences are not so large that no analyzes can be performed. Together, from the results it can be deducted that average total board

stakeholder interests is an acceptable board construct.

3.2.2.2 Primary board stakeholder interests

According to Clarkson (1995) the following stakeholder groups may be classified as primary stakeholder groups: shareholders and investors, employees, customers, suppliers and the government and society. Therefore, the following stakeholder groups will be used from the online tool for measuring the average primary board stakeholder interests : employees,

18 shareholders, workers council, suppliers, customers, national government, local government and society. To make sure that the extent to which the different underlying items (the primary stakeholder interests by non-executive directors of the 8 different stakeholder groups) are well enough related to be combined in a single variable (the total primary stakeholder interests by non-executive directors), a reliability analysis has been performed. The reliability analysis shows that the scale was reliable (α = 0,79).

The average primary stakeholders interests by individual non-executive directors is calculated by taken the average of all primary stakeholder groups. Next, I calculated the average board primary stakeholder interests (PRISTAK_IN). This calculation is done by the following formula:

𝑃𝑟𝑖𝑚𝑎𝑟𝑦 𝑏𝑜𝑎𝑟𝑑 𝑠𝑡𝑎𝑘𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑠 =𝑇ℎ𝑒 𝑠𝑢𝑚 𝑜𝑓 𝑎𝑙𝑙 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙 𝑝𝑟𝑖𝑚𝑎𝑟𝑦 𝑠𝑡𝑎𝑘𝑒ℎ𝑜𝑙𝑑𝑒𝑟 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑠 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑛𝑜𝑛 − 𝑒𝑥𝑒𝑐𝑢𝑡𝑖𝑣𝑒 𝑑𝑖𝑟𝑒𝑐𝑡𝑜𝑟𝑠

3.2.3 Moderating variable

The moderating variable in this study is board size (B_SIZE). In the Netherlands you have in contrary to other countries like the US a two-tier board structure, which means that the board of directors is composed of the management board and supervisory board who supervise the management board (Maassen, 1999). In this study, I mean with “board size” the number of non-executive directors in the board, actually the respondents per board. This data is collected from the annual reports of the organizations in the sample.

3.2.4 Control variables

In this section, I will add control variables that affect CSR disclosure by organizations, to avoid bias in the results. The control variables will be determined on the basis of literature who previously found a link between the control variable and CSR disclosure.

3.2.4.1 Firm size

Numerous studies argue that firm size influences the degree of CSR disclosure (Hackston and Milne, 1996; Gray et al., 1995). Large companies are more visible and therefore they feel more pressure from external groups (Meek et al., 1995), therefore these companies disclose more information to show to external groups that their decisions are legitimate (Brammer and Pavelin, 2006; Gamerschlag et al., 2011). In this study I measured firm size by log total assets (TOA), this is in agreement with the paper of and Hackston and Milne (1996)

19 3.2.4.2 Profitability

Many scientific studies add profitability as a control variable of CSR disclosure (Hannifa and Cooke, 2005; Ho and Wong, 2001; Eng and Mak, 2003). Hannifa and Cooke (2005) claim in their paper that a positive relationship can be expected between profitability and CSR

disclosure, they argue: “the management of profitability organizations have more freedom and flexibility to undertake and reveal more extensive social responsibility programmes to shareholders” (p. 402). In this study I use ROA (ROA) as a proxy for profitability (Fabrizi et al., 2014).

3.2.4.3 Audit committee

Many studies have found a positive association between the presence of an audit committee (AC) and voluntary disclosure (Al-Shammari and Al-Sultan, 2010; Ho and Wong, 2001). The function of the audit committee is to ensure the quality of the financial reporting and annual report (Collier, 1993; DeZoort,1997). Arcay and Vasquez (2005) argue that an audit

committee is crucial for meeting the information needs of investors. An audit committee consists mainly of non-executive directors (Ho and Wong, 2001) and therefore an audit committee can be seen as a control mechanism over executive directors (Allegrini & Greco, 2013). Therefore, Forker (1992) argues that the presence of an audit committee as monitoring device will lead to a better disclosure quality. In this study, I use in accordance with the paper of Ho and Wong (2001) a dummy variable for the presence of an audit committee. These dummy variables were coded “0” to indicate the non-existence of an audit committee, and “1” to indicate the existence of an audit committee (AC).

