M.C. Huijsmans1
Supervisor: prof. dr. C.L.M. Hermes
January 13th, 2017
Abstract
This paper examines the effect of executive board-level national culture and board nationality diversity on corporate social performance (CSP). The sample constitutes of 130 executive boards of non-financial firms from Germany, France, the Netherlands, Sweden, Switzerland and the UK over the time period 2010-2014. Based on the upper echelon theory and the notion of national culture, board-level national culture is determined across Hofstede’s dimensions of power distance, individualism, masculinity and power distance. In this paper, no evidence is provided of a significant relationship between board-level national culture and the corporate social performance of the firm. In addition, nationality diversity as a double-edged sword could both enhance and hamper CSP. In this research, no significant relationship between board nationality diversity and CSP is found. In conclusion, alterations of the board composition in terms of nationality in order to foster CSP seem unjustified based on the results of this paper.
Key words: National culture, board culture, board diversity, nationality diversity, corporate social performance, upper echelon theory
JEL classification: F66, M12, M14.
1Address: Abeelstraat 57, 9741 ED Groningen, the Netherlands. E-mail: marthuijsmans@gmail.com. Student
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1. Introduction
In recent times, two wide-ranging developments are changing the manner in which global business is conducted. First, corporate board compositions once exemplary of ‘the old boys network’ rapidly change to encompass more diversity, especially with regard to gender (e.g. Carter, Simkins, and Simpson, 2003; Bear, Rahman, and Post, 2010; Post, Rahman, and Rubow, 2011; Harjoto, Laksmana, and Lee, 2015). Furthermore, boards increasingly include directors from different nationalities as a resemblance of the highly globalized economy. In addition to greater diversity in terms of nationality, the executive directors from different countriesbring the different norms and values of their national cultures into the firm. As such, the cultural influences on decision making processes are subject to change due to an increased number of foreign executives. Second, recent research in Nature indicates human-induced climate change started from the beginning of the industrial revolution and has continued from the year 1830 onwards (Abram et al., 2016). Therefore, globalization prompts discussions regarding the sustainability of current global supply chains for the provision of food, water, clean energy and other goods for consumption. According to the OECD, adverse consequences arise due to the rapid pace of production, trade and consumption of material goods in unprecedented quantities (Verdier and Huwart, 2013). As a result, globalization is indirectly responsible for the increase in greenhouse gas emissions, deforestation and impoverishing of biodiversity. Consequently, the manner in which corporations address these issues and thus the extent of their corporate social performance (CSP) becomes progressively important. Both academics and practitioners are interested in discovering the determinants of corporate social performance and the area of board composition and diversity could be a fruitful and partly unexplored avenue. In this paper, the aim is therefore to investigate whether executive board national culture and board nationality diversity affect CSP.
3 country-level affect the corporate social performance of firms in the particular countries (Waldman, Sully de Luque, Washburn, and House, 2006; Ringov and Zollo, 2007; Ho, Wang, and Vitell, 2012; Peng, Dashdeleg, and Chih, 2012; Thanetsunthorn, 2015; Cai, Pan, and Statman, 2016). This paper is to the best of our knowledge the first to combine the upper echelon theory and the notion of national culture to examine whether board-level national culture affects the CSP of companies in a similar vein as at the country-level. In this research, the focus is on board executive board members rather than non-executives, as the former determine the strategic course for the company and implement the decisions concerning CSP. The executive board is defined as the executive board, management board or management team as stated in the annual report or on the corporate website of the company. In general, boards whose directors’ nationalities exhibit national cultures that are on average more oriented towards power distance, individualism and masculinity are expected to adversely affect CSP and those avoiding uncertainty to positively impact CSP. However, the results implicate there is no significant relationship between board national culture and CSP.
4 This paper contributes to the current literature in various ways. First, whilst national culture affects CSP within certain geographic regions, the board-level effects of national culture remains under researched (Harjoto et al., 2015; Thanetsunthorn, 2015; Frijns, Dodd, and Cimerova, 2016). As corporate social responsibility is thriving in terms of relevance and attention, identifying determinants of CSP is of importance to both academics and practitioners. We advocate this research is to the best of our knowledge the first to address the relationship between national culture and CSP on board-level. Second, this paper is among the first to link board nationality diversity to CSP. As board diversity is a double edged-sword, nationality diversity could both positively and negatively affect CSP. Based on this research, the theory seems incorrect due to the insignificant relationship and the opposite effects of a shortage or abundance of board nationality diversity on CSP.
The practical implications of this study are the following. First, based on the upper echelon theory and cultural research, certain national cultural attributes positively affect the corporate social performance of the firm. When the corporation intends to foster CSP as a response to requests of its owners, customers, employees and other stakeholders, executive board members of certain national cultural backgrounds could be hired in theory. Second, Post et al. (2011) argue board diversification improves certain aspects of corporate social responsibility and performance. As such, corporations could alter their recruitment policies to include directors of various nationalities in order to foster board diversity and hence corporate social performance. Both implications build on a positive notion of CSP that ultimately leads to higher firm valuations (Bear et al., 2010; El Ghoul, Guedhami, Kwok, and Mishra, 2016), positive announcement returns (Flammer, 2015), lower cost of equity capital (Dhaliwal, Li, Tsang, and Yang, 2011; El Ghoul, Guedhami, and Kim, 2011) and lower the cost of debt (Goss and Roberts, 2011). However, fostering CSP by altering the board composition to represent different national cultures or a different level of nationality diversity seems unjustified due to the insignificant relationships in this study.
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2. Literature review
2.1 Board national culture and corporate social performance
Currently, board composition and board characteristics have been extensively researched based on theoretical perspectives such as the agency theory and resource dependency theory. In their seminal paper, Hambrick and Mason (1984) formulate an additional theoretical perspective and find that executive’s individual characteristics affect organizational outcomes. In the upper echelons theory, both strategic decisions and organizational effectiveness are reflections of executives’ backgrounds, experiences, values and personalities (Hambrick and Mason, 1984; Hambrick, 2007). Based on extensive cultural research, national culture is “widely recognized as the critical factor determining differences
between individuals’ and organizations’ values and belief systems, traditions, and customs from different cultural backgrounds (Hofstede, 1980; Thanetsunthorn, 2015, p.39).” Hofstede (1980) describes culture
as homogeneous norms and values that are different between groups of humans and influence human behavior. Cultural values are argued to be imposed onto a human being since birth and provide restrictions and benefits (Luna and Gupta, 2001). Additionally, a culture is maintained and transferred within the members of the group and affects decision making and behaviour at a later age (Arnould and Thompson, 2005). Nonetheless, Frijns et al. (2016) state board nationality has been largely ignored within board diversity research, whilst culture is one of the bases of decision-making and even executives are not immune to cultural biases. In line with the upper echelon theory, Chin, Hambrick, and Trevino (2013) observe values could enter into executive’s choices in two manners. First, the values could directly influence the choice when the executive selects a course of action that suits his or her values after evaluating the available options. Second, an executive unintentionally searches for information and alternatives that suit his or her values and consequently perceives and interprets the specific information in a value-congruent way. As a result, the values of executives have the potential to affect corporate decision making processes and thus outcomes of corporate actions such as initiatives that foster CSP (Chin et al., 2013). For example, Stulz and Williamson (2003) find national culture affects financial choices and resource allocation. Therefore, directors with national cultures favouring CSR could enhance the means available for green and social initiatives and increase the subsequent corporate social performance.
