‘the Influence of the Political Ideology of Directors
on the Corporate Social Irresponsibility of the Organization.’
Master Thesis
MSc Change Management Semester I: 2019-2020
Faculty of Economics and Business University of Groningen
Fleur Schouten S2743515
Supervisor: dr. B.C. (Björn) Mitzinneck
Co assessor: Prof. dr. Jana Oehmichen
Date: 20-01-2020
Title
‘the Influence of the Political Ideology of Directors on the Corporate Social Irresponsibility of the Organization’.
Abstract
This paper builds upon upper echelon theory to explore the influence of the upper echelons’ political ideology on organizational outcomes, by examining the influence of the liberalism-conservatism values on corporate social irresponsibility. I expected that political values influence CSiR through stakeholder salience, indicating the priority that will be given to the stakeholders’ claim upon the organization. As political values on stakeholders differ, the effect of political ideology on CSiR depends on the specific stakeholder disadvantaged by the irresponsible behaviour. To test the
hypotheses, I conducted quantitative research on a sample of directors of 413 S&P 500 organizations. Results showed no effect of political ideology on CSiR without integrating the specific stakeholder. Support was found for the influence of political ideology on corporate social irresponsibility towards two of the four stakeholders: customers and employees. This indicates that for some stakeholders, political ideology strongly influences the level of CSiR while for other stakeholders, there are different factors that influence the stakeholder salience. In order to understand the drivers of CSiR towards stakeholders as the shareholders and the natural environment, the other factors need exploration.
INTRODUCTION
Until this moment, corporations have never had the power and influence they have now, as corporations have developed into a major supplier to societies by delivering jobs, services and products (Abdullah & Valentine, 2009). This power has come along with a growing concern of the American public about the ethics of organizations (Vitell & Hidalgo, 2006). One way of looking at ethics, is through Corporate Social Responsibility, from now on CSR. Quoting Freeman & Hasnaoui (2011, p.419), CSR covers the areas of “corporate citizenship, stakeholder theory, business ethics and corporate sustainability”. A considerable amount of research has been published on CSR, however; studies have focused prominently on this ‘Doing good’ and little attention has been paid to ‘Doing bad’: Corporate Social Irresponsibility, from now on CSiR (Campbell, 2007; Lange & Washburn, 2012). This term is used for corporate actions that disadvantage or harm stakeholders. It can involve violations of law, however; law violation is strictly not necessary for behaviour to be classified as CSiR (Lin-Hi & Muller, 2013) as long as it is an action that negatively impacts the interest of one or more of the corporation’s stakeholders (Strike, Gao & Bansal, 2006). In line with previous studies having been focused on CSR, the little published literature on CSiR tends to discuss CSiR in relation to CSR. The most common theme among scholars is the question whether the two concepts are opposites on the same spectrum or distinct constructs (Oxford handbook of CSR). Although very interesting and important, there is more to the field. Therefor my paper moves this continuing debate to the background and responds to the call for more scientific understanding of the factors actually influencing CSiR.
Walker, Zhang & Ni (2019) argue that instead of finding explanations for corporate
misbehaviour in the external environment, it is more often regarded to as the consequence of either the individual managerial or organizational decision-making process. Among this, scholars have
increasingly become interested in the decision-making process of the individual.
According to the Upper echelon theory, originating from Hambrick & Mason (1984),
of experience and personality as attributes of upper echelons, there is much less information about the effects of upper echelons’ values. This is not to say that values are less important, on the contrary. Values frame the directors’ recognitions of situations in the way that perceptions of stimuli are filtered and interpreted through values, hereby influencing the strategic decision process (Carpenter,
Geletkanycz & Sanders, 2004).
A relatively new area within this field of research has begun to look at the effect of a specific set of values on the upper echelons’ strategic decisions: the political values. Tedin (1987) describes the political ideology of an executive as a lens through which he views the world, thereby developing a set of attitudes and values on society related issues and goals and how to achieve them. Several studies have shown the liberalism-conservatism dimension to be especially important for considering individual’s core beliefs (Feather, 1979; Poole and Rosenthal,1984) as it comprises a central part of their personal convictions and identities (Francia, Green, Herrnson, Powell & Wilcox, 2005).
Christensen, Dhaliwal, Boivie & Graffin (2015) found that political ideology influences risk aversion and Gupta & Wowak (2017) showed that conservatism increases CEO pay, both demonstrating that political ideology effects decisions among a broad spectrum of areas outside formal politics (Jost et al, 2009). However, no previous paper has investigated CSiR as the organizational outcome.
I aim to fill that gap and extend the literature on upper echelon theory, particularly on the effect of political ideology, towards another organizational outcome: CSiR. I do so by looking at the effect of political ideologies on CSiR, expecting that different political ideologies reflect different values and that the values influence the strategic decision process concerning CSiR.