4 Empirical results

4.1 Descriptive statistics

Table 1 shows the results of the descriptive statistics. It is important to note that the descriptive statistics are based on standardized variables, since I did not have access to the raw scores provided by individual board members, due to the confidentiality of the data. For this reason the mean and standard deviation are not meaningful, therefore this two variables will not be included in table 1. To test the correlation between variables, the Pearson

correlation test has been used. The results from the Pearson correlation test show a negative relationship between board stakeholder interests and CSR disclosure (r = -0,10, p < 0,05). In addition, a negative significant correlation was found between primary board stakeholder

20 interests and CSR disclosure (r= -0,18, p < 0,05). These results show the reverse of what is expected by hypothesis 1. Hypothesis 1 predicts a positive relationship between board stakeholder interests and CSR disclosure. However, the results show a negative relationship between board stakeholder interests and CSR disclosure.

What also appears from table 1 is that the negative correlation between primary board stakeholder interests and CSR disclosure is stronger than between total board stakeholder interests and CSR disclosure.

In addition, a strong negative significant correlation was found between firm size and CSR disclosure (r = 0,28, p > 0,01). While it was expected that firm size as control variable has a positive impact on CSR disclosure. Also the control variables profitability and the presence of an audit committee have in contrary to my expectations a negative impact on CSR disclosure, but no negative significant relationship was found.

Finally, table 1 shows that board size is the only variable that positively correlates with CSR disclosure, there is even found a positive significant relationship (r = 0,16, p < 0,01).

Table 1: Correlation table

Variables N 1 2 3 4 5 6 7

1 CSR disclosure 141 -

2 Total board stakeholder interests 141 -0,10 -

3.Primary board stakeholder interests 141 -0,18* 0,93*** -

4 Firm size 141 -0,28** 0,22** 0,30** -

5 Profitability 141 -0,08 0,15 0,13 0,07 -

6 Audit committee 141 -0,10 0,10 0,09 0,37* 0,00 -

7 Board size 141 0,16* -0,03 -0,09 -0,02 0,05 0,17* -

* p < 0,05. ** p < 0,01. *** p < 0,001.

4.2 Regression results hypothesis 1 and 3

In order to test the first and third hypothesis in this study, the following three regression model has been developed:

Model 1: CSRD=  TOA +  ROA +  AC 

21 Model 3: CSRD=  TOA +  ROA +  AC +  TOSTAK_IN + 5 B_SIZE +

6INT_TERM 

Model 4: CSRD =  TOA +  ROA +  AC +  PRISTAK_IN + 5 B_SIZE +

6INT_TERM2  Where:

CSRD = The degree of CSR disclosure TOA = Total assets

ROA = Return on assets

AC = The presence of an audit committee

TOSTAK_IN = Total board stakeholder interests

PRISTAK_IN = The primary board stakeholder interests B_SIZE = Board size

INT_TERM = Interaction term – Total board stakeholder interests x Board size – INT_TERM2 = Interaction term – Primary board stakeholder interests x Board size -

Table 2 Regression results hypothesis 1 and 3

CSRD (1) CSRD (2) CSRD (3) CSRD (4)

Step and variables Stan. Beta Stan. Beta Stan. Beta Stan. Beta

Control variables

Firm size -0,28** -0,27** -0,25** -0,24**

Profitability 0,07 -0,06 -0,08 -0,08

Audit committee -0,01 -0,01 -0,05 -0,05

Main effects

Total board stakeholder interests -0,03 -0,05

Primary board stakeholder interests -0,08

Board Size 0,17* 0,18*

Two-way interaction

Total board stakeholder interests x Board size -0,18*

Primary board stakeholder interests x Board size -0,16*

R Square 0,09 0,09 0,14 0,14

Adjusted R Square 0,07** 0,06 0,10* 0,11*

22 Table 1 shows the regression results of the four models. Remarkably in table 2, is that in each model a strong negative significant relationship was found between the control variable firm size and CSR disclosure. These findings are inconsistent with my expectations.