In this paper, CSR is defined based on stakeholder theory as “actions on the part of the firm that further
6 performance entails the performance in adhering to the needs and goals of identifiable stakeholder groups or society at large. In the contemporary economy, corporate social responsibility and performance have become strategic issues for companies that are critical items on board’s agendas (Kakabadse, 2007). Despite endogeneity issues, enhanced CSP is believed to have a positive effect on financial performance in terms of higher ROE and EBIT margins (Margolis and Walsh, 2003; Barta, Kleiner, and Neumann, 2012). However, Friedman (1970) advocates the sole responsibility of a firm is to increase the profits for its shareholders and therefore views CSP increasing initiatives as an implicit tax that decreases performance and firm value. In addition, Nollet, Filis and Mitrokostas (2016) find CSP negatively affects corporate financial performance and could only yield a positive long-run effect for the governance pillar (ESG) after a certain threshold of governance-related investments in CSP is made. In controversial industries, stakeholders could suspect that companies are trying to build positive reputations by enhancing their corporate social performance and diverting the attention of their negative impacts (Cai, Jo, and Pan, 2012; Moura-Leite, Padgett, and Galán, 2014). Therefore, the corporate financial performance of the firm could decrease as stakeholder groups take action and penalize the firm, e.g. by refraining from buying products or providing loans (Rodrigo, Duran, and Arenas, 2016).
On the other hand, enhanced corporate social performance yields higher firm valuations (Bear et al., 2010; El Ghoul et al., 2016), positive announcement returns (Flammer, 2015), lower cost of equity capital (Dhaliwal et al., 2011; El Ghoul et al., 2011) and lower the cost of debt (Goss and Roberts, 2011). In addition, increasing CSP could cater to customers and attract employees that are responsive to sustainable practices with the possibility to increase profitability in the end (McWilliams and Siegel, 2001). In this paper, high corporate social performance is implicitly assumed to be beneficial for companies, despite extensive academic critique and ambiguity whether CSP could be insignificantly or even negatively affecting corporate outcomes (Friedman, 1970; Nollet et al., 2016).
Within cultural research, the seminal work of Hofstede (e.g. 1980, 2001) provided the foundations of numerous research avenues for years to come.2 The framework developed by Hofstede (1980) serves as
2 The work of Hofstede has been extensively used within academic research and is equally criticized. As a response,
7 the basis on which national culture is based in this study and comprises of four different cultural dimensions: individualism (IDV) versus collectivism, power distance (PDI), masculinity versus femininity (MAS) and uncertainty avoidance (UA) which will be explained in turn shortly. First, in individualistic societies social ties are loosely-knit as individuals primarily focus on their own interests and those of their immediate families, as opposed to collectivistic societies that are more concerned about the interests and welfare of the group (Hofstede, 1980). Second, power distance resembles the degree to which societies accept and expect hierarchical order and inequality. Third, masculine societies are characterized by increased value on competitiveness, achievement, assertiveness, power and material reward for success as in contrast to feminine societies that tend to value relationships, cooperation, caring, modesty and quality of life (Hofstede, 1980). Finally, uncertainty avoidance describes the degree to which individuals in society accept uncertainty and ambiguity. A high score on the uncertainty avoidance dimension entails a preference for rigid codes of conduct and strict laws, while a low score yields more flexible attitudes and riskier behavior (Hofstede, 1980).
In this paper, the board-level national culture is advocated to influence decisions regarding CSR initiatives and in turn affect the CSP of the firm. Therefore, this section continues with the formulation of hypotheses regarding the impact of board national culture on CSP based on Hofstede’s (1980) four cultural dimensions.
2.1.1 Power distance
8 On the other hand, people in low power distance cultures strive for an equal distribution of power. As such, corporate executives from these cultures are not entirely free to pursue their own interests. In general, shareholders’ interests and managerial self-interest in financial terms are frequently aligned due to governance structures. Based on the dimension of power distance, these executives are expected to focus less on their self-interests and to increasingly adhere to stakeholder and minority shareholder pressures due to more equal power distribution. Therefore, they are more likely to engage in CSR practices and their firms exhibit a better corporate social performance (Thanetsunthorn, 2015). Furthermore, Ringov and Zollo (2007) indicate social and environmental initiatives are more likely to emerge and be openly discussed if power distance is low. Subsequently, low power distance should have a positive impact on the timely recognition and remedy of social and environmental risks. Both examples depict low power distance of boards to be favourable for CSR practices among the social and environmental categories. Based on the abovementioned literature, the following hypothesis is formulated:
Hypothesis 1a: Higher board-level power distance (PDI) adversely influences CSP
2.1.2 Individualism
9 could affect the company’s orientation towards CSR initiatives. However, this broader corporate governance perspective remains outside the scope of this research.
On the contrary, people in collectivistic societies are more concerned about the interests and welfare from the group rather than their personal interests (Ho et al., 2012; Thanetsunthorn, 2015). Therefore, collectivists highly value the impact of business on society and how corporations fulfill their responsibilities towards others. Following the stakeholder theory of Freeman (1984), individual executives could subordinate their personal or corporate interests in favour of other stakeholder groups or society at large. Consequently, individuals from more collectivistic societies are expected to emphasize the broad range of stakeholders’ interests and conduct CSR practices accordingly. In line with previous literature, the following hypothesis is stated:
Hypothesis 1b: Higher board-level individualism (IDV) adversely influences CSP 2.1.3 Masculinity
In masculine cultures, individuals regard competitiveness, achievement, power and material success as desirable characteristics (Hofstede, 1980). In order to accelerate career advancement, individuals act solely in the interest of the firm and neglect affairs that could negatively affect the competitive position or financial result of the firm. Consequently, highly masculine societies assign little value to caring for others, inclusion and solidarity (Ringov and Zollo, 2007). In the view of responsibility, the care for and inclusion of (vulnerable) stakeholder groups with corporate decision making would positively affect CSP.