I propose that it is through stakeholder salience that political values influence the decision-making process concerning CSiR, as I expect that this stakeholder salience indicates future CSiR by reflecting the priority the stakeholder holds in the organization. As political ideologies hold
contrasting values concerning different stakeholders, I expect that the effect of political ideology on CSiR depends on which stakeholder it is that is being disadvantaged by the irresponsible behaviour.
Addressing this gap contributes to the literature in three ways. First, it explores an area that has not been researched much yet: the area of CSiR, by looking at what influences the behaviour. Second, it contributes to upper echelon theory by exploring the power of political values’ as an attribute of directors. Last, it adds to literature on stakeholders, by looking at the political values concerning stakeholders and how this affects them being disadvantaged by the organization. Practically, by giving insights in the factors leading to CSiR, it develops insights that can make both the board members themselves more aware of their own attributional influence and it makes organizations more insights into factors influencing the behaviour they want to avoid. Also, it gives regulators more guidelines into fighting CSiR.
LITERATURE REVIEW
Corporate Social Irresponsibility
When tying in: ‘Corporate Social Irresponsibility’, you will see the notification ‘Did you mean Corporate Social Responsibility?’. This is a metaphor for where we currently stand in research. The focus is far more on Corporate Social Responsibility than it is on Corporate Social Irresponsibility. However, businesses do not only have the responsibility to do good but also to avoid bad behaviours: to prevent Corporate Social Irresponsibility behaviours (Lin-Hi & Muller, 2013). This is especially important now that leaders are under a big spotlight. Stahl & de Luque (2014) claim that because of large cases of misconduct shared in the media, the public faith has decreased. This has led to the general idea that organizations may be acting more irresponsibly than originally thought. There is evidence for this idea, for example in the study of Clement (2006) who found that in a 3-year period 40% of the Fortune100 had committed acts of irresponsibility. Also, Kotchen and Moon (2012) found that in the 1990s and early 2000s irresponsible behaviour was more prevailing than CSR policy usage.
Although avoiding CSiR may not often be rewarded by stakeholders, it is a requirement for even being able to benefit from doing good in the first place (Lin-Hi & Muller, 2013). Minor & Morgan (2011) agree that doing good will not lead to an accountable image if a corporation behaves irresponsibly at the same time. Not being considered as accountable can cause great difficulties for firms and tends to have a negative effect on the earnings of the firm. Quoting Lange & Washburn (2012; p.300): ‘Counter normative behaviour can lead to consequences as lawsuits, financial losses through settlements and sales declines, increases in the cost of capital, market share deterioration, network partner loss or other costs associated with a negative reputation’. As CSiR disregards different stakeholders, there is a wide variety of stakeholder reactions to CSiR. Among other problems, it can result in issues concerning attracting customers, investors and employees (Fombrun, 1996).
perceived as irresponsible in order to take on profitable opportunities. Central in that decision process is the board of directors. The board of directors, BOD, functions as an organizations’ own control system by developing rules for what the executives can and cannot do (Fama and Jensen, 1983; Lipton and Lorsch, 1992). The BOD is the highest governance body of the organization and holds the responsibility to develop the internal value and standards system of the organization by making rules regarding strategy, incentives and control systems (Ayuso & Argandona, 2009). The BOD supervises the executives on behalf of both the shareholders (Fama and Jensen, 1983) and the stakeholders (Hill and Jones, 1992). The other side of this function is that when things go wrong, the corporate board becomes the centre of attention (Adams, Hermalin, Weisbach, 2010) as they legally represent the company (Black, 2002).
Upper Echelon Theory
Hambrick and Mason upper echelon’s theory (1984) explains differences between companies’ actions and outcomes to differences among the attributes of its leaders: “their experiences, personalities and values” (Chin et al, 2013, p.198). Among these attributes, the focus of the existing literature has been more on the upper echelons’ ‘experience’ and ‘personality’ than on ‘values’. Chin et al (2013) blame this on the idea that executives’ values are subordinate to the owner’s values, values are not
Political Ideology
Recently, researchers have become interested in how a specific area of the upper echelons’ values influences the decision-making process: political values. According to Jost et al (2008, p.127), political values influence the way an individual “thinks, feels and behaves”. This is also stressed by Chin et al (2013), arguing that political ideologies show an individual’s deeply-held values-system. In characterising this political ideology, Jost (2006) and Bobbio (1996) have shown the relevance of the conservatism-liberalism axis, stemming from the seating order of the French Assembly at the time of the French revolution (Laponce, 1981) in which the right wing showed support for the old monarchy. Jost et al (2003b, p. 386) singled out the two essential individuals’ attitudes capturing the most revealing differences between conservatists and liberals: “Attitude towards inequality and attitude towards social change versus tradition”. Other papers have also explored the differences between conservatives and liberals; for example, research carried out by Hannikainen, Miller & Cushman (2017, p. 463) indicates that “to liberals care and fairness are more important than to conservatives, while conservatives prefer loyalty towards the group, respect for authority, bodily purity and
sanctity”. Detomasi (2008) found merely the same: that conservatives place higher value on
individualism, property rights, free markets, order, stability, status quo and business needs. As values are an important part of the decision process of executives and organizational outcomes reflect the executive (Mischel, 1977), the different sets of values can lead to different organizational outcomes.
