The corporate governance and social responsibility nexus in the Lebanese banking industry

• Date: 06 June 2016
• Pages: 609-638
• Published date: 06 June 2016
• DOI: https://doi.org/10.1108/CG-08-2015-0109
• Author: Nazha Gali,Dima Hajjar,Ibrahim Jamali
• Subject Matter: Strategy,Corporate governance

The corporate governance and social

responsibility nexus in the Lebanese

banking industry

Nazha Gali, Dima Hajjar and Ibrahim Jamali

Nazha Gali is PhD

student based at Durham

University, Durham, UK.

Dima Hajjar and Ibrahim

Jamali are both based at

the American University

of Beirut, Beirut,

Lebanon.

Abstract

Purpose –The purpose of this paper is to explore the contrasting views of banks and banking

authorities in Lebanon regarding the corporate governance (CG) and corporate social responsibility

(CSR) nexus.

Design/methodology/approach –Using survey responses collected from the managers of five

Lebanese banks and banking authorities, the authors conduct a qualitative comparative study of the

opinions on CG, CSR and CG–CSR nexus.

Findings –The findings of this paper reveal that while a CG culture is well-instituted by the authorities

and that some forms of CSR are already practiced by banks, disagreements exist between the

Lebanese banks and banking authorities in defining the CG–CSR nexus. While CG is viewed as an

all-encompassing concept by the banking authorities, most banks ascribe to the paradigm that CG is

component of CSR.

Research limitations/implications –The sample of this paper consists of large banks that have clear

CG and CSR agendas. The results, therefore, cannot be generalized for the wider population of

Lebanese companies that are characterized by family ownership and non-separation of ownership and

control.

Practical implications –This paper informs both managers and policymakers on the differing views of

the CSR–CG nexus while also contributing to informing the policy dialogue. Theoretically, this paper

sheds light on the CG–CSR nexus in a developing country context.

Originality/value –There is a paucity of research on the CG–CSR nexus in the context of developing

countries and for the banking sector in specific. This paper aims to address the gap in the literature by

providing an in-depth qualitative examination of the CG, CSR and the CG–CSR nexus in the context of

the Lebanese banking sector.

Keywords Corporate responsibility, Corporate governance, Developing countries, Bank managers,

Banking authorities

Paper type Research paper

1. Introduction

The successive accounting scandals and corporate failures of the early 2000s, as well as

the 2008 sub-prime mortgage crisis, have led to a resurgence of interest in improving

corporate governance (CG) practices in the USA and the world[1]. The renewed interest in

CG has been accompanied by an increasing awareness of the social and environmental

consequences of corporate activities. The resulting drive towards corporate social

responsibility (CSR) has galvanized global attention and achieved significant resonance in

recent years.

The growing importance of both CG and CSR has also led to intense academic scrutiny

of the CG–CSR nexus. Evidently, the relationship between CG and CSR critically hinges on

the definition of CG. With the separation of ownership and control in modern corporations,

CG was initially viewed by financial economists as the mechanism through which the rights

of external investors are protected (Shleifer and Vishny, 1997). However, broader

definitions of CG have been advanced. For instance, the Cadbury (1992) committee offers

Received 12 August 2015

Revised 24 March 2016

Accepted 31 March 2016

DOI 10.1108/CG-08-2015-0109 VOL. 16 NO. 3 2016, pp. 609-638, © Emerald Group Publishing Limited, ISSN 1472-0701 CORPORATE GOVERNANCE PAGE 609

a more expansive definition of CG as the mechanism though which companies are

managed and controlled. More recent views on CG also note that the consequences of

corporate actions are not only confined to internal claimholders but also affect external

stakeholders, the environment, society and the economy. The latter view is consistent with

the Organization of Economic Cooperation and Development (OECD)’s principles on good

CG which clearly refer to the effect of corporate actions on a wider group of stakeholders

(OECD, 2004). Claessens (2003) and Claessens and Yurtoglu (2012) adopt this

all-encompassing view of CG and further argue that CSR constitutes an integral component

of good CG.

In light of the increasing importance of CG and CSR, recent academic research has

extensively examined the CG–CSR nexus (Mitchell, 2007;Jamali et al., 2008). In this paper,

we build on the work of Jamali et al. (2008) to study the CG–CSR nexus in the context of the

Lebanese banking sector. In specific, we conduct a qualitative comparative study of the

opinions of Lebanese bank managers, banking authorities and a bank association on CG,

CSR and the CG–CSR nexus. Given the nascent nature of CG and CSR in Lebanon, no

existing studies examine the CSR–CG nexus in the Lebanese context or in the Lebanese

banking sector, in specific. We believe that such an exploration is warranted as it would

shed light on the practice of CG and CSR, as well as the interplay between CG and CSR

in a developing country context. Our study, therefore, contributes to the existing literature

on the CG–CSR nexus from a developing country perspective. In view of the dearth of

studies on the CG–CSR nexus in Lebanon, we opt for an explorative approach, given that

such a research design provides extensive information on the relationship between CG and

CSR. More specifically, we adopt a qualitative research design which involves conducting

in-depth semi-structured interviews and analyzing the results of a questionnaire

administered to five banks and banking authorities’ representatives. We use a qualitative

research design for two important motives: First, Boyce and Neale (2006) note that in-depth

semi-structured interviews are an invaluable tool allowing researchers to shed light on

different opinions. Second, our qualitative research design has the advantage of infrangibly

exhuming the perceptions of the CSR and CG nexus of the banks and bank associations.

Our main interest lies in examining whether differences in perspectives exist between bank

managers and banking authorities (association) as they relate to their understanding of the

nature of CG, CSR and the CSR–CG nexus.

2. The corporate governance–corporate social responsibility nexus: related

literature

We next review the existing studies on the CSR and CG nexus. The sizeable literatures on

CG, CSR and the CG and CSR nexus force us to be selective in our review of the existing

studies. We focus specifically on studies that directly tackle the CG–CSR nexus.

Management scholars have been increasingly interested in examining the

complementarities between CG and CSR. Rudolph (2005) and Elkington (2006) note that

an overlap in the terminologies and cross-connections between CSR, ethics and CG exists.

Carr and Outhwaite, (2011) argue that complementarities exist in the relationship between

CG and CSR. Bhimani and Soonawalla (2005) note that CG, CSR and stakeholder value

creation constitute an integral component of the corporate responsibilities continuum. In a

similar vein, Beltratti (2005) argues that CG and CSR are complementary and notes that an

effective CG framework coupled with CSR engagement result in improved financial

performance. Along the same lines, Van den Berghe and Louche (2005) assert that CG and

CSR derive from the same attributes which include honesty, transparency and

accountability, while Rudolph (2005) and Elkington (2006) emphasize the cross-

connections between CSR, ethics and CG. Jensen (2002) and Aguilera et al. (2007) argue

that both CG and CSR are expressions of a firm’s moral and fiduciary responsibilities

towards its stakeholders. The studies above indicate that an overlap exists between the

definitions of CSR and CG. According to Benders and Van Veen (2001), the increasing

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