The Impact of Boards’ Ownership Structure on Voluntary and Mandatory Corporate Social Responsibility

This study examined the impact of boards’ ownership structure as one of the corporate governance mechanisms on the determinations of voluntary and mandatory Corporate Social Responsibility (CSR) engagements. Voluntary CSR refers to costly discretionary proactive stakeholders’ strategies such as investing in the community and philanthropic activities. Mandatory CSR is concerned with the adherence to meeting the required standards and regulations on ratings such as employee rights and environmental issues. Building on the existing literature, a model that relates boards’ ownership structure (executive directors’ ownership, non-executive directors’ ownership and concentrated ownership) to voluntary and mandatory CSR via Corporate Governance (CG) and firm characteristics control variables was developed. The model was tested using a sample drawn from the FTSE4Good UK Index over the period 2009-2013. The data was analysed in two stages using the statistics software packages SPSS and STATA. Stage 1 results are based on 111 companies, while stage 2 results are based on a restricted sample of 53 companies with the largest active engagement in voluntary CSR above a certain threshold. Using the logit regression model, stage 1 findings indicate that share ownership of Chief Executive Directors (CEDs), Non-Executive Directors (NEDs) and concentrated ownership displays a significant positive relationship with mandatory CSR but has significant negative relationships with voluntary CSR, indicating for significant agency theory and stakeholder theory issues that are impacting on decisions regarding voluntary and mandatory CSR. Employing panel data (fixed effects and random effects regression models), outcomes of the stage 2 analysis show that board decisions regarding voluntary CSR are similar to stage 1 findings indicating that those companies with the largest active engagement in voluntary CSR above a certain threshold may be seen as wealth reducing. The study provides evidence to show that engaging in voluntary and mandatory CSR adds to knowledge for UK board practice and UK policy on CG and contributes to the implications for management and policy makers of an organisation; it informs management on how to attract investors according to their preferred investment time plan thus reducing the agency cost of capital. It also guides management of the compensation committee on how to think about redesigning a directors’ reward system - particularly share options - in order to align their interests with long-term investors to obtain long-term funds. The novelty of this research lies in the fact that this study is the first to specifically investigate the impact of boards’ ownership structure on voluntary and mandatory CSR. The study contributes both to the CG and CSR literature.