Political Ideology and Corporate Social Irresponsibility
No literature has explored the effect of political ideology on CSiR, however; there has been conducted a research on the effect between political ideology and CSR. Chin, Hambrick & Trevino (2013) have found support that organizations led by CEO’s with a liberal ideology engage more in CSR than organizations led by conservative CEO’s. They argue that liberals do not only think CSR is beneficial for the owners of the firm but also believe in the positive outcomes of CSR itself besides the
their research however, is the importance of the alternative governance models. Tetlock (2002) shows that conservatives rely on the shareholder model while liberals prefer the stakeholder model. The shareholder model promotes maximizing efficiency to create financial returns for the shareholders whereas the stakeholder model believes that besides serving the interests of the shareholders, the economically less developed and the stakeholders that have always been under snowed, should be heard (Etzioni, 1996). This corresponds to the finding of Di Giulia and Kostovetsky (2014) that democratically leaning executives, in light of this research that would indicate liberalism, tend to pay more attention to stakeholders than republican board members. Subsequently, I hypothesize:
H1: The more conservative the board, the more Corporate Social Irresponsibility.
This concept is called ‘Stakeholder salience’, indicating the ‘Amount of priority given to a stakeholder in an environment of competing stakeholders claims’ (Mitchell, Lee & Agle, 2017). As political ideologies are based on different values and the stakeholder salience process is influenced by values (Egri & Herman, 2000), I propose that different political ideologies give priority to different stakeholder claims. As I expect stakeholder salience to function as an indication of CSiR, I propose that the effect of political ideology on CSiR depends on which stakeholder is being disadvantaged by the CSiR.
To be able to test this, I have to categorize the corporate stakeholders. The commonly way for categorizing stakeholders is by distinguishing between primary and secondary stakeholders (Clarkson, 1995). Primary stakeholders are stakeholders who are fundamental to an organization’s operations. Secondary stakeholders are stakeholders that influence the primary stakeholders. Clarkson (1995) describes the difference as to secondary stakeholders lacking the characteristic of being essential to the organization’s survival. However, being a secondary stakeholder cannot be mistaken with not bring important value to the organization. Among others, Sharma & Henriques (2005) found that senior members are becoming more receptive to the idea that only giving attention to primary stakeholders is not sufficient to guarantee external relations success. It is becoming increasingly important to also focus on the secondary stakeholders.
Political Ideology and Shareholders
Besides the broad stakeholder view advocating equal importance of all stakeholders, there is another corporate governance model: shareholder model of the basic idea is that decision making should be solely focused on maximizing shareholder value (Waldman and Galvin, 2008). This different view on distributing resources among stakeholders also comes with a different view on CSR: In the shareholder view, CSR engagement is considered to be an investment while stakeholder theory emphasizes the moral aspect of CSR that the interests of a broad set of stakeholders should be measured and balanced (Margolis & Walsh, 2003; Sully de Luque, Washburn, Waldman, & House, 2008). This corresponds to the prior mentioned research of Tetlock (2002) who concluded that conservatives favour the shareholder model of governance over the broad stakeholder model. This preference is rooted in that the shareholder model advocates that managers focus solely on improving shareholder wealth. Roe (2003) supports this by his finding that in countries led by right-wing governments, owner rights are likely to be stronger. This allows managers to act more effectively in the interests of their owners: the shareholders. This has led to the second hypothesis:
H2: The more conservative the board, the less the board will show Corporate Social Irresponsible behaviour that disadvantages shareholders.
Political Ideology and Consumers
possible risks to the organizational reputation influences the behaviour of upper echelons (Boivie, Graffin and Pollock, 2012; Westphal and Deephouse, 2011) combined with key values of conservatism being risk avoidance, uncertainty aversion and fearing losses (Jost et al, 2003), it is unlikely that conservative board members would do something that might undermine the performance and impair the economic growth (McCright and Dunlap, 2011). Hence, I hypothesize:
H3: The more conservative the board, the less Corporate Social Irresponsible behaviour towards customers.
Political Ideology and Employees
Managing a diverse workforce has become an important issue and the legal environment has adjusted itself according to this growing importance (Pitts & Wise, 2010) by the court adopting rights that make the position of minority groups stronger. Together with the finding of Lee, Lau & Cheng (2013) who discovered that organizations who protect their employees’ rights can at the same time increase their financial performance and improve their corporate reputation, you would expect that both liberal as conservatist boards would aim to invest in employee rights. However, the results of Roe (2003) show otherwise. He found that worker rights are weaker in right-wing oriented countries. Also, Gupta, Briscoe & Hambrick (2017) found conservative firms to be less likely to adopt new employee benefits or programs to improve workforce diversity. Conservatives valuing to maintaining the status quo, led me to the following hypothesis concerning employees:
H4: The more conservative a board, the more Corporate Social Irresponsible behaviour that disadvantages employees.
