Attributes of corporate boards and assurance of corporate social responsibility reporting: evidence from the UK

• DOI: https://doi.org/10.1108/CG-02-2021-0066
• Published date: 28 October 2021
• Date: 28 October 2021
• Pages: 748-780
• Subject Matter: Strategy,Corporate governance
• Author: Laila Aladwey,Adel Elgharbawy,Mona Atef Ganna

Attributes of corporate boards and

assurance of corporate social

responsibility reporting: evidence

from the UK

Laila Aladwey, Adel Elgharbawy and Mona Atef Ganna

Abstract

Purpose –This study aims to investigate the relationship betweenthe attributes of corporate boards in

UK companiesand their tendency to assure theircorporate social responsibility(CSR) reports.

Design/methodology/approach –From the agency theory perspective, the authors examine the

impact of board attributes on the assurance of CSR reports for the Financi al Times Stock Exchange

(FTSE) 350 during 2016–2019. The authors used annual integ rated reports, companies’ websites

and Thomson Reuters Eikon database for data collection and the logist ic regression for data

analysis.

Findings –The resultsconfirm that some board attributes significantly influencea company’s decisionto

assureits CSR reports.While board size,board tenure,the presence offemale board membersand female

executivedirectorsand Chief ExecutiveOfficers (CEOs)’global workingexperience positivelycontributeto

CSR assurance (CSRA) decisions, the chairman’s independence negatively contributes to it. However,

board independence, boardmeetings and board financialexpertise demonstrate no effect on the CSRA

decision.

Research limitations/implications –The authors focus on some attributesof board members, but the

authorsdid not consider board diversity in its broader meaning.Moreover, the effect of board committees

and their attributeson CSRA was not addressed. The authors also did not consider the impactof scope,

the quality level of assurance serviceand the differences between assurance providers on companies’

decisionsto neither undertake CSRA nor choosebetween assurance providers.

Practical implications –The study provides insights into the increasing demand on volu ntary assurance to

boost the credibility of CSR reports and the role of the board of directors (BOD) in taki ng this initiative. The

findings highlight the importance of board diversity (e.g. gend er) in improving transparency and sustainability

reporting, which can help policymakers and regulators in shaping fu ture governance policies. Additionally, the

findings refer to a drawback in the UK Corporate Governance C ode regarding the chairman’s independence,

which requires corrective actions from the Financial Repo rting Council. The findings raise concern over the

small share of audit firms in the assurance service ma rket, despite the growing demand for these services in

the UK, which may require more attention to these services from the audit firms.

Social implications –Companies are increasingly pressurized, especially after the COVID-19

pandemic,to discharge their accountability to stakeholdersand to act in a socially responsible manner in

their business activities.CSR reporting is one of the main tools that companies use to communicatetheir

social activities. Understanding the determinants of voluntary CSRA helps to increase the credibility of

CSR reportsand the favorable response to socialpressure.

Originality/value –The authors add empirical evidenceto the limited literature on CSRA about the role of the

BOD in undertaking companies’ social responsibility , improving CSR reporting and reducing information

asymmetry. It also highlights the significanceof maintaining a balanced BOD in terms of gender, experience

and tenure, in minimizing the risk of perpetuating n on-transparent integrated reporting.

Keywords Corporate social responsibility assurance, Board diversity, FTSE 350,

Corporate board’s attributes, UK

Paper type Research paper

Laila Aladwey and

Mona Atef Ganna are both

Lecturer at the Department

of Accounting, Faculty of

Commerce, Tanta

University, Tanta, Egypt.

Adel Elgharbawy is based

at Qatar University, Doha,

Qatar.

Received 21 February 2021

Revised 14 June 2021

27 July 2021

21 September 2021

Accepted 2 October 2021

PAGE 748 jCORPORATE GOVERNANCE jVOL. 22 NO. 4 2022, pp. 748-780, ©EmeraldPublishing Limited, ISSN 1472-0701 DOI 10.1108/CG-02-2021-0066

1. Introduction

The growing tendency of companies to disclose corporate social responsibility (CSR)

activities in their reports calls for a legitimate scheme for properly verifying such activities

(Jones and Solomon, 2010). Assurance is the process that augments the external users’

confidence in the reported data (Jones et al.,2015). An assurance statement is perceived

as evidence of a practical scheme to enhance the trustworthiness and integrity of CSR

reports (Channuntapipat et al.,2019). Velte (2021a) argues that assuring CSR reports could

be associated with a healthy Corporate Governance (CG) atmosphere, and CSR assurance

(CSRA) would add value to the credibility of integrated reporting. Additionally, Kend (2015)

argues that assurance could help to mitigate the information asymmetry to different

stakeholders, as it boosts stakeholders’ confidence in sustainability reporting. Moreover,

Phang and Hoang (2021) provide evidence thatissuing combined CSRA with assured CSR

reports would have a significant impact on investors’ decisions with regard to companies

with negative performance.

Issuing an assurance statement is an emerging practice that permits the settlement of many

choices and addresses a set of outcomes and determinants (Tyson and Adams, 2020). It is a

comparatively recent and optional practice in many countries (Junior et al., 2015). However,

assurance reports are provided in non-standardized formats that differ in scope and content

according to the background of the assurance provider, which may undermine their

usefulness to stakeholders (Junior et al., 2015;Channuntapipat et al., 2019). Furthermore, the

voluntary nature of these reports provides an opportunity for managerial discretion: managers

can decide who provides the assurance and what topics are assured (Velte, 2021a).

