Is the effect of board diversity on CSR diverse? New insights from one-tier vs two-tier corporate board models

• DOI: https://doi.org/10.1108/CG-07-2020-0277
• Pages: 23-61
• Date: 13 November 2020
• Published date: 13 November 2020
• Subject Matter: Corporate governance,Strategy
• Author: Habib Jouber

Is the effect of board diversity on CSR

diverse? New insights from one-tier

vs two-tier corporate board models

Habib Jouber

Abstract

Purpose –The purpose of this study is to investigate the imp act of board diversity on corporate

social responsibility (CSR). The aim is twofold; does board diversity has any effect on CSR, do

structural and demographic differences between one-ti er and two-tier board models may impact

this effect?

Design/methodology/approach –This paper applies a panel generalized method of moments

estimatorto a sample of 2,544 non-financial listedfirms from 42 countries over the period of 2013–2017.

Findings –The findings reveal that board diversity leads to effective CSR. By distinguishing between

diversity among boards from diversity within boards, the results display the effects of the specific

variables that make up the manner and latter’s constructs within unitary and two-tier board structures.

Specifically, this paper reveals that tenure, ideology and educational level (gender and nationality)

predominantly appear to drive a firm’s CSR within one (two)-tier boards settings. These results remain

consistentwhen robustness tests are ruled.

Practical implications –The study provides managers, investors and policymakers with knowledge

about how among and within board diversity attributesfavor the decision-making process around CSR.

The evidence is useful for companies in setting the criteria to identify directors who can support their

strategic decisions. It benefits, moreover, academics in better understanding firms’ CSR determinants

and practicesunder different corporate board models.

Social implications –Examining how different sets of board diversity affect firms’ CSR given

divergences between one-tier and two-tier board structure is a useful and informative endeavor for all

communityactors.

Originality/value –Unlike prior studiesthat identify the limited scope of diversity,the study is the first to

examine the effect of broader dimensions of board diversity on CSR under both one-tier and two-tier

board settings. This paper providesa contribution to a greater understanding of the impacts underlying

board models and different attributes of board diversity on CSR. This new understanding will help to

improve predictions of different features of board diversity impacts on decision-making processes

aroundorganizational outcomes.

Keywords Board of directors, Corporate social responsibility, One-tier board, Two-tier board,

Board diversity

Paper type Research paper

1. Introduction

Corporate social responsibility (CSR) is increasingly becoming a strategic issue for firms,

and depends upon management decision-making. To better perform the decision-making

process, boards are called to develop strategic orientations and reforms leading to all

partners’ value maximization. Among those reforms, investors, regulators and many other

market participants have addressed a growing focus on and emphasized the need for

board diversity and several countries have started to opt for either voluntary or mandatory

legal initiatives to promote boardroom diversity. Arguments from advocates of board

Habib Jouber is based at

the College of Economics

and Administrative

Sciences (CEAS), Al Imam

Mohammad Ibn Saud

Islamic University (IMSIU),

Saudi Arabia and LARTIGE,

Faculty of Economic and

Management Sciences,

Sfax University, Tunisia.

Received 4 July 2020

Revised 26 September 2020

Accepted 1 October 2020

The author gratefully

acknowledges insightful and

helpful comments from Editor-

in-Chief Gabriel Eweje and two

anonymous referees during the

review process.

DOI 10.1108/CG-07-2020-0277 VOL. 21 NO. 1 2021, pp. 23-61, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 23

diversity fall into two broad categories, namely, fairness and equity in the context of

responsible business practices and shareholders’ value in the context of firm performance

(Vafaei et al.,2015). Yet, the precise meaning of board diversity is still unclear. Sometimes,

it is related to demographic differences among directors, sometimes to disparities among

boards in terms of structure, processes and other board characteristics. At other times, the

intertwined nature of both directorsand boards is the focus of attention (Hoang et al.,2018).

Moreover, despite the upsurge of board gender diversity debate, there is limited evidence

on other board diversity aspects’ effects on firm practices, especially on CSR. Furthermore,

although previous researchers have studied board diversity extensively, a very limited

understanding about the channels through which board diversity can improve firms’ CSR is

found. Divergent researchers’ approaches with regard to the meaning and the attributes of

boardroom diversity have jointly contributed to a scarce understanding of board diversity

contributions to performance and have generated some confusion about which

independent variables are really meaningful in assessing boards’ effects on CSR. The

mixed findings in the previous research can be attributed to differences across studies in

uses of narrow proxy for board diversity and CSR, methodologies, time horizons, omitted

variable biases and other contextualissues. They may be due, moreover, to a failure to test

for reverse causality, unobserved board structure heterogeneity and small sample size.

Another reason for the conflicting evidence on board diversity may be that it is not clear,

which board diversity aspect may be importantfor CSR improvement.

In this study, our first aim is to address the main limitations of the aforementioned studies by

using a large sample of listed firms belonging to two different board models (one-tier vs

two-tier models), by using various board diversity attributes and addressing endogeneity.