Political Ideology and the Natural environment
global warming. Liberals care more for environmental issues than for economic issues and are therefore more receptive to information on climate change, while on the contrary; conservatives are more sensitive to economic concerns and are therefore more expected to resist information about global warming. McCright and Dunlap (2011) explain this according to a key characteristic of conservatism: defending the status quo. The discontinuity of the primary modernization, which was focused on exploiting natural resources to maximize wealth, means a shift away from traditional ways: moving away from the capitalist market-based economy (Martinez-Alier et al, 2010). However, it is not only regarding environmental problems as global warming that the view of conservatives and liberals differ. Liberals show a higher commitment towards environmentally friendly behaviour and are more supportive of environmental legislation. Haidt & Graham (2007) explain this according to moral foundations theory. Concerning moral foundations, liberals tend to emphasize Harm/care and fairness/justice, while conservatives are keener on ingroup loyalty, respect for authority and purity/sanctity. Furthermore, Feinberg and Willer (2013) found that media communicates environmental information in ways more prevailing to liberals and Wolsko (2017) believes this may be the reason for the different attitude towards the environment. Another explanation comes from Campbell and Kay (2014) describing that the most popular solution for environmental problems is government policy, and conservatists are overall against governmental regulation.
This has led to the following hypothesis:
METHOD
Sample and Data
The sampling frame that is used to test the hypothesis embodies directors from companies enlisted in the Standard & Poor’s 500 index. After having eliminated confusingly phrased variables, the final sample consists of 220 variables gathered on 413 companies. This has generated 3796 observations through the years 2002-2013, of which the data is drawn from multiple sources. The Database on Ideology, Money in Politics and Elections (DIME) consists of multimillion observations of individual and organizational contributions to American campaigns (Bonica, 2014). This contribution information was converted to CF (campaign finance) scores and used to measure the political ideology of upper echelons. The CF score was linked to the S&P500 directors with information retrieved from Boardex. Boardex has also provided the information on the backgrounds of upper echelons for control variable data. Furthermore, Factset’ (Ferreira, 2008) and Compustat variables were integrated for data on the remaining control variables. Last, Kinder, Lydenberg and Domini dataset (KLD) and Asset4 index variables have been integrated to measure CSiR, both containing environmental, social and governance (ESG) performance indicators.
Measures
Corporate social irresponsibility (DV) to measure CSiR, variables were derived from the
number of controversies concerning that CSiR behaviour. For the second robustness test, variables of the KLD dataset have been used. KLD, according to Kotchen & Moon (2012) is the most used dataset measuring ESG performance. The dataset contains 80 variables distributed over seven areas, each area including both strengths as controversy measuring variables. I have used 5 KLD variables for the second robustness test, as similar to the Asset4 numeric variables, I only integrated KLD variables that matched the Asset4 variables and did not measure multiple stakeholders. Almost all KLD variables are measured by whether having been in the news for that specific behaviour, indicated with a 1 or not having been in the news, indicated with a 0.
Board Conservatism (IV) Political ideology data has been collected from the DIME dataset
(Bonica, 2014). The DIME dataset contains 130 million contributions made by individuals and organizations in the years between 1974 and 2014. Bonica (2014) measured the political ideology scores by gathering contribution records from state and federal elections. Liberal donations are donations made to the Democratic Party, and conservative donations are donations made to the Republican Party. Based on this, political orientation is depicted in CF-scores, between -2 and +2, with -2 indicating liberal donations and +2 conservative donations. To match this dataset to the Standard & Poor’s 500 upper echelons, fuzzy matching techniques were used in which a computer-aided matching procedure linked the donation behaviour to the S&P500 upper echelons embodied in the Boardex database.
All matches generated by the fuzzy matching technique were subsequently checked by two different coders independently. If there was a disagreement between the coders, it was either resolved or the possible match was being deleted from the dataset to ensure the most correct data possible. Missing values have been replaced by zero, indicating a neutral political ideology, following Chin et al (2013). All board members’ individual CF scores were then summed and divided by the number of board members, to calculate the average political orientation of the S&P 500 boards. In all regressions a time lag of t-1 has been integrated, because donations are done prior to a book year.
Control Variables
Visibility Rindova, Williamson, Petkova and Sever (2005) found that prominent organizations
could decrease the level of social approval and therefor visibility could be a reason for an organization to keep away from CSiR. I have measured this by the variables Business-to-business, which is the inverse of customer-oriented variable and also by the Annual media mentions variable, indicating the amount of media mentions the organization has gotten that year.
