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J Bus Ethics

DOI 10.1007/s10551-015-2651-z

Exploring the Relationship Between Board Characteristics


and CSR: Empirical Evidence from Korea
Young Kyun Chang1 • Won-Yong Oh2 • Jee Hyun Park1 • Myoung Gyun Jang1

Received: 11 February 2014 / Accepted: 2 April 2015


Ó Springer Science+Business Media Dordrecht 2015

Abstract Previous studies in Western contexts have ex- CSR-supportive board characteristics due to the unique
amined the relationships between various board character- characteristics of various institutional contexts.
istics and CSR, yet the relationships need to be re-examined
in non-Western contexts given differential theoretical Keywords Board characteristics  Corporate social
premises across contexts. We specifically propose that the responsibility  Curvilinear relationship  Korea
effects of board characteristics on CSR in Korea should be
patterned distinctively from Western-based existing lit-
erature, focusing on three important board characteristics, Introduction
such as a board’s independence, social ties, and diversity.
Using a panel dataset from large Korean firms, we found that Although most previous studies of corporate social re-
various relationships between board characteristics and sponsibility (CSR) have been conducted in and have fo-
CSR were non-linear, whereas most of the previous research cused on Western contexts (Matten and Moon 2008),
on Western contexts found that the same relationships were recent research has begun to pay attention to CSR in non-
linear. Specifically, curvilinear relationships were found Western contexts, particularly in Asian countries (e.g.,
between CSR and board independence (i.e., exponentially Chapple and Moon 2005, 2007; Cheung et al. 2010). One
growing shape), CEO-outside director social ties (i.e., in- reason for the increased attention is the growing inter-
verted U-shape), and educational diversity (i.e., U-shape). dependence between Asian and Western economies, as
Our findings suggest that there is no universal feature of well as unique CSR norms and practices in Asia. Chapple
and Moon (2007, p. 183) pointed out that ‘‘the study of
CSR in Asia is an important but relatively under-re-
searched area.’’
Among the various corporate governance mechanisms, a
corporate board has played a pivotal role in a firm’s CSR
& Young Kyun Chang (Walls et al. 2012). Because a board of directors generally
youngkyunchang@gmail.com
affects critical strategic decisions, it also influences CSR in
Won-Yong Oh many ways. A corporate board establishes stakeholder-
won.oh@haskayne.ucalgary.ca
friendly corporate policies, monitors top managers’ self-
Jee Hyun Park serving behaviors, approves annual budgets for CSR-re-
jhpark80@sogang.ac.kr
lated spending, and creates separate standing committees
Myoung Gyun Jang dealing with CSR-related matters (Walls et al. 2012).
zzanga1108@sogang.ac.kr
Nonetheless, due to institutional differences, the role that
1
Sogang Business School, Sogang University, 35 Baekbeom- the board of directors has played in Asian countries has
ro, Mapo-gu, Seoul 121-742, South Korea been distinctive from the role they have played in Western
2
Haskayne School of Business, University of Calgary, 2500 countries (e.g., Jia and Zhang 2013; Khan et al. 2013; Oh
University Drive NW, Calgary, AB T2N 1N4, Canada et al. 2011). Therefore, it is useful to explore different

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Y. K. Chang et al.

