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

Author:Habib Jouber
DOI:https://doi.org/10.1108/CG-07-2020-0277
Pages:23-61
Publication Date:04 Nov 2020
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 20132017.
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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