Relative performance Baucus & Near (1991) argue that firms that are doing well are less
plausible to feel the urge to engage in illegal activities.This effect is controlled for by both Tobin’s Q, “which indicates the market value of the firm divided by the replacement value of its assets” (Wernerfelt & Montgomery, 1988, p.247) and by the Adjusted stock return, which indicates the profit on an investment made in that organization.
Organizational size is controlled for by both Total assets and the Number of employees. Current
research is not clear on the relationship between size and CSiR. However, the greater part of research arguing that larger firms are less inclined to CSiR are based on the idea that large firms have a high reputation and hence have more to lose. Because I have included the variable on Visibility, organizational size strictly focuses on size in terms of resources and operations and not on size in terms of reputation. In that idea, larger organisations might more easily engage in CSiR because of being able to absorb the potential fines. Another argument is that size can impair traditional autonomy and discretion, hence can increase ethical challenges to the firm (Brock, Powell & Hinings, 1999).
Boardsize Multiple researchers have found Board size to be a moderator in their research:
among others, large boards are less capable of being effective, the monitoring and control functions are less performed, and agency problems arise with an increased board size (Lipton and Lorsch, 1992).
Experience of the directors Having experience in either one of the following four areas is
Institutional Ownership Institutional ownership indicates the percentage of ownership of the
organization that is held by financial institutions, pension funds or endowments. This could be of influence because Roberts (1992) found evidence that providers of funds have a significant positive relationship to CSR disclosure. Also, these large organizations have their own reputation to protect which could increase their claim on the firm to not infer in CSiR. This can make the board keener on staying out of CSiR because it might otherwise negatively influence their relationship with creditors. Also, the more stakes owned by large organizations, the less are owned by individual shareholders, which might decrease the loyalty the board holds towards the shareholders.
Proportion of males on the board the results of Ferrel & Skinner (1988) show that women show
a significantly higher level of ethical behaviour, therefore gender diversity is controlled for by including the variable Propmale, measuring the proportion of men on the board.
Percentage of insiders on the board percentage of insiders is important to control for as it
indicates how much with how much freedom the board can serve in a controlling environment, it indicates the independence of the board. Coffey & Wang (1998) argue that insiders are assumed to be more preoccupied with short term economic benefits than outside board members are. Also, research carried out by Johnson and Greening (1999) indicates that outside directors on the board increase Corporate Social Performance.
Age both the effect of the Mean age of directors as the effect of the Age of the company is
controlled for. Age of board members could be a possible effect according to van Goethem et al (2012) who found results that adolescents are more understanding and occupied with moral issues and how to contribute to the issues. Age of the company should be controlled for as Roberts (1992) found that company age is significantly related to stakeholder management.
CSR score of the industry on an industry level the average CSR score of the industry is
To be able to investigate the effect of the control variables on CSiR, the control variables had to be measured prior to the moment the CSiR behaviour is executed. Therefore, all control variables were measured in t-1.
Data Analysis
As the data in the sample was gathered over multiple years, panel data regression is the right analysis for this research. Political ideology is a time-invariant variable (Chin et al, 2013), therefore; it was not appropriate to use a fixed-effects model. Fixed effect models control out higher-level variance when conducted on longitudinal data (Schurer and Yong 2012) what makes it, according to Bell & Jones (2015, p.139) “impossible to measure the effects of time invariant variables”. As the IV, political ideology, in this research is time-invariant and I expect it to affect the time-varying variable, this FE characteristic would be critical and therefor the random panel data regression model was preferred over the fixed panel data regression model. The random panel data regressions have all been
operationalized in STATA/SE 15.0 using the xtreg-command. All control variables are included for the regressions for each of the four stakeholders. To increase confidence in the results of the
regressions, two robustness tests are conducted. Both the robustness test also measure the effect of political ideology on Corporate social irresponsibility, however, where the main regression model measured Corporate Social Irresponsibility using the Yes/No variables of the Asset4 dataset, the first robustness test exists of numeric variables of the same dataset, to test if the numeric variables generate the same results as the Yes/No questions (Overview of matches included in Table A1 of Appendix A).The second robustness test is conducted with KLD variables in which Corporate Social
Irresponsibility is measured through the KLD variables that match the Asset4 variables used for the main regressions (Overview of matches included in Table A2 in Appendix A). This robustness check contains regressions for every hypothesis except for H2, concerning the shareholders as the
stakeholder. As there was not a fit between the KLD and Asset4 and the KLD variables on
in the field of CSiR as a whole and as there are 17 control variables included, it will be interesting to see which control variables come out of the regression models as having a significant effect on CSiR as a whole. Mainly for future research purposes this is interesting. The following chapter will show the results of all the data analyses that have been performed.
RESULTS
Descriptives and Correlation
Table B1 of Appendix B describes the descriptives of the variables used in the five main regression models, it does not include the CSiR variables that have been generated solely for the robustness tests. It shows the mean value and standard deviation of the dependant, independent and all control variables. The same table, B1, shows the correlation coefficients. Values < 0.35 are generally considered to be low, values between 0.36 and 0.67 are moderate and any higher value represent strong correlations (Taylor, 1990). Some moderate values were found, with 0.512 as highest correlation value, therefore VIF are assessed to check for multicollinearity.