theoretical frameworks to better understand how board of conventional agency theory would need a more nuanced
directors in Asian countries impact CSR decisions. application in Korea. In this regard, previous Western
As a first step, we conducted an extensive review of the studies found that board independence has a positive and
literature on board characteristics and CSR (see Table 1), linear relationship with CSR (e.g., Harjoto and Jo 2011;
which validated our assumption that there is a lack of re- Johnson and Greening 1999), but this relationship may not
search on the linkage between board characteristics and be observed in Korea in the way it has been in Western
CSR in Asian contexts. Only six out of 32 studies presented studies. Likewise, in previous Western studies, resource
in Table 1 focused on the Asian contexts between 1990 and dependence theory has been used to predict a positive and
2014. Furthermore, Chapple and Moon (2005) argued that linear association between board diversity and CSR (e.g.,
CSR in Asia is not necessarily homogeneous, and varies Siciliano 1996; Webb 2004), since diversity is generally
within Asian countries. Therefore, an in-depth single- conceptualized as a ‘‘useful’’ resource for stakeholder
country study may begin to enhance our understanding of management. However, for Koreans, because of their
the board-CSR linkage in Asian countries. strong collectivist orientation, diversity often violates
Specifically, our study examines the relationship be- norms of conformity, which hurts harmony and unification,
tween board characteristics and CSR in Korean firms and thus may not be always useful to collective decision
(here, Korea denotes South Korea). Korea offers an in- makers such as boards of directors.
teresting research setting for examining the board-CSR To address this theoretical gap, we analyzed three im-
linkage for the following reasons. First, since the Asian portant board characteristics in the Korean context: board
Financial Crisis in the late 1990s, the Korean government independence, board diversity, and CEO-outside director
has been pushing firms to reengineer their corporate social ties. Because board independence and diversity have
governance structures in ways that promote transparency been studied in the existing literature, which is primarily
and accountability in their business operations (Cho and Western-focused (see our review in Table 1), they could
Kim 2007). Broadly speaking, attention to corporate so- provide a good benchmark for comparison. The relation-
cial contributions was one of the courses of action that ship between CEO-outside director social ties and CSR has
Korean firms were encouraged to take. Consequently, not been examined to date but is worth exploring here,
Korean firms have begun to actively engage in CSR, and since social ties in the boardroom generally have been seen
many have been included in the Dow Jones Sustainability as a critical element in corporate decisions in Korea (Kim
Indices, the global indices that track the financial per- 2005, 2007).
formance of the world’s top sustainability-driven compa- Analyzing panel data from 780 firm-year observations,
nies. Second, Korea has a unique corporate governance we found different patterns of ‘‘curvilinear’’ relationships
system, the Chaebol, which can be characterized as between the three board characteristics noted above, and
having a strong affiliation between owners and top man- CSR in Korean firms. Specifically, in relation to CSR, (1)
agers and family-controlled corporate structures (Chang board independence had a curvilinear relationship with an
2003). Such a unique corporate governance structure is exponentially growing shape; (2) CEO-outside director’s
presumed to have a distinctive impact on important cor- social ties had an inverted U-shaped relationship; and (3) a
porate decisions, including CSR. As such, it is meaningful board’s educational diversity had a U-shaped relationship.
to explore how the Korean governance system affects With those unique findings, this study offers theoretical and
CSR decisions by identifying the unique roles of a board empirical contributions to the literature. From a theoretical
of directors. viewpoint, this study provides a more precise and context-
Given Korea’s unique institutional environment, we nuanced understanding of the relationship between boards
propose that the relationship between board characteristics and CSR. More importantly, this study found that there is
and CSR in Korea should be patterned distinctively, espe- no ‘‘universal’’ feature of CSR-supportive board charac-
cially in comparison to many of the previous studies of the teristics, which suggests that different institutional contexts
board-CSR relationship in Western contexts. Our proposi- must be considered when designing ideal corporate gov-
tion is based on the claim that the theoretical premises that ernance structures to promote CSR. Empirically, this study
are used in Western contexts may not be equally applicable not only introduces an underexplored sample of CSR in
to non-Western contexts (Tsui 2007). For instance, agency Korea, but also contributes a curvilinear board-CSR rela-
theory used to predict board-CSR relationships is par- tionship to the literature in which a simple linear rela-
ticularly applicable to Anglo-American capitalist countries tionship has been dominant. Taken together, given the
where principals and agents are ‘‘meaningfully indepen- theoretical and methodological contributions, our study
dent.’’ In Korea, however, in most cases top managers are could serve as a catalyst for future research on the board-
less independent from, and may even be strongly affiliated CSR linkage in non-Western contexts, especially other
with, founding owners or major shareholders. Therefore, a Asian countries.

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Table 1 Existing literature on board characteristics and CSR
Study Sample Country Theorya Board characteristics CSR measures Major findings

Arora and N = 518 US Agency Proportion of outside directors KLD strength Linear, (-)
Dharwadkar S&P 500 KLD concerns Linear, (-)
(2011)
Bai (2013) N = 363 US Agency Board size Corporate philanthropy Linear, (-)
Hospitals (for- profit and Resource Occupational background (=gov’t Linear, (-)
non-profits) dependence officials)
Bartukus et al. N = 66 US Agency Board size Corporate giving for charity Linear, (?)
(2002) Foundation Center in Proportion of outside directors (Over $1 million giving) Non-sig.
Washington DC Directors’ affiliation with charities Non-sig.
Bear et al. (2010) N = 51 US Resource Board diversity based on business KLD (institutional strength vs. technical Non-sig.
Fortune’s 2009 most dependence experience, experts, support strength) Linear, (?)
admired list Agency specialty, and community
influence
Proportion of female directors
Boulouta (2013) N = 126 US Resource Gender diversity (women KLD composite Linear, (?)
S&P 500 dependence board = 1 only) KLD strength Non-sig.
Gender KLD concerns Linear, (-)
characteristics
Chang et al. N = 180 Korea Resource Proportion of outside directors Korea Economic Justice Institute (KEJI) Linear, (?)
(2012) Korean stock exchange dependence Index
Coffey and Wang N = 98 US Resource Proportion of outside directors Corporate philanthropy from council on Linear, (?)
(1998) Fortune 500 dependence Proportion of female directors economic priorities (CEP) Non-sig.
Agency Insider ownership Linear, (?)
Ratio of stock owned by outside to Non-sig.
inside board members
Ghazali (2007) N = 87 Malaysia Country-specific Insider ownership CSR disclosure with 22 checklist items Linear, (-)
Bursa Malaysia composite institution from annual reports
Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea

index
Hillman et al. N = 250 US Stakeholder Board size KLD five domains Linear, mixed
(2001) S&P 500 management Stakeholder representativeness
(e.g., employee directors,
community directors, etc.)
Hafsi and Turgut N = 95 US Agency Diversity of Boards (structural) KLD strength Non-sig.
(2013) S&P 500 Upper echelon Diversity in Boards (demographic) Linear, (?)
Harjoto and Jo N = 12,527 (2952 firms) US Agency Proportion of outside directors KLD composite Linear, (?)
(2011) Director ownership Non-sig.