Furthermore, feminine societies favour relationships and cooperation (Hofstede, 1980). On the other hand, cooperation is considered a sign of weakness in masculine societies (Ringov and Zollo, 2007) and masculinity inhibits helping and cooperative behavior (Ho et al., 2012). As a result, close cooperation with stakeholders such as consumers, suppliers and local communities risks being frustrated. Consequently, when corporate executives originate from countries with masculine national cultures stakeholders’ interests are taken less into account and CSP is expected to be inferior. Therefore, the following hypothesis is stated:
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2.1.4 Uncertainty avoidance
According to Hofstede (1980), individuals in societies with a high score on uncertainty avoidance dislike and are uncomfortable with uncertain and ambiguous situations. Therefore, rigid codes of conduct, strict laws and regulations are preferred to minimize uncertainty (Thanetsunthorn, 2015). Uncertainty avoiding societies are rule- and routine-oriented and should generally find it more difficult to adapt to novel social and environmental demands and practices inherent to CSP (Ringov and Zollo, 2007). However, Lee and Faff (2009) find companies with leading corporate social performance experience reduced idiosyncratic risk. In addition, Sassen, Hinze, and Hardeck (2016) use a sample of over 8750 European firms and find higher CSP decreases total and idiosyncratic risk. With respect to social performance, systematic risk is reduced as well. In the view of environmental risk, idiosyncratic risk is generally reduced for all companies, whereas total and systematic risk are only lower for environmentally sensitive industries. As result, individual executives from uncertainty avoidant countries are more motivated to engage in CSR initiatives and thus increase CSP as a means to reduce firm risk.
Alternatively, individuals with a national culture that accept uncertainty to a greater extent are more likely to take risks (Hofstede, 1980). The latter is highly correlated to taking socially undesirable actions in terms of fraudulent behavior and accepted business practices. Therefore, corporate executives from countries with low uncertainty avoidance could hinder the level of corporate social performance (Rallapalli, Vitell, Wiebe, and Barnes, 1994). Following the existing literature, the subsequent hypothesis is formulated:
Hypothesis 1d: Higher board-level uncertainty avoidance (UA) positively affects CSP
2.2 Board nationality diversity and corporate social performance
11 and possess of more energy and alertness to address these. Therefore, the age of directors is relevant in considering the level of CSP as well.
In this paper, board national culture and the relationship with CSP are examined in the context of increased board internationalization. As foreign or non-national directors are more prevalent in corporate executive boards, diversity in terms of nationality changes as well. However, existing literature considers diversity as a double-edged sword with both advantages and disadvantages resulting in a debate on board homogeneity versus heterogeneity (Hambrick et al., 1996). On the one hand, heterogeneous boards are at risk to be divided in sub groups which inevitably experience increased challenges, conflicts and dissatisfaction that slow down decision making processes (Rao and Tilt, 2016). Therefore, the firm’s ability to adapt to changes in the business environment might decrease which could ultimately lower performance (Rivas, 2012). In addition, communication challenges, lower group loyalty and commitment could negatively affect firm and corporate social performance (Anderson et al., 2011; Rivas, 2012). On the other hand, the resource dependency theory indicates more diverse boards possess a broader range of knowledge, information and resources that improves the quality of decision making as individual biases and prejudices are reduced (Estélyi and Nisar, 2016). Furthermore, Nielsen and Nielsen (2013) argue multinational teams integrate their diverse experiences which results in in-depth discussions, consideration of various alternatives and generation of new ideas. As such, nationality diverse boards are better at solving complex tasks and arrive at more innovative solutions. The latter is especially relevant since broad and heterogeneous perspectives improve the quality of decisions regarding the voluntary and highly complex engagements that foster CSP (Rao and Tilt, 2016). As a consequence, heterogeneous top management teams achieve better results in high environmental uncertainty that follows from increasing stakeholder pressures in the international domain (Nielsen, 2010). In addition, Kang, Cheng, and Gray (2007) advocate demographically diverse directors can help to extend the domain of corporate governance beyond shareholders to other stakeholders. Following the authors, greater board diversity leads to closer monitoring of management’s decisions related to CSP. As such, the executive board members increasingly ensure that multiple stakeholders’ interests are represented in the corporate governance of the firm and corporate decisions are favourable for stakeholders.
12 argue that too much nationality diversity inhibits effective communication and decision making and consequently adversely affect both firm performance and value. In a similar vein as with board nationality diversity and firm internationalization, the effect of nationality diversity could be both
positive and negative and thus depict an inversed curvilinear (U-shaped) relationship (Schmid and Dauth, 2014). Therefore, the following hypothesis is formulated:
Hypothesis 2: There is an inversed U-shaped relationship between board nationality diversity and CSP
3. Data and methodology
3.1 Sample selection and data collection
Currently, there exists no complete database with archival data that covers the nationality of executives. As a result, the data on board characteristics are hand-collected in a limited time span and therefore the number of countries included in this research is limited. The sample consists of public companies listed in the countries Germany, France, the Netherlands, Sweden, Switzerland and the UK at the beginning of the year 2010. As the main aims of this paper are to assess the effect of board national culture and board nationality diversity on CSP, countries in which companies generally employ a large extent of foreign directors provide viable research settings. The latter differentiates boards in terms of national board culture and largely prevents boards solely consist of national directors. As such, the problem of a high correlation between the country-level and board-level cultural values is minimized. In their paper, Jhunjhunwala and Mishra (2013) indicate 40-50% of the directors in the Netherlands, Switzerland and the UK are non-nationals. In addition, Germany, France, the Netherlands, Sweden, Switzerland and the UK are characterized by having the least companies without international directors worldwide (Jhunjhunwala and Mishra, 2013). As a result, the countries are included in the research setting as these rank highly in terms of board nationality diversity and thus differentiation in board national culture.
13 Table 1
Companies per stock exchange and country
Country Stock index Number of firms
Germany DAX 30
France CAC 40 40
The Netherlands AEX 25
Sweden OMX S30 30
Switzerland SMI 20
UK FTSE 100 30*
Total 175
*The FTSE 100 index generally includes a total of 100 firms. Due to time constraints, the 30 largest companies in the FTSE 100 are included in the sample.
14 Table 2
Sample breakdown
The initial sample consisted of 175 firms comprising the DAX, CAC4 40, AEX, OMX S30, SMI and FTSE 100 indexes in 2010. Delisted and merged firms are delisted during the sample period. Cross-listed firm are listed in two countries of the research setting and included only once. Double listed firms are listed twice within the same stock index and thus removed. Firms with missing data on the dependent variable CSP_Index are excluded in the statistical analyses due to the panel structure of the data. Financial firms comprise companies with a SIC code between 6000 and 6999 and general industry classification between 4 and 6 and are removed from the sample.
