Corporate governance and sustainable business conduct—Effects of board monitoring effectiveness and stakeholder engagement on corporate sustainability performance and disclosure choices

Abstract

This study posits that, in the absence of extensive mandatory regulation and auditing, differences in internal and external corporate governance (CG) mechanisms will explain variations in choices concerning corporate sustainability reporting and the interrelated and underlying corporate sustainability performance (CSP). Specifically, we explore whether board monitoring effectiveness as a major internal CG mechanism and stakeholder engagement as a key external CG mechanism are positively associated with sustainability reporting quality (SRQ), compliance with generally accepted sustainability reporting standards (SRC) and guidelines, and CSP for a sample of Dutch firms that have voluntarily disclosed sustainability reports during the years 2012-2016. In addition to these direct effects, we also investigate the potential indirect effects of the CG mechanisms on SRQ and SRC via CSP and distinguish between nonlagged and lag effects. Using structural equation modeling, our results show that, in the short term, monitoring effectiveness positively affects SRQ and SRC. Stakeholder engagement positively affects SRQ and SRC in the short term and is positively related to SRQ via CSP in the longer term, indicating that active stakeholders, over time, may drive companies toward more sustainable business conduct. Finally, the findings that CSP is positively related to SRQ but negatively related to SRC provide further support for signaling and legitimacy theory, respectively. Companies with superior CSP disclose high-quality information on CSP to signal the firm's superior sustainability performance, whereas poor performing companies legitimize their inferior CSP by complying with more reporting standards, rather than by directly improving their underlying CSP.

Exploring the Determinants of Strategic Corporate Social Responsibility: An Empirical Examination

“…This study also finds that the coefficient on the shareholding percentage of government institutions (INST) is significantly negative (coefficient = −0.042, t value = −2.344), indicating that a firm's ownership structure could affect its CSR initiatives. Consistent with previous studies [27,86,87], we find that a firm's corporate governance mechanisms could affect its CSR decisions. Therefore, it is valid for this study to include theses variables as control.…”

“…This study further suggests that the motivation of a firm's strategic CSR initiatives is to respond to stakeholders' implicit claims. Different from prior studies examining on determinants of CSR [25][26][27][28], this study compares the impact of external competitive pressure and external stakeholder claims. Second, we find that corporate reputation has a significantly positive impact on the level of strategic CSR.…”

“…First, it shows that the motivation of a firm's engagement in strategic CSR is to respond to external stakeholders' claims rather than responding to external competitive pressure. Although some recent studies have touched on the issue of motivations for CSR [25][26][27][28], they do not compare the impact of external competitive pressure or stakeholder claims. Second, we address the importance of corporate reputation in driving a firm's strategic CSR initiatives.…”

Stakeholder engagement in sustainability reporting: A classification model

“…This meaning could be interpreted in terms of the nature, quality, and extent of the relationships between firms and stakeholders. Based on these characteristics, stakeholder engagement may present distinct levels (Greenwood, 2007; Manning, Braam, & Reimsbach, 2018; Morsing & Schultz, 2006).…”

Sustainability – A key to Australian finance directors improving their organisation's CSR culture

“…Within the Australian context, there has been a focus on governance, reporting, stakeholder engagement, and small-to-medium sized organisations (Beck, Frost, & Jones, 2018;Lane & Devin, 2018;Sheedy, 2016;Stewart & Gapp, 2014). Across all regions, including Australia, there is an increasing focus on the role of board diversity and corporate governance (Furlotti, Mazza, Tibiletti, & Triani, 2018;Galbreath, 2011;Manning, Braam, & Reimsbach, 2019;Setó-Pamies, 2015;Uribe-Bohorquez, Martínez-Ferrero, & García-Sánchez, 2018). As yet, there has not been field research into board directors CSR subculture in Australia, or other regions.…”