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Table 1 continued
Study Sample Country Theorya Board characteristics CSR measures Major findings

123
Hung (2011) N = 120 (directors) Hong Kong Stakeholder Board perception of CSR Survey-based concerns for Linear, (?)
management importance stakeholders
Ibrahim and N = 429 US N/A Insiders versus outsiders (dummy) Corporate social responsibility Mixed (economic CSR for
Angelidis S&P’s register of orientation (CSRO) with 20 items outsiders; philanthropic
(1995) corporations, directors, CSR for insiders)
and executives
Ibrahim et al. N = 307 US Agency Insiders versus outsiders (dummy) Corporate social responsibility Mixed (economic CSR for
(2003) S&P’s register of orientation (CSRO) with 20 items insiders, but philanthropic
corporations, directors, CSR for outsiders)
and executives
Jia and Zhang N = 492 China Critical mass Number of female directors Corporate donation (dummy) Linear, (?)
(2013) China Securities Regulatory Gender (critical mass = 3) Corporate giving (amount) Linear, (?) for moderation
Commission (CSRC) characteristics Age diversity (among female
directors) 9 critical mass
Jizi et al. (2014) N = 492 US Agency Proportion of outside directors CSR disclosure (content analysis) Linear, (?)
National banks Board size Linear, (?)
Jo and Harjoto N = 12,527 (2952 firms) US Agency Proportion of outside directors KLD composite Linear, (?)
(2012) Conflict- Managerial entrenchment Linear, (?)
resolution
Johnson and N = 252 US Resource Proportion of outside directors Industry-adjusted KLD with two sub- Linear, (?)
Greening (1999) Fortune 1000 dependence dimensions
Kabongo et al. N = 4438 US Resource Board diversity (women, minority, Corporate giving (dummy) Linear, (?)
(2013) Fortune 1000 dependence and disabled members)
Kacperczyk N = 878 US Managerial Insider ownership KLD (six domains separately) Linear, mixed by CSR
(2009) entrenchment domains
Khan et al. (2013) N = 116 Bangladesh Country-specific Proportion of independent CSR disclosure (content analysis) Linear, (?)
Dhaka stock exchange institution directors Linear, (?)
(DSE) Agency Presence of audit committee
Ntim and N = 600 South Neo-institution Board diversity (gender, race) CSR index (content analysis) Linear, (?)
Soobaroyen Johannesburg stock Africa Board size Linear, (?)
(2013) exchange Independent directors Linear, (?)
Oh et al. (2011) N = 118 Korea Country-specific Insider ownership Korea Economic Justice Institute Linear, (-)
Korean stock exchange institution Outsider ownership (KEJI) index Non-sig.
Agency
Y. K. Chang et al.
Table 1 continued
Study Sample Country Theorya Board characteristics CSR measures Major findings
b
Post et al. (2011) N = 78 US Agency Proportion of outside directors Environmental corporate social Linear, (?)
Fortune 1000 Gender Proportion of female and minority responsibility (ESCR) Linear, (?)
characteristics directors Inverse U
Moral Director average age Linear, (?)
development Directors with Western European Non-sig.
Education education
attainment Directors with advanced degree
education
Siciliano (1996) N = 240 US Resource Occupational diversity The degree of effectiveness of social Linear, (?)
YMCA dependence Gender diversity mission of YMCA Linear (?) for female
Agency Age diversity Linear, (?)
Board size Linear, (?)
Surroca and Tribo N = 358 (22 countries) Multiple Managerial Managerial entrenchment SiRi PRO ratings Linear, (?)
(2008) countries entrenchment Board independence Linear, (-)
Control committee in boardroom Linear, (-)
Wang and Coffey N = 78 US Resource Proportion of outside directors The percentage of pretax earnings Linear, (?)
(1992) Fortune 500 dependence Proportion of female and minority given to charities Non-sig.
Agency directors Linear, (?)
Insider ownership Non-sig.
Ownership concentration
Wang and N = 545 US Resource CEO versus non-CEO directors Board of directors’ attitudes toward Linear, (?) for non-CEO
Dewhirst (1992) Corporations in the dependence (dummy) stakeholders directors & outsiders
Southeast States Agency Insiders versus outsiders (dummy)
Williams (2003) N = 185 US Resource Proportion of outside directors Total charitable contributions Non-sig.
Fortune 500 dependence Proportion of female directors Linear, (?)
Gender
Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea

characteristics

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Table 1 continued
Study Sample Country Theorya Board characteristics CSR measures Major findings