Number of removed firms Number of firms left
Initial sample 175 Delisted 4 171 Merged 1 170 Cross-listed 7 163 Double listed 2 161 Missing data 2 159 Financial firms 29 130 Final sample 45 130
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3.2 Definitions and measures
3.2.1 Independent variable – board national culture
In this paper, national culture is assessed with the initial four Hofstede (1980) dimensions of power distance (PDI), individualism (IDV), masculinity (MAS) and uncertainty avoidance (UA). The data on national culture at country-level are gathered from Hofstede’s personal website (Hofstede, 2015). In this database, 70 countries are represented with complete data on the four dimensions per country. Complementary data for the countries South Africa, Kenya and Lebanon that occurred in the sample are collected from subsequent and supplementary research and added to the database (Hofstede and Minkov, 2010). Initially, the values of the dimensions in replication studies of Hofstede’s original research could range beyond a value of one hundred. In this paper, rescaled data are employed where the cultural dimensions are scored on a scale of zero to one hundred to be able to use the complementary data from the countries South Africa, Kenya and Lebanon. The minimum score of zero denotes collectivistic, power distance rejecting, feminine and risk-taking national cultures, whereas scores close to the maximum of one hundred entail a society with a national culture that is characterized as more individualistic, subjected to power distance, masculine and uncertainty avoidant. The common assumption of Hofstede (1980) is followed that cultural values remain relatively stable over time.
Thereafter, the nationalities of executives are hand-collected and matched with the country-level cultural database. As stated in the literature review, Hofstede (1980) national culture entails homogeneous norms and values that are different between groups of humans and influences human behavior. As such, each executive is attributed the cultural values of the country of his/her nationality on the dimensions of power distance, individualism, masculinity and uncertainty avoidance. Subsequently, the individual executive’s scores on the cultural dimensions are arithmetically averaged to obtain a board-level score for the cultural dimensions in a particular year. As a result, the variable board national culture is defined in terms of Board_PDI (power distance), Board_IDV (individualism), Board_MAS (masculinity) and Board_UA (uncertainty avoidance) as based on the average of the individual board-level cultural attributes.
3.2.2 Independent variable – board nationality diversity
16 measure of diversity based on nationality, the Blau index (1977) for heterogeneity within a group is employed:
B = 1 - ∑ 𝑝𝑖2, (1)
where p denotes the proportion of individuals (executives) in a category and i is the number of categories. B denotes the value of Blau_Index for board nationality diversity that ranges from 0-1, where zero depicts a perfectly homogenous group and the maximum score of one indicates a perfect heterogeneous group. The nationality of directors is measured as stated in the annual report, on the corporate website and in the various databases.
3.2.3 Dependent variable – corporate social performance
17 Based on Waldman et al. (2006) and Ioannou and Serafeim (2012), the convention within research using ASSET4 ESG data is followed to assign equal importance and thus weights to the environmental and social performance scores. Therefore, the variable CSP_Index constitutes the equally weighted average index of the environmental and social scores for a firm in a particular year. As the ESG Asset4 pillar scores range from zero to one hundred, the CSP_Index ranges from zero to hundred as well, where a higher score yields a higher corporate social performance.
3.2.4 Board-level control variables
In previous literature, board diversity in terms of gender is attributed to higher corporate social
performance (e.g. Bear et al., 2010; Zhang, 2012; Harjoto et al., 2015; Setó-Pamies, 2015). The gender of executives is listed as stated in the annual reports and the variable Gender is defined as the proportion of female directors in the board of a company within a certain year.
In addition, Hafsi and Turgut (2013) argue that younger directors are more sensitive to the environment and ethical issues and possess of more energy and alertness to address these. Therefore, the age of directors at the beginning of the calendar year is controlled for. The latter is either directly collected from the annual reports or calculated with the date of birth. The variable Age is the average age of the executives within the executive board of a company in a particular year.
Furthermore, board size measured by the number of executive board members is controlled for as this constitutes an important control variable in board diversity related research (e.g. Nielsen and Nielsen, 2013; Estélyi and Nisar, 2016). Nevertheless, board size is subjected to a certain amount of ambiguity due to varying executive board definitions between companies. The variable Board_Size represents both the positive effects of broadened perspectives and increased experience and the negative impact on effective communication and decision making resulting from larger boards. The net effect of board size could be of influence on corporate social performance.
3.2.5 Corporate-level control variables
18 equipment, machinery and real estate that are devoted to increase CSP yield higher capital expenditures. Second, inputs have to be purchased from suppliers who are socially responsibly leading to higher costs for materials and services in the short term. Third, staff is hired and human resource management practices to implement CSR policies and increase CSP come at the cost of higher wages and additional personnel. However, McWilliams and Siegel (2001) argue economies of scale are experienced when investing in resources that enhance CSP. Therefore, larger firms with significant resources benefit more from these economies of scale and thus firm size is expected to positively affect CSP.
As the two measures of size in terms of assets and revenues correlate highly, the measure of total assets is adopted as the measure of firm size. In Datastream, the total assets is described as the sum of total current assets, long term receivables, investment in unconsolidated subsidiaries, other investments, net property plant and equipment and other assets. Subsequently, the variable Firm_Size on corporate-level is calculated as the average of assets in thousands of euros at the beginning and the end of the year. In addition, the variable firm size seems to grow exponentially as the difference in assets between companies is significant. As a result, the logarithm of firm size is taken and the variable employed in this research is Log(Firm_Size).
Second, Campbell (2007) advocates firms that are more profitable engage more in socially responsible corporate behavior than firms that are less profitable. The main argument of the author is based on the slack resource theory that more profitable firms have more resources to spare for socially responsible actions which in turn translates in superior CSP. Conversely, Campbell (2007) notes firms with a very weak financial position risk suffering substantial losses and jeopardizing shareholder value. Therefore, the managers of these firms act out of self-interest to ensure their job security and attempt to improve the firm’s financial situation by acting in socially irresponsible ways. As a result, higher financial
performance is expected to positively impact CSP. In this paper, financial performance is proxied by ROA
which is defined in Datastream as Net Income – Bottom Line + ((Interest Expense on Debt-Interest
Capitalized) * (1-Tax Rate))) / Average of Last Year's and Current Year’s Total Assets * 100.
19 well. As such, firms with many implicit contracts with stakeholders and thus presumably higher CSP will be characterized by lower debt than other firms. The variable financial leverage is defined as D/E which is extracted from Datastream and calculated as (total debt/total equity) * 100%.