In addition, table 2 shows that the adjusted R Squares of the model 1,2 and 4 are significant. Hypothesis 1 has been tested by regression model 2. The model shows a negative relationship between total board stakeholder interests and CSR disclosure, B = -0,03, p = 0,71. These results reveal that an increase in board stakeholder interests will lead to less organizational CSR disclosure. These results contradict hypothesis 1, which expect a positive relationship between board stakeholder interests and CSR disclosure. Therefore, the null hypothesis with respect to hypothesis 1 cannot be rejected. Thus, hypothesis 1 must be rejected.

Hypothesis 3A and 3B have been tested by regression model 3. In model 3, an interaction term has been added to measure the effect of the moderator board size. The results from model 3 show a significant negative relationship the interaction term and CSR disclosure, B = -0,18, p < 0,05. This significant negative relationship means that an increase in boards

stakeholder interests leads to less CSR disclosure and that this relationship is strengthened as boards become larger. Conversely, if boards become smaller this results in a weakening of the negative relationship between board stakeholder interests and CSR disclosure. Thus, it can be concluded that hypothesis 3B must be rejected, while hypothesis 3A has to be adopted. Figure 1 shows a plot of the interaction effect.

23

Figure 1: Interaction effect – Board stakeholder interests x Board size -

Hypotheses 4A and 4B have been tested by model 4. The results in table 4 show that a negative significant relation was found between the interaction term and CSR disclosure, B = -0,16, p < 0,05. This significant negative relationship means that an increase in primary board stakeholder interests leads to less CSR disclosure and that this relationship is strengthened as boards become larger. Thus, it can be concluded that hypothesis 4B must be rejected, while hypothesis 4A has to be adopted. Figure 2 shows a plot of the interaction effect.

Figure 2: Interaction effect – Primary board stakeholder interests x Board size - -0,8 -0,6 -0,4 -0,2 0 0,2 0,4 0,6 0,8 CSR d isclosu re

Low Board size High Board size

Low stakeholder interest High stakeholder interest

-0,8 -0,6 -0,4 -0,2 0 0,2 0,4 0,6 0,8 CSR d isclosu re

Low Board size High Board size

Low primary

stakeholder interest

High primary stakeholder interests

24

4.3 Regression results hypothesis 2

Hypothesis 2 has been tested on the basis of the following two regression models:

Model 1: CSRD=  TOA +  ROA +  AC +  TOSTAK_IN  Model 2: CSRD=  TOA +  ROA +  AC +  PRISTAK_IN 

Table 3 Regression results hypothesis 2

Model 1 Model 2

Step and variables Stan. Beta Stan. Beta

Intercept 0 0 Control variables Firm size -0,27** -0,25** Profitability 0,06 -0,06 Audit committee -0,01 -0,01 Main effects

Total board stakeholder interests -0,03

Primary board stakeholder interests -0,09

R Square 0,09 0,09

Adjusted R Square 0,06 0,07

* p < 0,05. ** p < 0,01. *** p < 0,001.

The results from table 3 show that there is both a negative relationship between total board stakeholder interests and CSR disclosure (B = -0,03) and between primary board stakeholder interests and CSR disclosure (B = -0,09).

Hypothesis 2 predicts a stronger positive relationship between the degree of primary stakeholder interests by non-executive directors in an organization’s board and CSR disclosure than total stakeholder interests by non-executive directors. Based on the results from table 3, this hypothesis must be rejected. This is because the beta for total board stakeholder interests (B = -0,03) is less negative than that of the primary board stakeholder interests (B = -0,09).

Based on the results it can also be deducted that total board stakeholder interests do not significantly differ from primary board stakeholder interests. The regression coefficient for primary board stakeholder interests is B = -0,09 and not statistically significant from 0. For

25 this reason, the primary board stakeholder interests are certainly not significantly different from the total board stakeholder interests B = -0,03. Therefore, hypothesis 2 must be rejected.

4.4 Additional analysis

The results from table 3 showed no significant difference between total board stakeholder interests and primary board stakeholder interests and its impact on CSR disclosure. In this section an additional analysis is conducted to investigate whether there is a significant difference between total board stakeholder interests and primary board stakeholder interests. The additional analysis further addresses the differences between total board stakeholder interests and primary board stakeholder interests.

