Board diversity as a determinant of the social performance in the European banking sector

• DOI: https://doi.org/10.1108/EDI-05-2022-0129
• Published date: 04 October 2022
• Date: 04 October 2022
• Pages: 248-265
• Subject Matter: HR & organizational behaviour,Employment law,Diversity,equality,inclusion
• Author: Candida Bussoli,Danilo Conte,Marco Barone

Board diversity as a determinant

of the social performance

in the European banking sector

Candida Bussoli, Danilo Conte and Marco Barone

LUM Giuseppe Degennaro University, Casamassima, Italy

Abstract

Purpose –This study intends to test the relationship between banks’board diversity, detected with age and

gender characteristics, and banks’social performance. The resource dependence theory posits that board

diversity is a strategic tool able to enrich the board of directors by expanding skills and the number of links

with stakeholders, which have a strategic role in achieving a competitive advantage and sustainable goals,

especially in the banking sector.

Design/methodology/approach–The research hypotheses are tested using a sample of 46 European banks

observed from 2009 to 2017. The genderand age diversity data of bank board members are hand-collected from

banks’social reports.

Findings –The empirical results show that bank social performanceis positively influenced by board gender

and age diversity. Thus, the human capital determined by a higher bank’s board diversity constitutes an

essential resource for adopting more sustainable business models.

Originality/value –This paper analyses the association between board diversity and social performance,

providing empirical evidence for the European banking sector in the period after the 2008 global financial

crisis. The banking literature provides scarce evidence on the topic; however, the empirical results claim the

strategic importance of the appointment of directors to the banks’boards to balance corporate strategy with

social and environmental issues generating a positive impact on sustainable growth.

Keywords Board diversity, Age diversity, Gender diversity, Corporate social performance, Banking sector

Paper type Research paper

1. Introduction

In recent years, corporate social responsibility (CSR) has been the focus of debate by

numerous researchers worldwide. In particular, most studies have focused on analysing the

relationship between corporate social performance (CSP) and financial performance to

investigate the financial effects of adopting a sustainable business model. However, fewer

studies analyse the same relationship in the banking system, although the importance of this

financial intermediation channel is well recognised in the economic literature (Jeucken, 1998;

Levine, 2005). Besides, the financing policies adopted by banks may contribute to pressing

firms to undertake more environmentally and socially sustainable investment projects.

Through this investment selection process, banks can influence the behaviour of enterprises

both through the instruments they offer and by requiring better financial and non-financial

disclosure from their borrowers. In this way, banks’monitoring of their borrowers leads

managers to improve the companies’social performance and information quality,

determining a more sustainable allocation of financial resources (Goss and Roberts, 2011).

Board diversity in banking became relevant in the wake of the 2008 financial crisis, which

highlighted inefficiencies in the corporate governance of banks. Banking supervisory

authorities, particularly in Europe, have partly attributed the lack of monitoring of board

management decisions to the phenomenon of “group think”(European Banking Authority

(EBA), 2020). This phenomenon is caused, among other things, by the lack of diversity in the

composition of management bodies. Supervisory authorities and credit institutions have

expanded their efforts to achieve an adequate level of diversity through adopting regulatory

interventions aimed at promoting diversity in boards in terms of age, gender, geographical

EDI

42,2

248

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/2040-7149.htm

Received 25 May 2022

Revised 29 August 2022

Accepted 15 September 2022

Equality, Diversity and Inclusion:

An International Journal

Vol. 42 No. 2, 2023

pp. 248-265

© Emerald Publishing Limited

2040-7149

DOI 10.1108/EDI-05-2022-0129

origin and educational and professional background (EBA, 2020). Diversity in board

composition is seen as the way to “control management more effectively and thus contribute

to better risk supervision and resilience of institutions”(Directive, 2013/36/EU –Capital

Requirements Directive –CRD IV).

The financial institutions increased their attention to social and environmental issues

significantly after the global financial crisis of 2008, which determined widespread

reputational and customer trust damages to the global banking system (Uslaner, 2010).

Indeed, banks have adopted social and environmental activities inside their corporate

strategy to restore the credibility of their image (Branco and Rodrigues, 2006;Minor and

Morgan, 2011;Hsu, 2012;Eberle et al., 2013;Hur et al., 2014). The growing public concern

about sustainability has accelerated the adoption of CSR strategies that consider the request

of several bank stakeholder groups. Most studies focus on the financial effects of

implementing CSR strategies, discovering a positive association between bank social

performance and financial performance (Forcadell and Aracil, 2017;Simpson and Kohers,

2002;Wu and Shen, 2013).

This study aims to investigate the relationship between the banks’board diversity and

social performance, testing the possible influence that bank board members’age and gender

heterogeneity have on social performance. Thus, the study seeks to understand the

determinants of social performance in the European banking sector after the global financial

crisis of 2008.The research hypotheses are developed using the resources dependence theory,

which considersboard diversity as a strategic tool toincrease the skills and numbers of links

with stakeholders by determining more helpful information to set a more effective corporate

strategy (Salancikand Pfeffer, 1978). The integration of stakeholders’concerns in the bank’s

strategy is a directconsequence of more relations withstakeholder groups that connotebanks

with higher boarddiversity, which determinesan increase in social performance,allowing the

achievement of competitive advantage (Antonelli et al., 2013;Hafsi and Turgut, 2013).

The research hypotheses are tested by employing a sample of 46 European banks over the

period 2009–2017, thus, after the global financial crisis of 2008, a period in which public opinion

claims a change in the traditional bank corporate governancemodel. Data on the board members’

diversity, in terms of age and gender, are hand collected from the banks’social reports.

The empirical results provide evidence that banks with higher board members diversity

achieved higher social performance. These results are in line with the assumptions of

resource dependence theory that suggest the higher diversity in the boards determines the

development of human capital able to enrich the set of information and resources of banks

through more relations with several stakeholders groups (Hillman et al., 2000;Salancik and

Pfeffer, 1978). These relations determine the integrations of stakeholders’requests in the

bank strategies determining a higher social performance. Thus, appointing directors to bank

boards is critical to improving corporate strategy and adopting more sustainable business

models by helping the overall sustainable growth.

The study contributes to the literature on the association between bank board diversity

and social performance, which is limited and achieves unequal results (Galletta et al., 2022).

Therefore, the paper contributes to the literature that seeks to identify bank board diversity

as a determinant of social performance. Finally, the paper provides empirical evidence of the

association mentioned above for European banks in the period following the global financial

crisis of 2008, an interesting period due to the increasing public attention toward bank

corporate governance and sustainable issues (Locatelli et al., 2018).

The paper is structured as follows. The second section is focused on analysing the

literature on CSR in banking related to the resource dependence theory based on which the

research hypotheses developed. The third section presents the sample, the data collection

methods, and the methodology employed to test the research hypotheses. The empirical

results are commented on and discussed in the fourth section, followed by the conclusions.

Board

diversity in

banking

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