123
Webb (2004) N = 394 US Resource Number of board meetings DSI index from KLD Non-sig.
Domini 400 index dependence Family-tied board (dummy) Linear, (-)
Agency Directors from non-profit (dummy) Linear, (-)
Proportion of inside and outside Linear, (?)
directors Linear, (-)
Proportion of ‘gray’ directors Non-sig.
The proportion of senior (C65) Non-sig.
directors
Non-sig.
The proportion of directors with
Linear, (?)
multiple directorships
The proportion of active CEO-
outside directors
Proportion of female directors
Zhang et al. N = 611 US Stakeholder Proportion of outside directors Reputation-based CSR (ranked in top or Linear, (?)
(2013) FAMA (from Fortune management Proportion of female directors bottom half) Linear, (?)
Magazine) Gender
characteristics
a
Theory does not necessarily indicate the overarching framework of each study, but rather a working theory that directly applies to the specific relationship between board characteristics and
CSR
b
Although Post et al. (2011) focused on ‘‘environmental’’ responsibility, we included this study due to its non-linear finding. Other studies dealing with ‘‘environmental’’ responsibility were
excluded for our focused literature review
Y. K. Chang et al.
Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea

Theoretical Background Overall, this assumption is valid for any modern public
corporation, yet seems particularly applicable to Anglo-
Existing Theoretical Frameworks American capitalist countries where principals and agents
are ‘‘meaningfully independent.’’ In particular, stock
The existing literature on the relationship between board ownership for managers has been considered to be an ef-
characteristics and CSR generally relies on two theoretical fective means through which opportunistic managers are
views (see Walls et al. 2012, pp. 887–890 for review): directed to take a long-term view (e.g., CSR) of organi-
agency theory (Jensen and Meckling 1976) and resource zational success. For example, Johnson and Greening
dependence theory (Pfeffer and Salancik 1978). This is in (1999) found that stock ownership by top managers is
line with a general theoretical foundation of the existing positively associated with CSR among large US firms.
strategic management literature on the roles of a board of Some studies from Asian countries, however, found a
directors (Hillman and Dalziel 2003). First, agency theory very distinctive pattern of the relationship between man-
posits that an effective board promotes CSR because it can agerial ownership and CSR. This group of researchers
align managers’ interests with long-term goals for both suggests that because top managers are not independent
shareholders and non-shareholding stakeholders. Often, from, and may even be strongly affiliated with, founding
this can be done by assigning outside directors who can owners or large shareholders, a conventional agency theory
monitor a manager’s self-serving behaviors and by using would need to be reinterpreted for Asian contexts. For
incentives to reinforce their monitoring roles. As a result, example, Oh et al. (2011) found that managerial ownership
firms are expected to engage more in CSR when they are has a negative effect on CSR. They argued that because
being monitored by outside directors and when they have many top managers in Korea have strong connections to
incentives to do so. Most empirical studies found that their firm’s founding families, they tend to expropriate
higher levels of outsider representation (board indepen- value from other shareholders to increase the wealth of the
dence) and director ownership (board incentives) are controlling owners, which often includes founding-family
positively associated with CSR (Chang et al. 2012; Johnson members (Chang 2003). As a result, managers in Korea
and Greening 1999). might seek opportunities that immediately benefit them-
Second, while agency theory focuses on a board’s selves, as well as founding families, by disengaging from
monitoring role, resource dependence theory (Pfeffer and longer-term, outcome-uncertain social investments. Fol-
Salancik 1978) focuses on a board’s resource provision lowing a similar logic, Khan et al. (2013) also found a
role. Directors can be a critical channel to valuable re- negative relationship between managerial ownership and
sources and information, as well as to advice and counsel CSR in Bangladesh. In short, an instrumental motivation
for organizational success. In the context of CSR, the role (i.e., profit generation from CSR) is a key driver of CSR for
of directors as resource providers is still pivotal, since executives with equity ownership in the US, whereas a
CSR is the result of effective stakeholder management relational concern (i.e., building an exclusive relationship
(Clarkson 1995). In other words, since a successful im- with controlling owners) is a key inhibitor of CSR in some
plementation of CSR requires a comprehensive under- Asian countries.
standing of multiple stakeholders’ interests and demands, In addition, most previous studies (e.g., Siciliano 1996;
diversified qualities and backgrounds of directors can help Webb 2004; Williams 2003) that employ resource depen-
a firm better engage in CSR (Siciliano 1996; Webb 2004; dence theory tend to assume a positive effect of board di-
Williams 2003). versity on CSR. From the Western viewpoint, diversity is
generally conceptualized as a useful resource for CSR. As
Application of Existing Theories to the Korean such, the more diversified the board of directors is, the more
Context likely that it will introduce ideas for how to effectively
manage a variety of stakeholders. However, in Asian
The existing theories do a reasonably good job of ex- countries such as China, Japan, and Korea, an increase in
plaining the relationship between board characteristics and board diversity does not simply mean introducing more
CSR. However, we propose that these theories, which are comprehensive and diverse resources. Rather, due to a
based mostly on North American and European contexts, strong collectivist orientation in these countries, diversity
have limited application to Korean companies due to in- often increases the likelihood that the cultural norm of
stitutional differences between these contexts. First, one of conformity in a group-based setting will be violated (Kim
the main assumptions of agency theory is that managers and Markus 1999). Thus, resource dependency theory
and principals are separate (Fama and Jensen 1983), and should be applied carefully when studying Asian firms, and
that managers have a strong motive to seek self-interest. should take into account the issue of institutional specificity.