Finally, the country of geographical classification (GEOGC) is gathered from the Thomson Reuters’ Datastream. As such, the effect of board-level national culture on CSP can be investigated whilst controlling for the national culture of the country from which the firm originates. With the exception of individualism, the country- and board-level cultural variables of power distance, masculinity and uncertainty avoidance correlate highly as many executives are nationals from the country from which the firm originates. In addition, Country dummies are employed to check for country-level influences on CSP, e.g. including the national culture of the country and other factors.
3.3 Descriptive statistics
20 table 3, Board_Size ranges from one executive to the substantial number of 27 persons depending on the company’s definition of the executive. The average board consists of seven executive board members, with on average four in directors Germany, six members in the Netherlands and the UK and nine executives in France, Sweden and Switzerland. Whilst the variable Board_Size is somewhat arbitrarily, it encompasses the net positive or negative effect of more effective decision making with smaller boards and broadened perspectives and increased experience with more extensive ones. With the removal of financial firms and taking the logarithm of Firm_Size, the variable Log(Firm_Size) does not depict unusual values and is useful for linear estimations. In addition, the ROA for the firms in the sample is on average 5.6% on annual basis. The negative and minimum ROA of minus twenty percent could theoretically occur for a short period of time as the default risk increases with longer times of unprofitability. Finally, the average and mean D/E ratio of 0.762 and 0.604 seem plausible, whilst the minimum of -36.279 and maximum of 32.173 are truly extraordinary. The former extreme negative value is explained by a short-term negative equity of the company. In the long run, such a situation is not sustainable and within the sample the negative D/E ratios are turned around within one year. Additionally, the extreme positive D/E ratios are mainly explained by firms that possess virtually no debt.
21 Table 3
Descriptive statistics
This table presents the descriptive statistics of the variables employed in this research. The sample consists of 650 firm-year observations of 130 non-financial firms over a time period of 2010-2014. Data is retrieved from the Thomson Reuters Asset4 Database (ESG) and annual reports and corporate websites. Variable definitions are presented in Table A.1.
Variable Mean Minimum Median Maximum Std. Dev. Obs.
CSP_Index 86.421 23.225 90.858 96.035 11.975 650 Board_PDI 45.128 26 39 81 12.755 650 Board_IDV 73.658 23 72 91 9.364 650 Board_MAS 47.531 5 50 71 17.462 650 Board_UA 59.117 29 61 89 16.998 650 Blau_Index 0.385 0.000 0.444 0.938 0.270 650 Age 52.862 35 53 66 3.952 650 Gender 0.091 0.000 0.000 0.500 0.121 650 Board_Size 7.206 1 7 27 4.121 650 Log(Firm_Size) 17.187 14.301 17.214 19.672 1.108 650 ROA 0.056 -0.200 0.049 0.356 0.063 650 D/E 0.762 -36.279 0.604 32.173 2.538 650
In table 4, the correlation matrix between the dependent, independent and control variables of this study are presented. With regard to the CSP_Index and the cultural variables of Board_PDI, Board_IDV and Board_MAS, a positive sign is depicted although a negative relationship is expected. However, one has to refrain from drawing conclusions about association solely based on correlations. Furthermore, board nationality diversity in terms of the Blau_Index is negatively associated with corporate social performance. The latter is unexpected as more diversity is generally accompanied by a broader range of knowledge, information and resources. As such, individual biases and prejudices against CSR initiatives should be reduced and CSP would have been expected to increase (Estélyi and Nisar, 2016).
22 Table 4
Correlation matrix
This table presents the correlation matrix among the independent and dependent variables employed in this research. The sample consists of 650 firm-year observations of 130 non-financial firms over a time period of 2010-2014. Data is retrieved from the Thomson Reuters Asset4 Database (ESG) and annual reports and corporate websites. The variables Board_Size, ROA and D/E are winsorized at the 2.5th and 97.5th percentile values.
Variable definitions are presented in Table A.1.
1 2 3 4 5 6 7 8 9 10 11 12 1 CSP_Index 1.000 2 Board_PDI 0.128 1.000 3 Board_IDV 0.004 -0.337 1.000 4 Board_MAS 0.111 0.007 0.082 1.000 5 Board_UA 0.108 0.805 -0.453 0.223 1.000 6 Blau_Index -0.113 -0.191 0.116 0.103 -0.179 1.000 7 Age 0.037 0.288 -0.050 0.200 0.287 -0.089 1.000 8 Gender -0.021 -0.110 0.169 -0.183 -0.200 0.011 -0.161 1.000 9 Board_Size 0.087 0.158 -0.083 -0.154 0.113 0.361 0.001 0.146 1.000 10 Log(Firm_Size) 0.393 0.010 -0.077 -0.062 -0.063 0.027 0.124 0.038 0.324 1.000 11 ROA -0.106 -0.184 0.012 -0.019 -0.277 0.122 -0.106 0.016 -0.092 -0.112 1.000 12 D/E 0.137 -0.023 0.150 0.020 0.006 -0.198 -0.051 0.014 -0.078 0.154 -0.275 1.000
3.4 Methodology
In this paper, panel EGLS (cross-section random effects) regression is adopted to estimate the relationship between board-level national culture and corporate social performance. In order to test the first hypothesis regarding board national culture and CSP, the empirical model is formulated as follows:
𝐶𝑆𝑃_𝐼𝑛𝑑𝑒𝑥 𝑖,𝑡= 𝛼0 + 𝛽1𝐵𝑜𝑎𝑟𝑑_𝑃𝐷𝐼𝑖,𝑡 + 𝛽2𝐵𝑜𝑎𝑟𝑑_𝐼𝐷𝑉𝑖,𝑡+ 𝛽3𝐵𝑜𝑎𝑟𝑑_𝑀𝐴𝑆𝑖,𝑡 + 𝛽4𝐵𝑜𝑎𝑟𝑑_𝑈𝐴𝑖,𝑡+ 𝛽5𝐴𝑔𝑒𝑖,𝑡 +
𝛽6𝐺𝑒𝑛𝑑𝑒𝑟𝑖,𝑡 + 𝛽7𝐵𝑜𝑎𝑟𝑑_𝑆𝑖𝑧𝑒𝑖,𝑡 + 𝛽8𝐿𝑜𝑔(𝐹𝑖𝑟𝑚_𝑆𝑖𝑧𝑒)𝑖,𝑡 + 𝛽9𝑅𝑂𝐴𝑖,𝑡 + 𝛽10𝐷/𝐸𝑖,𝑡 + 𝜀𝑖,𝑡 + 𝑣𝑖,𝑡,
(2)
where 𝐶𝑆𝑃_𝐼𝑛𝑑𝑒𝑥 𝑖,𝑡 denotes CSP performance based on the social and environmental scores of firm i in
year t and 𝛼0 is a constant that is the same for all cross-sectional units and stable over time. The
variables 𝐵𝑜𝑎𝑟𝑑_𝑃𝐷𝐼𝑖,𝑡, 𝐵𝑜𝑎𝑟𝑑_𝐼𝐷𝑉 𝑖,𝑡, 𝐵𝑜𝑎𝑟𝑑_𝑀𝐴𝑆𝑖,𝑡 and 𝐵𝑜𝑎𝑟𝑑_𝑈𝐴 𝑖,𝑡 denote the board-level scores
on Hofstede’s (1980) cultural dimensions of power distance, individualism, masculinity and uncertainty avoidance respectively. 𝐴𝑔𝑒𝑖,𝑡 depicts the average age of the board for a particular firm in a particular
23 year. 𝐵𝑜𝑎𝑟𝑑_𝑆𝑖𝑧𝑒𝑖,𝑡 is the number of individuals in the executive board of a firm in a particular year.