Variance Inflation Factors
Table 1. Regression results of the five main regression models
Dependent variable total shareholders towards consumers towards employees towards environment natural
Regression Models
Table 1 shows the results of the five regression models. The regressions show the effects of political ideology on Corporate social irresponsibility. Model 1 tested the effect of political ideology on CSiR towards all the four stakeholders and found no significant effect. Thus, support for H1 was not found and H1 is rejected. The results indicate that there is no effect between board conservatism and political ideology. For the following control variables, a significant effect was found: Total assets, Tobins Q, number of employees, institutional ownership, percentage of insiders on the board and annual media mentions. This insignificance was also found in the two Robustness tests (Results included in table C1 and C2 of Appendix C). All the same control variables were found significant in the first robustness test and there was also found an effect of Board Size on CSiR. The KLD robustness test however, found very different control variables to be significant; number of employees, proportion of males on the board, adjusted stock return and the mean age of directors.
Model 2 demonstrates the regression results for the effect of political ideology on Corporate social irresponsibility towards the shareholders. No significant effect was found, therefore; H2 cannot be supported and there seems to be no effect between board conservatism and CSiR towards shareholders. Almost all control variables were found to have a significant effect, except for Proportion of directors with experience in HR, with environmental backgrounds, Business-to-Business, adjusted stock return, age of the company and average CSR score of the industry. Robustness test concerning the numeric Asset4 variables found the same insignificance, although with very different control effects. Only for total assets, Tobin’s q Business-to-Business and annual media mentions a significant effect was found. The second robustness test was not possible as there were no matching values concerning the shareholder between the Asset4 Yes/No questions and the KLD variables.
a significant relationship between political Ideology and CSiR (P = p<0.1 for both tests) indicating that there is a negative relation between board conservatism and CSiR towards customers. Concerning the control variables different results were found in the robustness tests; In the first robustness test Total assets, Tobin q, number of employees, proportion of directors with experience in either HR, environment or PR, Business-to-Business, proportion of males on the board, annual media mentions and mean age of the board held significant effects on political ideology while Robustness test 2 found less control variables to have a significant influence, namely: total assets, number of employees, Business-to-Business, proportion of males on the board, percentage of insiders on the board and the mean age of the board.
Model 4 the displays the results of the effect of political ideology on corporate social irresponsibility towards employees. A strong significant effect was found (p<0.01), supporting H4 and indicating that there is a positive effect of board conservatism on political ideology towards employees. Significant control variable relations found are total assets, number of employees, board size, institutional ownership, percentage of insiders on the board and annual media mentions. This support for H4 was also found by the second robustness test (p<0.01), however not by the Robustness test on the numeric variables of the Asset4 dataset. The significant control variables found for the robustness tests include number of employees, board size, Business-to-business, institutional ownership, percentage of insiders on the board and age of the company in comparison to Tobin q, number of employees, institutional ownership, adjusted stock return, percentage of insiders on the board, annual media mentions and mean age of the board.
significant control effects on proportion of directors with environmental experience, Business-to-Business, institutional ownership and percentage of insiders on the board. Last, KLD robustness test found, next to the prior summed control variables, age of the company and average CSR score of the industry to have a significant effect on political ideology.
Control Variables
Figure 1: Control variables found to be significant in main- and robustness regressions.
Figure 1 shows an overview of the control variables holding a significant effect on CSiR behaviour in general (H1) or towards each of the four stakeholders (H2-H5). As CSiR towards shareholders could not be measured with the second robustness test, the figure misses that information. The following control variables were found to have a significant effect in every regression on every stakeholder: Total assets, number of employees, percentage of insiders on the board and annual media mentions. Control variables significantly influencing CSiR towards three of the five stakeholders are Tobin’s Q, Boardsize and Institutional Ownership. The other control variables were found to influence either 2, 1 or none of the stakeholders.