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Y. K. Chang et al.

Hypotheses Development Logsdon 1996), CSR initiatives might be less appealing to


opportunistic managers.
Based on the distinctive application of existing theories, we Agency theory posits that managers’ self-serving be-
developed context-nuanced hypotheses for the relationship haviors could be regulated by independent monitoring.
between board characteristics and CSR. Three important One of the most effective ways to monitor managers’
board characteristics are analyzed: board independence, agency behavior is to assign outsiders to the board (Walsh
CEO-outside director social ties, and board educational and Seward 1990). Independent outside directors are more
diversity. We focus on these three board characteristics for likely to check managers’ self-seeking activities that may
the following reasons: (1) examining these characteristics lead to socially irresponsible decisions. Thus, board in-
enables us to compare our findings with those of previous dependence seems to promote CSR, given outside direc-
studies and (2) these characteristics reflect institutional and tors’ independent positions, pursuit of the long-term
cultural contexts that are specific to Korea. success of the firm, and strong stakeholder orientation
First, board independence is one of the most closely (Wang and Dewhirst 1992). Empirically, previous studies
examined board characteristics in the existing literature have found that board independence is positively related
(see Table 1). Therefore, examining the effects of board to CSR-favorable decisions (Harjoto and Jo 2011), people
independence on CSR in Korea is a good benchmark for and product dimension of CSR (Johnson and Greening
comparison. In particular, after the Asian financial crisis of 1999), and discretionary dimensions of CSR (Ibrahim
the late 1990s, the Korean government began pushing firms et al. 2003).
to enhance board independence as a governance reform However, we argue that the relationship between board
policy (Kim 2007). Some previous studies (e.g., Cho and independence and CSR may be patterned differently in
Kim 2007) examined the effects of board independence on Korea. Korean business groups, Chaebols, have been cri-
financial performance, yet little is known about the effects ticized for the lack of transparency in their governance
on CSR in Korea. systems and for their irresponsible behavior toward other
Second, interpersonal relationships, such as guanxi in stakeholders. Some researchers attribute the country-wide
China, are an important resource in business operations in economic collapse during the Asian Financial Crisis in late
Asia (Luo et al. 2012). As such, we examined the effect of 1990s to such practices of Chaebols (e.g., Kreuger and Yoo
CEO-outside director social ties on CSR. Notably, inter- 2002). In the wake of the financial crisis, the International
personal ties are a double-edged sword in Korea. While Monetary Fund (IMF) and the Korean government re-
close social ties help facilitate collaboration and commu- quested that Korean firms reform their governance struc-
nication among CEOs and outside directors, excessive so- tures in various ways. In particular, the government
cial ties diminish the monitoring roles of outside directors. believed that improving board independence could enhance
Surprisingly, the relationship between CEO-outside direc- firms’ financial and social performance. As a result, Korean
tor social ties and CSR in Korea has not been examined to firms have been asked to assign outside professionals as
date in spite of the importance of social ties in Korean board members (Cho and Kim 2007). Importantly, the way
boardrooms. in which Korean firms assigned outside directors is quite
Finally, board diversity—especially gender or racial unique. The Korean government has pushed firms to in-
diversity—is also one of the most commonly examined crease the number of outside directors to a certain level
characteristics in previous studies (e.g., Boulouta 2013; mandated by corporate law (Kim 2007). For instance, the
Coffey and Wang 1998; Jia and Zhang 2013; Kabongo government had compelled the Korean stock exchange
et al. 2013), thus creating opportunities for comparison. (KSE) to make it mandatory for outside directors to make
However, since most Korean boardrooms are excessively up at least 25 % of board members in listed firms.
male-dominated and ethnically homogeneous, we alterna- Given Korea’s unique context, we propose that the re-
tively examined the effects of a board’s educational di- lationship between board independence (i.e., a greater
versity rather than its gender or racial diversity. proportion of outside directors) and CSR would be non-
linear. Institutional scholars suggest that when a strong
Board Independence and CSR coercive pressure like corporate laws exists, appointing
outside directors can ‘‘occur as the result of the process that
Agency theory (Jensen and Meckling 1976) suggests that makes organizations more similar without necessarily
the separation of ownership and control causes a potential making them more efficient’’ (DiMaggio and Powell 1983,
problem of the shareholders’ long-term interests not p. 147). Thus, outside directors in Korea, who were as-
aligning with those of management. Because it is difficult signed during government-led institutional transitions, may
to recoup social investment in the short term (Burke and be a result of coercive isomorphism stemming from