𝐿𝑜𝑔(𝐹𝑖𝑟𝑚_𝑆𝑖𝑧𝑒)𝑖,𝑡 proxies firm size as measured by the logarithm of firm size in assets in thousands of
euros. Furthermore, 𝑅𝑂𝐴𝑖,𝑡 is the return on assets that is used as a proxy for financial performance.
𝐷/𝐸𝑖,𝑡 is the debt-to-equity ratio that proxies financial leverage. Finally, 𝜀𝑖,𝑡 denotes a random variable
that varies cross-sectionally but is constant over time and 𝑣𝑖,𝑡 is the individual observation error term.
𝜀𝑖,𝑡 measures the random deviation of each entity’s intercept term from the global intercept term 𝛼0
that is the same for all cross-sections (Brooks, 2014).
24 In addition, a second aim of this study is to consider the relationship between board nationality diversity and corporate social performance. Therefore, an additional empirical model using panel EGLS (cross-section random effects) regression is estimated:
𝐶𝑆𝑃_𝐼𝑛𝑑𝑒𝑥 𝑖,𝑡= 𝛼0 + 𝛽1𝐵𝑜𝑎𝑟𝑑_𝑃𝐷𝐼𝑖,𝑡 + 𝛽2𝐵𝑜𝑎𝑟𝑑_𝐼𝐷𝑉𝑖,𝑡+ 𝛽3𝐵𝑜𝑎𝑟𝑑_𝑀𝐴𝑆𝑖,𝑡 + 𝛽4𝐵𝑜𝑎𝑟𝑑_𝑈𝐴 𝑖,𝑡+
𝛽5𝐵𝑙𝑎𝑢_𝐼𝑛𝑑𝑒𝑥𝑖,𝑡 + 𝛽6𝐵𝑙𝑎𝑢_𝐼𝑛𝑑𝑒𝑥^2𝑖,𝑡 + 𝛽7𝐴𝑔𝑒𝑖,𝑡 +𝛽8𝐺𝑒𝑛𝑑𝑒𝑟𝑖,𝑡 + 𝛽9𝐵𝑜𝑎𝑟𝑑_𝑆𝑖𝑧𝑒𝑖,𝑡 +
𝛽10𝐿𝑜𝑔(𝐹𝑖𝑟𝑚_𝑆𝑖𝑧𝑒)𝑖,𝑡 +𝛽11𝑅𝑂𝐴𝑖,𝑡 + 𝛽12𝐷/𝐸𝑖,𝑡 + 𝜀𝑖,𝑡 + 𝑣𝑖,𝑡,
(3)
where most variables are identical to those in the above stated empirical model (2). Furthermore, 𝐵𝑙𝑎𝑢_𝐼𝑛𝑑𝑒𝑥𝑖,𝑡 denotes the Blau (1977) index for heterogeneity within groups based on nationality. A
score of zero implicates perfect homogeneity, whilst a value close to one represents near perfect group heterogeneity based on nationality. The Blau (1977) index denotes the standalone effect of board nationality diversity on corporate social performance. 𝐵𝑙𝑎𝑢_𝐼𝑛𝑑𝑒𝑥^2𝑖,𝑡 is calculated as the square of the
variable 𝐵𝑙𝑎𝑢_𝐼𝑛𝑑𝑒𝑥𝑖,𝑡 and represents a substantial increase in board diversity based on the nationality
of the directors. In combination with the standalone effect, 𝐵𝑙𝑎𝑢_𝐼𝑛𝑑𝑒𝑥^2𝑖,𝑡 is employed to test
hypothesis 2 whether there is an inversed curvilinear relationship between board nationality diversity and corporate social performance. 𝜀𝑖,𝑡 and 𝑣𝑖,𝑡 are employed to incorporate cross-section random
effects.
4. Results
4.1 The effect of board national culture on CSP
25 responsible actions which in turn translates in superior corporate social performance. McGuire, Sundgren, and Schneeweis (1988) and Campbell (2007) indicate a lower financial leverage ensures implicit claims of stakeholders are more easily satisfied and thus corporate social performance is enhanced. Finally, when the board size increases the CSP seems to be positively, yet insignificantly, affected due to broadened perspectives and increased experience of the board as whole.
Subsequently, the board cultural variables in terms of Board_PDI, Board_IDV, Board_MAS and Board_UA are introduced step-wise in models 2-6. The variable Board_PDI is positively, yet insignificantly associated with CSP whilst a negative relationship is expected (Ringov and Zollo, 2007; Ho et al., 2012; Thanetsunthorn, 2015). Therefore, hypothesis 1a is rejected. The positive sign of Board_PDI could be explained by the high correlation with the variable Board_UA that depicts a positive sign as well when introduced in model 5. In addition, Board_IDV is negative as expected and insignificant at all customary significance levels. However, in the final model board individualism positively, yet insignificantly influences CSP. As a result, hypothesis 1b is rejected as a negative relationship with CSP is expected (Ringov and Zollo, 2007; Ho et al., 2012; Thanetsunthorn, 2015). In contrast with previous literature, the variable Board_MAS significantly (p<0.05) and positively affects corporate social performance when introduced and in the final model 6. Based on the findings of Ringov and Zollo (2007), Ho et al. (2012) and Thanetsunthorn (2015), it is expected higher values of Board_MAS would lead to lower levels of CSP and thus hypothesis 1c is rejected. If CSP is assumed to foster the financial results of the company, a potential explanation for the positive coefficient could entail masculine executives support initiatives that increase CSP as the financial results that contribute to achievement and material success are enhanced (Margolis and Walsh, 2003; Barta et al., 2012). When Board_UA is introduced, the relationship with CSP is positive and insignificant (p>0.10) which initially indicates the expected, positive relationship between board-level uncertainy avoidance and CSP. Nevertheless, in model 6 Board_UA is negative and insignificant and therefore hypothesis 1d has to be rejected as well. In conclusion, hypotheses 1a-1d are rejected and board national cultural does not significantly affect corporate social performance in the directions as would have been expected from studies on country-level.