Accordingly, a company’s decision to assure its CSR report is a function of a specific set of

internal and external factors (Tyson and Adams, 2020). Therefore, the role of the board of

directors (BOD), according to Hafsi and Turgut (2013), is to persuade shareholders that their

engagement in corporate social performance is in their own interest. The BOD is responsible

for boosting a transparent, objective and high-quality reporting system; thus decisions related

to CSR reporting are aligned with the governance role of the BOD (Liao et al.,2018).

According to the agency theory, BOD is a governance mechanism that monitors and

restrains management’s opportunistic behavior, thus ensuring a proper alignment of

management’s actions with shareholders’ interests (Fama and Jensen, 1983). To effectively

monitor management, board members should possess attributes and capabilities that

guide management’s actions, assess business strategies and contribute to CSR (Bear

et al.,2010

). Thus, board attributes and structure affectthe degree to which firms engage in

CSR activities (Liao et al.,2018).

A BOD is structured to have a certain combination of executive and independent directors,

creates supporting committees, such as audit committee (AC) and remuneration

committee, specifies directors’ educational backgrounds and levels of experience, and

defines its gender diversity (Srinidhi et al.,2011). According to the agency theory, a well-

structured board is likely to adopt highly transparent and integrative reporting, including

greater voluntary disclosure to resolve the issue of information asymmetry between

shareholders and management (Muttakin et al.,2015). A BOD, as an effective monitoring

mechanism, can persuade management to address CSR activities (Pucheta-Martı

´nez and

Gallego-A

´lvarez, 2019) and engage in CSRA (Velte,2021a).

In addition to the board’s attributes, future research would examine the characteristics of

executive members that increase their willingness to take decisions related to CSRA (Tyson

and Adams, 2020). Interestingly, Cohen and Simnett (2015) argue that most of the studies

on the audit of financial statementsare still applicable to CSRA. Thus, based on a sample of

225 UK companies listed on the FSTE 350 between 2016 and 2019 yielding 900 firm-year

observations, we use the agency theory to examine the relationship between board

attributes and companies’ decisionsto engage in CSRA.

VOL. 22 NO. 4 2022 jCORPORATE GOVERNANCE jPAGE 749

We provide empirical evidence to show that the FTSE 350 companies are more likely to

assure their CSR reports when they have a large board, a high percentage of female board

members and female executive directors, CEO with international experience and long

board tenure. However, our results also reveal that a company with an independent

chairman is less likely to engage in CSRA. Further, the independence of board members,

their financial experience and the number of boardmeetings have no significant effect on a

company’s tendency to take assurancedecisions.

Analysis reveals that not only companies with hi gh environmental, social and governance

(ESG) score assure their CSR reports but also companies with poor governance performance

may take the decision of CSRA to improve the credibility and transparency of their reports.

Additionally, large boards of UK companies maintaining chairman independence and using a

higher percentage of financial expertise would favor accounting firms as their CSRA

providers. However, boards engaged in a greater number of meetings and recruiting a

higher ratio of executive female directors an d independent directors may resort to non-

accounting rather than accounting firms.

This study contributes to the literature in several ways. First, it provides more insights on the

under-researched topic on how a well-diversified BOD would encourage companies in the

UK to voluntarily assure their CSR reports. Second, it reveals the attitude and incentives of

the UK companies toward the CSRA service. Third, it highlights the importance of the role

that the BOD, as an internal CG mechanism, plays in ensuring transparency and providing

credible disclosure to stakeholders. Finally, this study calls for stricter application in the

UK’s CG Code of the criteria for a chairman’s independence.

The remainder of this study is presented as follows. Section 2 presents some views of the

practice of assuring CSR reports in the UK. Section 3 reviews the relevant literature and

develops hypotheses. Section 4 describes the chosen sample and discusses the

methodology that was used. Section 5 reports the descriptive statistics and discusses the

findings. Section 6 provides a concludingsummary.

2. Corporate social responsibility assurance in the United Kingdom

There is considerable consensus in the literature that external third-party assurance enhances

the credibility of corporate reporting and the level of trust in th e assurance statements

(Deegan and Blomquist, 2006). However, it has been argued that the assurance of

sustainability reporting in the UK suffers from a dearth of “credibility” (Smith et al.,2011;Al-

Shaer and Zaman, 2019) because of to at least two factors as follows: First, the lack of

agreed criteria on how companies should report their non-financial performance, which may

put assurance providers under pressure to identify the scope of their assurance services.

Second, the lack of a standard format for assurance reports, which may limit the assurance

providers’ ability to settle a common approach toward report coverage, presentation and

organization (Corporate Register, 2008). The UK has three types of assurance providers,

namely, the big four accounting firms, testimony institutions and consulting companies, who

differ in terms of the quality of their assurance statements (Al-Shaer and Zaman, 2019).

Moreover, Smith et al. (2011) argue that the lack of credibility in sustainable reporting

assurance in the UK could be attributed to the guidelines and principles issued by the focal

institutions engaged in this area, which are distinct, variant and depend mainly on the

professionaland ethical backgrounds of their staff.

In a systematic review of CSR literature in differentregions, Velte (2021a) finds that only two

studies provide empirical evidence from the UK. In one study, Al-Shaer and Zaman (2018)

examine the association between the attributes of the AC (independence, expertise and

activity) and the stance of the FTSE 350 companies regarding CSRA. They indicate a

positive association between the attributes of the AC and CSRA decision. However, a

negative association betweenthe independence of the AC and using the assurance service

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