Model 1 Model 2 Model 3 Model 4 Model 5
Main regression Total assets ** Total assets ** Total assets ** Total assets * Total assets *
Tobin's q ** Tobin's q ** Number of employees ** Number of employees ** Tobin's q + Number of employees ** Number of employees ** Board size * Board size * Number of employees * Institutional ownership + Board size ** Financial experience+ Institutional ownership ** HR experience + Percentage of insiders ** Financial experience ** PR experience ** Percentage insiders ** Environmental experience + Annual media mentions ** PR experience ** Business-to-business ** Annual media mentions ** Business-to-Business **
Institutional ownership ** Percentage insiders Percentag of insiders+ Proportion males ** Annual media mentions ** Annual media mentions ** Percentage insiders * Mean age of directors *
Annual media mentons ** Mean age of directors **
Robustnesstest numeric Asset4 Total assets ** Total assets Total assets ** Number of employees ** Total assets **
Tobin's q * Tobin's q + Tobin's Q + Board size * Tobin's q +
Number of employees ** Business-to-Business ** Number of employees ** Business-to-business ** Environmental experience * Board size + Annual media mentions ** HR experience* Instutional ownership* Business-to-Business ** Institutional ownership * Environmental experience *Percentage of insiders ** Institional ownership *
Percentage of insiders ** PR experience* Age of company + Percentage of insiders *
Annual media mentions ** Business-to-Business ** Annual media mentions*
Proportion of males + Annual media mentions ** Mean age of directors +
Robustnesstest KLD Number of employees Total assets + Institutional ownership + Total assets *
Percentage of males * Number of employees ** Adjusted stock return ** Tobin's q *
Adjusted stock return + Business-to-business ** Percentage insiders ** Annual media mentions + Mean age of directors ** Proportion males ** Annual media count + Company age +
Additional Robustness Tests
To give the results of the regressions more weight, besides the robustness tests as described above, additional robustness tests were conducted. As mentioned in the method section, for several possible control effects, two control variables were included in the regression measuring the same control effect. This concerns ‘Visibility’, ‘Relative performance’ and ‘Organisational size’, respectively Business-to-business/Annual media mentions, Tobin Q/Adjusted stock return, Total assets/Number of employees. To make sure that only including one of the two variables would not generate a different result, the five main regressions were run again with for every control effect only one variable included instead of the two mentioned above.
Almost all six regression excluding one of the six mentioned control variables showed the same outcomes as the main regression models did, except when excluding ‘Business-to-business’ as an indicator for the control effect of Visibility. When running the regression excluding B2B, both hypothesis 3 (p<0.1) and 4 (p<0.01) are supported, whereas the regression including B2B only shows support for H4 (p<0.01). This is particularly interesting because concerning model 3, the two robustness tests already showed a significant effect between political ideology and CSiR towards customers even when including B2B as a control variable. Also, the three tests that have found an effect, all indicate a negative relation between board conservatism and political ideology towards customers.
The result of the regression excluding B2B is included in the appendix C (Table C3) and will from now on be treated as the third robustness test.
Asset4 yes/no
regressions Yes/No asset4 regressions excluding B2B Robustness test numeric Asset4 variables regressions Robustness test KLD variables regressions H1 0.00517 0.00435 -0.00175 0.00600 H2 -0.0116 -0.0105 -0.0186 X H3 -0.0181 -0.0267+ -0.157 + -0.0671+ H4 0.0444** 0.0468** -0.0852 0.0812** H5 0.00934 0.0124 0.236** 0.00485 P < 0.01 ** P<0.05* P < 0.1+
In sum, as shown in table 2, no support for both an effect of board conservatism on either CSiR towards all stakeholders (H1) or CSiR towards shareholders was found in any of the four regressions. For an effect of political ideology on CSiR towards customers (H3), 3 of the 4 regressions found support, all indicating a negative effect. On the effect of political ideology on CSiR towards employees (H4), three regressions found a strong positive effect. Last, only the numeric Asset4 regression found strong support for an effect of political ideology on the CSiR towards the natural environment.
DISCUSSION
(Egri & Herman, 2000) and different political ideologies represent different values, H2-H5 expect different effects of political ideology on CSiR towards the different stakeholders.
All four hypotheses representing the four different stakeholders were tested through four different regressions. For each hypothesis one main regression and three robustness tests have been conducted. When three of four regressions found a significant effect, all showing either a positive or negative effect, it can be assumed that a significant effect of political ideology and CSiR towards that stakeholder is found and the hypothesis can be accepted. Significance was found for political ideology on CSiR towards two of the four stakeholders: employees and customers. For the effect on CSiR towards employees a positive effect was found (p<0.01) while the significance of CSiR towards customers was a negative effect(P<0.1).
The findings of H2-H5, as expected, support the idea that the effect of political ideology depends on the specific stakeholder that is being disadvantaged by the behaviour: for customers a negative effect was found and for employees a strong effect was found. The finding that the more conservative the board, the more CSiR towards employees but the less CSiR towards customers implies that conservative boards prioritize customers over employees. Another important aspect on the findings is that not for CSiR towards every stakeholder, an effect of political ideology was found. The outcomes concerning for which stakeholders an effect was found correspond to the findings of Agle, Mitchell & Sonnenfeld (1999). Agle et al (1999) looked at the moderating effect of CEO values on the relationship between stakeholder attributes and stakeholder salience. Although their overall results found the moderating role of CEO values to be insignificant, they did find a significant effect when measuring CEO values moderating the relation of stakeholder attributes on customer salience and employee salience.