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Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea

institutional pressures (Kim 2007). As such, appointing a ‘‘excessive’’ social ties with top managers (e.g., Fredrick-
minimal level of outside directors (i.e., 25 %, the legal son et al. 1988). When it comes to CSR, if outside directors
requirement by Securities and Exchange Laws) may rep- are too closely connected with CEOs in a social sense (i.e.,
resent a firm’s passive conformity rather than its proactive they could be co-opted by incumbent CEOs), they may feel
responsiveness. In this case, it is less likely that outside obligated to support a manager’s decisions without ques-
directors who were assigned to meet the minimum re- tioning them, thus becoming a sort of ‘rubber stamp.’ Such
quirement exert an ‘‘authentic’’ impact on a board’s deci- an excessively intimate relationship may impair a board’s
sion-making for social investment. However, as Korean monitoring function in enhancing shareholders’ long-term
firms ‘‘voluntarily’’ appoint more outsiders beyond the interests, and eventually social investment will be less
obligatory requirement (e.g., 25 %), those outside directors likely to occur. Thus, it is also predicted that the density
might truly be able to exercise authentic roles to align a (strength) of the social ties between outside directors and
firm’s goals with long-term shareholders’ wealth and to CEOs should be negatively associated with CSR when their
make CSR-supportive decisions. Therefore, we predict that ties are excessively strong.
the positive effect of board independence on CSR will be Previous studies reported a similar pattern of findings
more salient as the proportion of outside directors exceeds regarding the CEO-outside director relationship. For in-
the minimum level legally required (i.e., an exponentially stance, Kim (2005) found that social ties between CEOs
growing shape or a pattern of increase at an increasing and outside directors are positively associated with a firm’s
rate). financial performance until a certain point of density, since
such ties can help enhance trust and collaboration. How-
Hypothesis 1 The relationship between board indepen-
ever, the association turned into a negative when the den-
dence and CSR will be curvilinear with an exponentially
sity exceeded an inflection point, since CEOs can gain so
growing shape among Korean firms.
much power that outside directors may find it difficult to
direct their strategic actions.
CEO-Outside Director Social Ties and CSR
Social ties in Korea are generally formed through the
shared backgrounds of regional origin and school. Such a
Outside directors play both resource provision roles and
strong in-group membership by regional origin influences
monitoring roles (Hillman and Dalziel 2003). Not surpris-
the ways Korean people think and behave (Shin and Chin
ingly, these directors’ dual roles are often influenced by the
1989). The same is true for school ties. The shared back-
closeness of their relationship with the CEOs. On one hand, a
ground of school (e.g., being alumni of the same high
close relationship between the CEO and directors can en-
school or college) has been viewed as a critical source of
hance the board’s resource provision role by promoting re-
in-group membership in Korea. For instance, Daewoo, one
lational capital, mutual trust, and ease of communication
of Korea’s largest Chaebols until the late 1990s, used to
(Luo et al. 2012; Rahman 2008). On the other hand, with
have a significant proportion of directors (nine), all of
respect to the monitoring role, an excessive closeness be-
whom graduated from the same prestigious high school
tween the CEO and directors may impair a board’s ability to
(Field 1995). Kim (2005, 2007) also identified the presence
oversee an executive’s self-serving decisions (Fredrickson
of the ‘elite school network’ effect in the boardrooms of
et al. 1988).
large Korean firms.
If CEOs are tied closely to outside directors beyond a
Taken together, outside directors who are socially
formal relationship (i.e., through social ties), the CEOs might
connected to top managers in Korea are effective in
be more open to outside directors’ perspectives on social
guiding top managers to make CSR-supportive decisions
issues, and the directors might more effectively provide
(i.e., enhanced resource provision roles), but as the kin-
advice related to CSR, especially given that relational capital
ship through social ties become excessive, they are less
(e.g., guanxi) is critical to the effectiveness of business op-
likely to make bona fide efforts to monitor top manage-
erations in Asian countries (Luo et al. 2012; Rahman 2008).
ment (i.e., impaired monitoring roles); consequently, this
In this case, due to the enhanced resource provision by the
will have a detrimental effect on CSR. Therefore, we
board, CEOs are well advised to promote CSR. However, if
predict that the relationship between CEO-outside direc-
CEOs are not tied to outside directors, their advice and
tors’ social ties and CSR will be positive to a certain
counsel will be of little use, and as a result, CEOs might care
point, but then turn negative after that point (i.e., a con-
less about CSR. Thus, it is predicted that the density
cave relationship).
(strength) of the social ties between outside directors and the
CEO should be positively associated with CSR. Hypothesis 2 There will be an inverted U-shaped rela-
However, previous studies suggest that outside directors tionship between CEO-outside directors’ social ties and
exert less control over strategic decisions when they have CSR among Korean firms.

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Y. K. Chang et al.

