Walking the Talk? A Corporate Governance Perspective on Corporate Social Responsibility Decoupling

Abstract

Information asymmetry and the pressure to conform to stakeholders' expectations cause firms to engage in corporate social responsibility (CSR) decoupling -a practice that has severe socioeconomic consequences for firms. Adopting a corporate governance perspective, this paper answers a novel question: whether board gender diversity (BGD) curbs CSR decoupling. Using a battery of sophisticated analyses and robustness tests on 9276 firm-year observations for the period 2002-2017, our results confirm that BGD is negatively associated with CSR decoupling. Analysis of the composition of gender-diverse boards further reveals that this effect is stronger for balanced boards than for skewed and tilted boards. Furthermore, we note that independent female directors are more effective monitors of decoupling than executive female directors. We also document that the relationship between BGD and CSR decoupling is stronger when the overall governance is weak. This implies that gender-diverse boards could act as a substitute mechanism for corporate governance that would otherwise be weak. Our study offers important theoretical and policy implications for the field of corporate governance and CSR.

Determinants and consequences of corporate social responsibility decoupling—Status quo and limitations of recent empirical quantitative research

“…First, addressing board compensation , board independence and greenwashing are negatively related (Yu et al, 2020). CSR board committees decrease CSR decoupling, greenwashing and brownwashing, moderated by firm level of CSR orientation and corporate governance quality (Gull, Hussain, Khan, Khan, & Saeed, 2022). Moreover, board gender diversity and CSR decoupling are negatively related, moderated by weak corporate governance performance and accruals‐based management (Gull, Hussain, Khan, Nadeem, & Zalata, 2022).…”

“…Third, we also note some studies which included two databases in their research to measure the gap between CSR reporting, based on Bloomberg , and CSR performance, based on Refinitiv (e.g., Gull, Hussain, Khan, Khan, & Saeed, 2022; Yu et al, 2020; Zhang, 2022a). While this strategy leads to lower multicollinearity concerns, it has to be pointed out that the descriptions of related CSR measures are rather vague (“black box character”) and the separation between CSR reporting and performance database is rather superficial.…”

“…In more detail, corporate governance can be separated into board composition, ownership, and other stakeholder pressure. Regarding board composition , managerial entrenchment (Garcia‐Sanchez et al, 2020), sustainability board committees (Gull, Hussain, Khan, Khan, & Saeed, 2022), board gender diversity (Eliwa et al, 2023; Gull, Hussain, Khan, Nadeem, & Zalata, 2022), board independence and size (Yu et al, 2020), board network centrality (Zhao et al, 2022), CEO with positions as government officials (Marquis & Qian, 2014), CEO power (Gull et al, 2023; Shahab et al, 2022), CEO overconfidence (Sauerwald & Su, 2019), and CEO narcissism (Al‐Shammari et al, 2019) were included. Ownership structure was recognized as institutional ownership, (Yu et al, 2020), family ownership (Parra‐Dominguez et al, 2021), mutual fund investors' distraction (Liu et al, 2023) and institutional shareholder linkage to the central government and chair/CEO served as delegate to the two most important national political councils (Luo et al, 2017).…”

“…During the last decade, archival research on possible determinants and consequences of CSR performance and reporting has massively increased (Gull, Hussain, Khan, Khan, & Saeed, 2022). This relates to corporate and country governance (e.g., board composition, ownership structure), other financial‐ and sustainability‐related firm determinants, and consequences for firm value (e.g., financial performance) (Khan & Lockhart, 2022).…”

“…In the following, we stress the major limitations of this strategy. First, researchers assume that CSR proxies of the Refinitiv (former Asset4) database refer to performance, while the Bloomberg database portrays CSR reporting measures (e.g., Gull, Hussain, Khan, Khan, & Saeed, 2022). However, we note huge interdependencies between the databases, as the Refinitiv database also analyzes CSR reports and the Bloomberg database also includes performance measures.…”