26 the step-wise introduction, the variables Board_PDI, Board_MAS and Board_UA are only marginally significant (p<0.10), whilst these are not significant anymore in the final model in which all variables are employed. The sign of Board_UA has become positive as uncertainty avoidant executives prefer higher level of CSP as it decreases the firm’s total and idiosyncratic risk (Lee and Faff, 2009; Sassen et al., 2016). As such, hypotheses 1a-1d are rejected and board national culture does not significantly affect CSP. Furthermore, older boards tend to hamper the CSP of the firm as in line with Hafsi and Targut (2013).
27 Table 5
Pooled Ordinary Least Squares regression: effect of board culture on corporate social performance
This table presents the panel EGLS (cross-section random effects) results of empirical model (2). CSP_Index is calculated as the equal-weighted average of environmental and social CSP. Board_PDI, Board_IDV, Board_MAS and Board_UA result from assigning country-level scores of the Hofstede (1980) dimensions towards individual executives based on their nationalities and subsequently calculating the average of these dimensions on board-level. Age is calculated as the average age of the board. Gender is the proportion of female executives with respect to the total number of executive board members. Board_Size is calculated as the number of individuals in the executive board. Log(Firm_Size) is the logarithm of firm size in assets in thousands of euros. ROA is defined as the total of earnings before interest and taxes divided by total assets. D/E is calculated by (total debt/total equity) * 100%. Corresponding standard errors are shown in parentheses. *, ** and *** denote statistical significance at the 10%, 5% and 1% level respectively. CSP_Index (1) (2) (3) (4) (5) (6) Constant 29.748** 28.287** 30.482** 25.001* 28.606** 23.951* (12.915) (12.925) (13.763) (12.998) (13.108) (14.461) Board_PDI 0.039 0.053 (0.047) (0.063) Board_IDV -0.008 0.001 (0.058) (0.063) Board_MAS 0.082** 0.083** (0.035) (0.035) Board_UA 0.013 -0.013 (0.038) (0.050) Age 0.093 0.082 0.094 0.083 0.090 0.071 (0.077) (0.078) (0.078) (0.077) (0.077) (0.080) Gender -1.419 -1.454 -1.387 -1.364 -1.400 -1.430 (2.154) (2.155) (2.167) (2.150) (2.154) (2.171) Board_Size 0.083 0.085 0.085 0.064 0.083 0.066 (0.120) (0.120) (0.121) (0.120) (0.120) (0.120) Log(Firm_Size) 2.997*** 3.010*** 2.983*** 3.083*** 3.027*** 3.080*** (0.743) (0.739) (0.748) (0.740) (0.739) (0.743) ROA -4.970 -4.665 -4.961 -5.071 -4.806 -4.822 (4.763) (4.778) (4.767) (4.753) (4.785) (4.786) D/E 0.079 0.090 0.085 0.118 0.087 0.124 (0.405) (0.405) (0.408) (0.404) (0.405) (0.408) R2 0.038 0.040 0.038 0.047 0.039 0.048 Adjusted R2 0.029 0.029 0.028 0.036 0.028 0.034 Obs. 650 650 650 650 650 650 Firms 130 130 130 130 130 130
28 influences the CSP of the firm. However, in model 6 Board_PDI turns positive (and insignificant at all customary significance levels) and hypothesis 1a is therefore rejected. Whilst Board_IDV is positive and insignificant in model 3, the final model depicts a negative, yet insignificant, relationship with CSP as more in line with the work of Ringov and Zollo (2007) and Ho et. al (2012). Nevertheless, hypothesis 1b is rejected due to the insignificance of the relationship. The variable Board_MAS depicts a positive, but insignificant relationship with CSP as in contrast with the previous estimation in table 5. Therefore, hypothesis 1c is rejected as the results contrast the work of Thanetsunthorn (2015) as the author indicates a higher score on masculinity should lower corporate social performance. The variable Board_UA has become negative and marginally significant (p<0.10) in model 5 which contradicts the expectations and results in the rejection of hypothesis 1d (Rinkov and Zollo, 2007). The latter could potentially be explained by the high correlation with the variable Board_PDI that initially denotes a negative sign when introduced in model 2. The reference point for the dummy variables is the Netherlands. As such, companies in France, Germany and the UK experience higher CSP in comparison to the Netherlands. Swiss and Swedish firms denote a lower corporate social performance than Dutch firms. However, drawing inferences is hard as the coefficients are insignificant at all customary levels. Nonetheless, the low corporate social performance of the Netherlands, Switzerland and Sweden seems surprising. With specific regard to Sweden, Nordic countries are renowned for embedding responsible business practices at the heart of their economies and Sweden is among the countries which ranks the highest in terms of (environmental) social performance (Zadek and MacGillivray, 2008; Lee, MacGillivray, Begley, and Zayakova, 2010). As both Sweden and the Netherlands are characterized by welfare state models, the government could be regarded as principally accountable for social responsibility and hence explain the lower corporate social performance in these countries where corporations fulfill less active roles in the area of social responsibility.
29 Table 6
Pooled Ordinary Least Squares regression: effect of board culture on corporate social performance with country dummies
This table presents the panel EGLS (cross-section random effects) results of empirical model (2). CSP_Index is calculated as the equal-weighted average of environmental and social CSP. Board_PDI, Board_IDV, Board_MAS and Board_UA result from assigning country-level scores of the Hofstede (1980) dimensions towards individual executives based on their nationalities and subsequently calculating the average of these dimensions on board-level. Age is calculated as the average age of the board. Gender is the proportion of female executives with respect to the total number of executive board members. Board_Size is calculated as the number of individuals in the executive board. Log(Firm_Size) is the logarithm of firm size in assets in thousands of euros. ROA is defined as the total of earnings before interest and taxes divided by total assets. D/E is calculated by (total debt/total equity) * 100%. Country_dummyCH, Country_dummySE, Country_dummyUK, Country_dummyGE and Country_dummyFR are dichotomous variables that denote one for the countries Switzerland, Sweden, UK, Germany and France respectively and zero otherwise. Corresponding standard errors are shown in parentheses. *, ** and *** denote statistical significance at the 10%, 5% and 1% level respectively.