Board Educational Diversity and CSR differ from the majority have the mentality of ‘the nail that
sticks up gets hammered down’,’ and they feel pressured to
Most research proposes a positive relationship between follow decisions made by the majority. As such, a board’s
board diversity and CSR. Board diversity enhances the educational diversity is likely to have a detrimental effect
breadth of perspective, cognitive resources, and overall on CSR among Korean firms as board diversity increases to
problem-solving capacity (Hoffman and Maier 1961). This a certain level.
might also be the case for CSR. Since CSR requires a However, as the diversity level increases further, the
comprehensive understanding of multiple stakeholders’ dominance of the majority weakens and group pressure
interests and demands (e.g., Hung 2011), a diverse board of toward conformity also decreases. After reaching a cri-
directors with accesses to various stakeholders can help a tical mass, the positive effects of educational diversity
firm better engage in CSR. Empirical evidence supports the become more salient, a finding that has been reported in
positive relationship between board diversity and CSR previous studies on board diversity and CSR in US firms
(e.g., Post et al. 2011; Siciliano 1996; Webb 2004; Wil- (e.g., Post et al. 2011; Siciliano 1996; Webb 2004; Wil-
liams 2003). However, other studies (e.g., Goodstein et al. liams 2003). In this situation, directors may feel freer to
1994) report that there are detrimental effects of diversity, express their own opinions; in turn, board diversity can be
including emotional and relational conflicts. A high level translated into a CSR-supportive resource. Taken togeth-
of diversity may ‘‘cause process deficiencies by plaguing er, we predict that the relationship between a board’s
efficient operation of 4Cs (i.e., communication, collabora- educational diversity and CSR will be negative to a cer-
tion, coordination and cohesiveness)’’ (Auh and Menguc tain point, but turn positive after that point (i.e., a convex
2005, p. 252). Hence, as the level of board diversity in- relationship).
creases, the risks associated with hampered information-
Hypothesis 3 There will be a U-shaped relationship be-
sharing, difficulty of consensus building, and slower deci-
tween a board’s educational diversity and CSR among
sion-making also increase. In this study, we specifically
Korean firms.
focus on the diversity of the type of education (e.g., busi-
ness, science, law, and engineering) because it implies
different views, skills, and ways of understanding and
evaluating a firm’s social roles. Method
Given that diversity can function as a double-edged
sword, the effect of educational diversity on CSR seems to Sample and Data
be much more complex than it appears. In fact, previous
studies, mostly based on a sample of US firms, found a Large publicly traded Korean firms were selected for this
simple positive relationship between board diversity and study. We believe that Korea offers an interesting research
CSR (e.g., Siciliano 1996; Webb 2004; Williams 2003). setting to examine the board-CSR linkage. As described
The US is the leading country in terms of individualism above, the Korean government has led corporate gover-
orientation. Within an individualistic culture, firms tend to nance reform in a way that aims to promote transparency
value diversity and individual uniqueness. As such, diverse and accountability. As a result, a number of Korean firms
resources from boards of directors might be fully recog- have actively engaged in CSR and have been included in
nized and utilized for the corporate endeavor of pursuing the Dow Jones Sustainability Indices, the global indices
CSR. that track the financial performance of the world’s top
In contrast, Korean society has been embedded in a sustainability-driven companies.
strong collectivistic orientation. Within collectivistic cul- The Korea Economic Justice Institute (KEJI), a leading
tures, harmony and unity are considered to be socially CSR assessment institute in Korea, has published an annual
desirable (Hofstede 1991). In addition to collectivism, list of the top-200 corporate citizens in its KEJI Index. The
Confucian traditions in Korea emphasize communal shar- reliability of the KEJI Index has been reinforced by its
ing, collective goals, and conformity in the decision-mak- 20-year publication record and its extensive use in research
ing process (Yamaguchi 1994). Under such cultural and practice (e.g., Chang et al. 2012; Choi et al. 2010; Oh
traditions, Korean firms tend to make an effort to integrate et al. 2011). The KEJI Index relies on comprehensive data
different voices into a united voice, and often suppress sources. KEJI collected CSR information from a wide va-
different opinions even though they may be viewed riety of sources, including company interviews, govern-
positively (Kim and Markus 1999). Suggesting divergent ment, NGOs, and mass media coverage. Similar to Kinder,
opinions, and thus making oneself overly visible compared Lydenberg, Domini Research and Analytics (KLD) ratings
to the majority, is regarded as a violation of the cultural in the US, Korean firms are rated with standardized values
norm of conformity. Specifically, directors with views that based on original interval scales, ranging from A to E, in