Our second aim responds to the institutionalization of board outcomes through uncovering

different board characteristics (structural and demographic) and exploring their

corresponding influence on pushing the diversity agenda and improves the firm’s CSR. We

assume that, while analyzing the explanatory factors that influence social behavior, we

should include not only a consideration of board diversity aspects but also the institutional

setting that affects it features, as well as directors’ perception around diversity and

corporate social issues.Among the many institutional factors, we seek to answerhow board

structure orientation in the country of origin moderates the effect of board diversity on CSR.

Thus, we provide a novel contribution to board diversity-related CSR by adopting the neo-

institutional theory’s approach. This approach is expanded under the premise that the

influence of board diversity on the corporate social issues varies according to the

institutional context.

The intended contributions of this paper are mainly for the field of boardroom diversity and

CSR literature. For the board diversity literature, the main contribution will be that this study

is the first attempt to examine the conceptof diverse board diversity from two distinct board

models; one-tier vs two-tier boards. This will provide a contribution to a greater

understanding of the impact of different attributes of board diversity such as gender,

ideology, tenure, nationalityand educational level on CSR. This new understanding will help

to improve predictions of the impact of different types of diversity on decision-making

processes toward CSR. For the CSR literature, we intend to add to the insights that varying

types of diversity among and withindifferent board structures can have different impacts on

CSR. Moreover, we contribute to the theoretical implication by refining the impact of board

diversity on CSR from the shareholder-stakeholder theory, the resource dependencetheory,

the upper echelon theory and the resource-based view theory that none of theprior studies

has broadly focused on.

The remainder of the paper proceeds as follows. Section 2 outlines the major one-tier vs

two-tier board features and their implications on the association between selected board

diversity sets and CSR and develops underlying hypotheses. Section 3 discusses the

research design including data, variables and methodology. Section 4 summarizes

PAGE 24 jCORPORATE GOVERNANCE jVOL. 21 NO. 1 2021

empirical results. Section 5 displays our research’s contributions and implications. Finally,

Section 6 concludes.

2. One-tier vs two-tier board features, board diversity and corporate social

responsibility

A comparison between one-tier and two-tier board features is followed by an analysisof the

association between board diversity and CSR and a discussion of board structure

implications on this association.

2.1 One-tier vs two-tier board features

One-tier (the unitary model) and the two-tier (the dual model) are the two board models

evolved worldwide. Traditionally, the one-tier board is adopted in common law countries

while the two-tier board model prevails in civil/code law countries (Millet-Reyes and Zhao,

2010). Besides differences in original law rules, there are substantial dissimilarities in

features (size, structure, composition, etc.), which induce serious divergence in board

functions, decision-making orientations and legitimacy. First, under the one-tier model, the

board is considered the highest governing body and board members perform two main

functions; strategy-setting and management-monitoring, which are considered to be

complementary and have the same importance from a legal and business point of view.

However, under the two-tier model, it is mandatory to have two administratively separate

bodies –the management board (MB)and the supervisory board (SB), which are organized

in a vertical relation being the manner is responsible for the day-to-day management of the

company while the latter functions are mainly related to monitoring and advising the MB.

Second, one-tier boards are composed of both executive and non-executive directors and

chief executive officer (CEO) duality is possible. In contrast, within two-tier boards, MBs are

made up of executive directors while SBs are composed of nonexecutive (or outside)

directors, and CEO duality cannot take place (Pucheta-Martı

´nez and Gallego-A

´lvarez,

2019). Third, the one-tier board size is smaller than this of the two-tier one (Haji, 2013;Jizi

et al., 2014;Kaymak and Bektas, 2017). Fourth, boards with one-tier structure have more

frequent meetings by comparison to their one-tier counterparts (Pucheta-Martı

´nez and

Chiva-Ortells, 2018). Fifth, specialized board committees (audit, remuneration, ethics, CSR,

sustainability, corporate governance, etc.) characterize the one-tier board structure.

However, those committees are scarce within the two-tier board structure. Sixth, there are

more frequent meetings in a one-tier structure than a two-tier structure (Ahmad et al.,2017;

Birindelli et al.,2018). Finally, the most obvious difference between one-tier and two-tier

board structure is the competing paradigm shareholder vs stakeholder primacy. In fact,

shareholder (stakeholder) orientation has been found suitable under the one (two)-tier

model. Explicitly, the two-tier model allows for more stakeholder inclusivity than the one-tier

model (Gul et al., 2020;Michelon et al.,2020;Lane and Devin, 2018;Garcı

´a-Torea et al.,

2016).

2.2 Board diversity and corporate social responsibility

Board diversity is defined as heterogeneity among board members. It has numerous

dimensions covering task-related diversity, such as educational or functional background,

non-task-related diversity, such as gender, age, race or nationality, as well as structural

diversity, i.e. board size, board independence and CEO non-duality, etc. (Adams et al.,

2015). Board diversity can also come from ethnics, experience, age, etc. Hereafter, we

embedded an exhaustively set of demographic board diversity dimensions enclosing

gender, tenure, educational level, nationality and ideology. Other board characteristics

such as ethics, experience and age are not treated due to unavailable data. Rao and Tilt

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