As mentioned in the methodology part of this study, the following stakeholder groups are classified as primary stakeholder groups:, employees, shareholders, suppliers, customers, national government, local government and society (Clarkson, 1995). What is striking about this list of stakeholders, is that these stakeholder groups except for the society all have frequent contact with the organization. Therefore, much is already communicated, because they often come into contact with each other. Other stakeholder groups like the media and creditors are further away from the organization and therefore have less contact with the organization.

This fact may explain why the regression coefficient of primary board stakeholder interest was stronger negative (B = -0,09) than the regression coefficient of total board stakeholder interests (B = -0,03). It could be because the organization communicates more often and directly with the primary stakeholders, this leads to fewer incentives to report on CSR. In order to maintain the above proposition, an additional analysis will be performed with a new regression model. The models are the same as in table 3, only the independent variable primary board stakeholder interests will be adjusted. The stakeholder group society will be removed from the primary board stakeholder interests, because the society have no “direct” contact with the organization.

The results of the two regression models show exactly the same results as projected in table 3. Thus, also the additional analysis shows no significant difference between total board

stakeholder interests and primary board stakeholder interests. In conclusion, hypothesis 2 must be rejected.

26

5 Discussion and conclusions

The purpose of this study is to investigate the relationship between board stakeholder interests and the extent of organizational CSR disclosure and the effect of board size on this

relationship. Based on the stakeholder theory, I expected that boards with high non-executive stakeholder interests will report more about CSR. Because CSR disclosure can be seen as a mechanism to satisfy the information needs of the stakeholders (Unerman, Bebbington and O'Dwyer, 2007; Guthrie et al., 2004).

In contrast to the expectations, no significant positive relationship was found between board stakeholder interests and CSR disclosure. On the other hand, a statistical significant

moderation effect of board size has been found. The results show a negative significant relation between the interaction term and CSR disclosure, this indicates that if boards become smaller it results in a weakening of the negative relationship between total board stakeholder interests and CSR disclosure. Conversely, this significant negative relationship also indicates that if boards become larger this results in a strengthening of the negative relationship

between total board stakeholder interests and CSR disclosure. Thus, this indicates that if boards with high total stakeholder interests become larger they will report significantly less about CSR. The same moderation effect of board size has been found for the relationship between primary board stakeholder interests and CSR disclosure.

This result supports the argument that in larger boards communication- and coordination problems can arise, because it is more difficult to organize board meetings what leads to less efficient decision-making (Jensen, 1993; Guest, 2009; Yermack, 1996). In addition, this result supports also the argumentation that larger boards are less cohesive and productive, because it is less likely that the group members share a common goal and therefore communicate less clearly with each other (Lipton and Lorsch, 1992; Guest, 2009). Thus, this moderation effect shows that interpreting boards as human decision making groups are important, since the size of the board is an important contingency.

Furthermore, no evidence was found for a stronger positive relationship between the degree of primary stakeholder interests by non-executive directors in an organization’s board and CSR disclosure than total stakeholder interests by non-executive directors. Surprisingly, the results show a stronger but not significant negative relationship between primary board stakeholder interests and CSR disclosure than total board stakeholder interests and CSR disclosure. An explanation for this might be that organizations communicate more often and directly with these primary stakeholders, which makes it less necessary to report on CSR. Because

27 stakeholder groups that are classified as primary stakeholders, are in direct contact with the organization with the exception of the society. It could be that the information needs of these primary stakeholders have already been met by communicating regularly with the

organization. Therefore, no CSR disclosure is needed to satisfy the information needs of these primary stakeholders. To test this statement, an additional analysis was conducted, including all primary board stakeholders with whom the organization has direct and often contact. The results from the additional analysis showed that this statement does not have to be rejected.

A striking result of this study, is that a strong statistically significant negative relationship was found between the control variable firm size and CSR disclosure. This contradicts the existing literature, suggesting that large companies are more visible and therefore feel more pressure from external groups (Meek et al., 1995). This pressure will lead companies to disclose more information to external groups to show that their decisions are legitimate. However, an explanation for this unexpected relationship might be that small organizations have to gain more with respect of obtaining legitimacy. These relative small organizations will therefore report more about CSR to show that they operate within the bounds and norms of the society (Deegan and Unerman, 2006). While large companies are more visible (Meek et al., 1995) and therefore have to report less on CSR to obtain legitimacy because much

information about these companies is already known from other sources than CSR disclosure.