30 In addition, an alternative approach to controlling for country-level influences is to add the respective country-level values on Hofstede’s (1980) four dimensions as control variables. In previous studies, country-level cultural values are found to influence CSP of firms (Waldman et al., 2006; Ringov and Zollo, 2007; Ho et al., 2012; Peng et al., 2012; Thanetsunthorn, 2015; Cai et al., 2016). Furthermore, executives whose nationality corresponds with the country of geographical classification tend to dominate the executive board in terms of the number of board members. For example, French and German executives are generally dominant in firms that are registered as being primarily French and German. With the exception of the variable individualism, the country and board-level cultural variables of power distance, masculinity and uncertainty avoidance correlate quite highly. As such, a cautious interpretation is required due to potential multicollinearity issues.
In table 7, the results of the panel EGLS estimation are presented with controls for country-level cultural values. The conclusions remain unchanged and the hypotheses 1a-1d are rejected due to the insignificance of all board cultural variables at the customary significance levels. The estimation seems somewhat more in line with the work of Thanetsunthorn (2015) as both Board_PDI and Board_IDV depict negative signs when introduced in the model. In addition, the country-level influence of national culture on CSP becomes apparent when power distance (p<0.05) and uncertainty avoidance are introduced (p<0.01). The Country_UA positively affects investments to enhance the social corporate performance as the firm’s total and idiosyncratic risk will be reduced (Lee and Faff, 2009; Sassen et al., 2016). The positive sign of Country_PDI is unusual but could be explained due to the high correlation with Country_UA as similar with board-level cultural variables.
In addition, for some companies the country of geographical classification differs from the country in which the global corporate headquarters is currently located. For example, several companies are listed on the London Stock Exchange in the UK whilst the corporate headquarters and operating activities are located in Mexico, Australian and the United States. Therefore, these countries could be considered as the country of origination. As such, the analysis in table 7 is repeated for with the national cultural values of the country in which the global corporate headquarters is located. The results remain unchanged and the latter analysis could be considered as a robustness test.
31 Table 7
32 In conclusion, hypotheses 1a, 1b, 1c and 1d are rejected and therefore board national culture in terms of power distance (Board_PDI), individualism (Board_IDV), masculinity (Board_MAS) and uncertainty avoidance (Board_UA) is not affecting CSP as expected based on previous literature.
4.2 The effect of board nationality diversity on CSP
In addition, the effect of board nationality diversity on corporate social performance is examined in this section. Based on the existing literature, an inversed curvilinear relationship is expected between board nationality diversity and CSP. As such, an increase in nationality diversity should yield a positive effect on CSP due to an increased variety in knowledge, information and resources of the board (Estélyi and Nisar, 2016). Thereafter, excessive levels of nationality diversity implicate group decision-making and cooperative processes become less effective as a result of increased conflicts and communication challenges (Anderson et al., 2011; Rao and Tilt, 2016).
33 Table 8
Pooled Ordinary Least Squares regression: the effect of board national diversity on corporate social performance
34
5. Discussion and conclusion
In this paper, the aim is to investigate whether executive board national culture and board nationality diversity affect the corporate social performance (CSP) of the firm. Based on the upper echelon theory (Hambrick and Mason, 1984), executive’s individual characteristics affect organizational outcomes. As national culture is widely recognized as a critical factor in determining individual’s value and belief systems (Hofstede, 1991; Thanetsunthorn, 2015), the nationality and hence national culture of directors are supposed to significantly affect decision making processes and organizational outcomes. In previous studies, country-level cultural values are found to influence CSP of firms (Waldman et al., 2006; Ringov and Zollo, 2007; Ho et al., 2012; Peng et al., 2012; Thanetsunthorn, 2015; Cai et al., 2016). Both notions of national culture and upper echelons are combined to investigate the effect of board-level national culture on CSP. With a sample of 130 executive boards of non-financial firms in France, Germany, the Netherlands, Sweden, Switzerland and the UK over a time period of 2010-2014, it could be concluded there is no significant relationship between board national culture and CSP. In general, adjusting the board composition and hence the board national culture to foster CSP seems unjustified based on the findings in this paper.
35 This paper contributes to the current literature as follows. First, whilst national culture affects CSP within certain geographic regions, the board-level effects of national culture remains under researched (Harjoto et al., 2015; Thanetsunthorn, 2015; Frijns et al., 2016). We advocate this research is to the best of our knowledge among the first to address the relationship between national culture and CSP on board-level. Second, this paper is the first to link board nationality diversity to CSP. The practical implications of the research could have entailed companies could change board composition to either include executives from certain cultural backgrounds or increase board nationality diversity in order to foster CSP (Post et al., 2011). However, as the findings are insignificant the latter is regarded as unjustified based on this paper.
Naturally, this research is subjected to a number of limitations. First and foremost, the sample size of European listed companies included in this paper is restricted. Due to the absence of archival data on director’s nationalities, data on board characteristics are hand-collected in a restricted time period. The generalizability of the findings could be improved if a larger sample of companies including those outside Western Europe is analyzed. Furthermore, the systematic establishment of an archival database of board characteristics would enhance board diversity research and restrict the arbitrariness of data points inherent to hand-collecting of data. As such, relevant characteristics such as international experience, education and tenure of executives could be employed in further research as well.
36 Third, in this research executives are presumed to equally influence the strategic decisions and implementation of initiatives that affect CSP. In general, the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are ultimately responsible for the firm’s performance and hence could have superior decision-rights in comparison to other board members. Even when decision-making processes are based on reaching a consensus, the voice of the Chief Executive Officer, Chief Financial Officer, Chief Sustainability Officer or similarly named executives could outweigh that of others based on seniority and expertise.
In line with the limitations, there are various avenues for further research. First, the scope and scale of the sample could be broadened to wards companies outside Western Europe. For example, Rinkov and Zollo (2007) and Ho et al. (2012) find national culture on country-level influences CSP in Europe, Asia and the US. As a result, the sample could be extended to countries with less non-national executives and thus lower nationality diversity. Within these countries, the difference between companies with virtually no non-national executives and those with high nationality diversity might be more apparent.
Second, due to limited data availability the Long-term orientation (LTO) dimension of Hofstede (1991) is not employed in this research. In a similar vein, the GLOBE framework of House et al. (2004) could be used as an alternative for or complement to the dimensions that measure culture in this research. For example, human orientation entails “the degree to which a collective encourages and rewards individuals
for being fair, altruistic, generous, caring, and kind to other” and could be used as a proxy for attitudes
towards fostering CSP in future research (House et al., 2004, p.569). Future research could include a broader and alternative set of cultural measures.
37
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