As Agle et al (1999) has shown to be unable to predict every effect with his hypothesis and I showed to not be able either, while the results of both found the same results concerning which stakeholder we have found effect for, an alternative explanation could be that political ideology indeed influences stakeholder salience directly, as I expected, and not as a moderator, however; besides the political values influencing stakeholder salience, the three stakeholder attributes do too. Concerning some stakeholders, political values may be of a very strong effect, while for other stakeholders, power, urgency or legitimacy may be more determining how the organization prioritizes that specific stakeholder.
This alternative explanation would be able to explain why I found only an effect of political ideology on CSiR towards two of the four stakeholders. It indicates that concerning CSiR towards consumers and employees, the political ideology determines stakeholder salience but for shareholders and the natural environment the stakeholder salience is more influenced by one of the stakeholder attributes. Either power, legitimacy and urgency could be of such an importance that political ideology does not significantly affect CSiR.
environment as a stakeholder could possibly be found at another stakeholder attribute: urgency. At the time of the data collection, we were at the forefront of the sustainability movement. Where attitudes towards the environment are faster polarizing than any other ideology related area (Carrus, Panno & Leone, 2018), it is plausible that the discussion was less urgent at the time of the data collection. For further research it would be interesting to see if this effect, although insignificant, has increased between the years 2002 and 2013. Another possible explanation for this finding, is that the available data on the natural environment was very small. Only Asset4 5 variables about the natural environment fitted this research and could be integrated in the dataset. This makes the findings on this hypothesis less compelling than the others, as it is hard to know for sure if it is a set of variables that is a good representation of the natural environment.
The regression results have also found interesting findings concerning the control variables: strong significant effects were found between visibility and CSiR, the effect of size on CSiR and the percentage of insiders on the board. The first effect was expected, however in the opposite reaction. I expected that the more visible the organization, the less CSiR. Opposite results were found, the more media mentions, the more CSiR. This could be explained by the idea that organizations that have acted irresponsibly in the past will have more media attention the following years. The positive effect of size on CSiR was predicted and corresponds to literature arguing that increasing size leads to, among others, communication and coordination issues, rising the risk of irresponsible behaviour. (Baucus & Near, 1991) This positive relation was also found by Cochrain & Nigh (1987). Last, there was found strong support for a negative relationship between the percentage of insiders on the board and CSiR, indicating that the more the board consists of inside directors, the less CSiR. This was also expected, as Neville, Byron, Post & Ward (2019) argues that insiders are less objective than independent directors. Insiders dedicate more attention to control organizational misconduct by challenging and supervising managers.
(political) values indeed partly are drivers of CSiR, dependent on the stakeholder that is advantaged by the behaviour. The findings add to upper echelon literature by showing that political ideology can indeed be treated as a significant attribute of the upper echelon as different CSiR was associated with different political ideology, however; it may not be the most compelling attribute of the upper echelon as it was not found to be a significant effect on CSiR towards all stakeholders. For future research it would be interesting to duplicate this research on the personality and experience of the directors as the attribute. The findings contribute to theory on stakeholders by demonstrating that, as expected, firms do not treat all stakeholders equally and it explored the values the different political ideologies hold towards stakeholders. An unintended finding that adds to CSiR literature concerns the dynamics between CSR and CSiR. Comparing my results to the findings of Chin et al (2013), as Chin et al (2013) found a positive effect of liberalism on CSR and I have found no negative effect of conservatism on CSiR, corresponds with Strike et al (2006, p. 850) who believe that “firms can be both good and bad at the same time”, supporting the idea that CSR and CSiR are not two ends of the same spectrum.
Practical Implications
Limitations
political ideology of a firm is derived from the individual board member political preferences, it is being assumed that all board members contribute equally to the decision-making process of the board. Even when all members have equal votes, it is likely that some board members follow others’ opinions who they perceive to be very influential.
Future Research
To start with CSiR, not only the influence of political ideology on CSiR had not been researched before, but CSiR as a whole has not been explored much yet. It would be interesting to look for patterns within the results by looking into the characteristics of the organizations in which an effect between political ideology and CSiR was found. It could be for example possible that political ideology is more prevailing in certain industries than in other. This is, besides contributing to
literature, also helpful in order to know where the practical implications can be applied to, for example to know it what kind of firms, extra attention should be given to weighing the percentage of liberals and conservatives in the board of directors. Also, regression analyses found Total assets, number of employees, percentage of insiders on the board and annual media mentions significant control effects in all models. Further research could further investigate these effects. Furthermore, this research did not dive deep into the dynamics between CSR and CSiR but did find supporting findings that they are not ends on the same spectrum. Further research into this, also as literature is not united on this, would be interesting. Another interesting research would be following: Chin et al (2013) have examined the effect of political ideology on CSR but did not distinguish between different stakeholders within the field, it may be interesting to conduct the same research as I have done for CSiR. A possible further research concerning both the field of CSiR as upper echelon theory would be the following: this research’ line of thinking was built on the idea that the stakeholder that is being advantaged,
especially because the control variables concerning Visibility, B2B and News Count, were found to be very influential.
Conclusions
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