In this study no evidence has been found for a significant positive relationship between total board stakeholder interests and CSR disclosure. Nevertheless, this study contributes to the scientific literature that deals with the stakeholder theory. Contrary to the studies of Unerman et al. (2007) and Guthrie (2004), this study shows that CSR disclosure is not so important for organizations, to satisfy the stakeholder information needs. The stakeholder theory also assumes that the primary stakeholder groups are more important for the organization than the other groups of stakeholders. However, the results of this study show that no distinction can be made between certain stakeholder groups affecting CSR disclosure.

This study has also contributed to the literature of corporate governance, because this study has examined whether the board as corporate governance influences the degree of CSR disclosure. This allows shareholders to better optimize the structure of the boards.

This study has contributed to the discussion in the scientific literature about the size of the board. There is no clear evidence in the scientific literature about the optimal board size. This

28 study has shown that relatively small boards are better for the level of organizational CSR disclosure.

6 Limitations and directions for future research

There are also some limitations of this study. The first limitation of this study is the low sample size. Low sample size may lead to “low statistical power” (Button et al., 2013). This causes that the sample does not show the true effect, which makes it difficult to determine the reliability (Button et al., 2013). Therefore, for further research, it is important to make use of a large sample.

Secondly, an important limitation of this study is that the sample mainly includes

organizations from the non-profit sector. These non-profit organizations are often subsidized with public funds, which might lead to CSR disclosure. Therefore, it is questionable whether the results of this study are generalizable to other sectors. For future research it is important to include companies from different sectors in the sample.

Thirdly, data on CSR disclosure is obtained by a content analysis of the management report and supervisory report. However, there were management reports and supervisory reports that cannot be analyzed by LIWC. As a result, for some organizations in the sample, no data is collected about the extent of CSR disclosure. These organizations have been removed from the sample. Therefore, an important limitation of this study are the missing data, which may means that the missing data are the organizations who report relatively many or less about CSR. Consequently, it might be that there are no reliable results in this study.

Fourthly, the use of LIWC also provides limitations. Prior to the analysis, the CSR dictionary has been exported to LIWC. Then LIWC analyzes how many words from the CSR dictionary appear in each separate management report and supervisory report. However, because LIWC is a computerized text analysis program, there is a risk that LIWC recognizes words from the CSR dictionary, which have a complete different meaning in the text (Tausczik and

Pennebaker, 2010). If the words are coded manually, such errors can be prevented from the sample by using human mind.

Finally, determining the CSR dictionary based on the GRI-table is not without risks. A study of Moneva et al. (2006) criticizes the GRI guidelines, because not all aspects of CSR are included in the GRI-table.

29 This research is an important guide for future research. This study focused mainly on non-profit organizations. For future research it is interesting to investigate whether a significant positive relationship can be found in the profit sector between board stakeholder interests and CSR disclosure. This can yield interesting differences between the non-profit and profit sector, in the field of CSR disclosure. For future research it is also important to investigate whether there are differences in CSR disclosure between sectors.

In the Netherlands we use a two-tier board system. Future research can focus on a sample involving companies with an one-tier board. In an one-tier board system, there may be CEO duality, which means that the CEO is also the chairman of the supervisory board. CEO duality gives the CEO more power within an organization. As a result, this can lead to less effective control by the board (Tsui and Gul, 2000) allowing the CEO to make decisions that do not benefit the stakeholders (Khan et al., 2013). Thus, the pressure of the CEO can lead to less reporting, because the CEO is afraid that private information will be published that could harm his own interests, therefore the CEO is going to use his dominance to stop these

disclosure decisions. For future research it is important to investigate the relationship between board stakeholder interests and CSR disclosure, for example in countries like the US where they use a two-tier board system.

This study found no significant link between the presence of an audit committee and CSR disclosure. Nevertheless, more research is needed in this area. The audit committee is the body in the organization that must ensure the quality of the reporting (Collier, 1993). The audit committee consists mainly of non-executive directors and therefore an audit committee can be seen as a control mechanism over executive directors. Forker (1992) claims in his paper that the presence of an audit committee strengthens the internal control within an organization which results in better quality of disclosures. Due to the importance of audit committees, future research can investigate the relationship between audit committee stakeholder interests and CSR disclosure.

30

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