123
Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea

seven major subdomains1, including Environment, Com- number of independent outside directors by the total
munity, Corporate Governance, Corporate Integrity, Cus- number of board members. CEO-Outside Director Social
tomer Satisfaction with Product Quality and Safety, Ties were coded in terms of density of the social rela-
Employee Relations, and Long-term Orientation. Seven- tionship between CEOs and outside directors. The number
teen analysts—six KEJI senior analysts and 11 independent of regional origin ties (i.e., being born and raised in same
university faculty members in economics and business— hometown) or school ties (graduating from the same
were involved in developing the KEJI Index. For quality school) shared by both the CEO and outside directors was
assurance, the KEJI auditing committee, composed of counted as the strength of social ties (Kim 2005). A re-
multiple public accountants, performed a quality review of gional origin tie was coded 1 if the CEO and an outside
every company profile. director shared the same regional background according to
Due to concerns about the representativeness of the Korean territory classification (ten major provinces), and a
sample, we contacted the KEJI and asked them to provide school tie was also coded 1 if they attended the same high
the entire pool evaluated. The KEJI provided information school or college. Then, a count of regional and school ties
on approximately 350 firms for each year. In order to was divided by all possible dyadic relationships between
match CSR ratings with board characteristics and other the CEO and all outside directors. For example, if there
relevant company information, we collected relevant data were four outside directors and only one of them shared a
through a directory of corporate boards in the Korea Listed regional background with the CEO, their social tie was
Companies Association (see Kim 2005, 2007) and KIS- computed as 0.25 (1/1 ? 1 ? 1 ? 1). For board diversity,
VALUE, an electronic database for the information of we focused on the educational diversity of the board of
Korean firms, similar to Standard Poor’s COMPUSTAT in directors. Board Educational Diversity was calculated
the US. Due to the lack of full data availability, our final based on Blau’s (1977) index for heterogeneity (1 -
P 2
sample size was reduced to 780 firm-year observations Pi ). Each educational background classification was
from 293 firms over the years 2003–2005. In total, over based on their terminal degree (business and eco-
4500 director-year profiles were analyzed. nomic = 1, social science = 2, natural science = 3,
engineering and applied science = 4).
Variables
Control Variables
Dependent Variable
We controlled for company age, firm size, return on assets
The KEJI Index was used to measure CSR. The highest (ROA), CEO change, average age of board members, board
possible score of KEJI Index is 75. In our sample, the mean size, outside director ownership, managerial ownership,
value of KEJI index is 45.01 with the standard deviation of and industry dummy variables. First, we included Company
3.54. Age, calculated by years of operation since its foundation,
as previous studies (e.g., Moore 2001) found that company
Independent Variables age is associated with CSR. Some of the literature (Chang
et al. 2012) has also argued that firm size has a potential
Most of our board characteristic variables were drawn from impact on CSR. Firm Size was controlled with a mea-
the directory of corporate boards in the Korea Listed surement of total sales, and was transformed logarithmi-
Companies Association, which is similar to Who’s Who in cally due to the positively skewed distribution. According
Finance and Business in the US. Korean corporate gover- to slack resources theory (Waddock and Graves 1997),
nance researchers have frequently made use of this data higher levels of CSR might be driven by better financial
source (e.g., Kim 2005, 2007). All board characteristics conditions such as high profitability. As measurement for
variables were lagged by 1 year, which enhances the profitability, ROA was calculated by net income divided by
causality inferences for the relationships. We examined total assets.
three important characteristics of the board of directors: (1) We also controlled for Change of CEO since firms often
board independence, (2) CEO-outside director social ties, change CEOs when they seek to reposition their strategic
and (3) board educational diversity. stances (Pitcher et al. 2000). We created a dummy variable,
Board independence was measured by the Proportion of which we coded as 1 if there was a change of CEO during a
Outside Directors, which was calculated by dividing the given year, or 0 if otherwise. Following the previous lit-
erature (e.g., Kim 2005), we also included Directors’
1 Average Age in our analysis as a proxy for their time
Because there is a ‘corporate governance’ domain in KEJI, we also
used adjusted CSR ratings by excluding scores directly related to horizon (McClelland et al. 2012). Older directors may be
boards of directors. The results are similar to the reported ones. less favorable to CSR-supportive decisions due to their

123
Y. K. Chang et al.

Table 2 Descriptive statistics and correlations


Mean SD 1 2 3 4 5 6 7 8 9 10 11

1. CSR ratings 45.01 3.54


2. Company age 35.12 13.63 0.10
3. Firm size 26.18 1.45 0.44 0.07
4. Return on assets (%) 5.03 7.07 0.20 -0.02 0.05
5. Change of CEO 0.11 0.32 0.08 -0.05 0.08 0.00
6. Directors’ average age 55.71 4.69 0.13 0.19 0.21 0.03 -0.10
7. Board size 5.93 2.34 0.35 0.16 0.53 0.07 -0.05 0.12
8. Outside director ownership (%) 0.03 0.23 -0.04 -0.01 -0.05 0.01 0.02 0.07 0.07
9. Managerial ownership (%) 3.40 8.36 -0.15 0.01 -0.11 -0.04 -0.05 0.07 0.02 0.03
10. Proportion of outside directors 0.34 0.11 0.32 -0.11 0.46 -0.03 0.15 0.06 0.28 -0.01 -0.17
11. CEO-outside director social ties 0.29 0.35 0.05 -0.07 -0.04 0.07 0.01 -0.05 0.02 -0.07 0.00 0.03
12. Board educational diversity 0.48 0.17 0.00 0.01 0.13 -0.04 -0.02 0.04 0.24 -0.04 -0.02 0.03 0.00

Two-tailed coefficient test (N = 780). Correlations greater than j0:07j are significant at p \ 0.05, those greater than j0:10j are significant at
p \ 0.01

shortened time horizon (Burke and Logsdon 1996; Oh et al. be used instead of the fixed-effects model. GEE regression
2014). Board Size, measured by the total number of di- estimates more robust and consistent parameters when
rectors on the board, was also controlled. Since larger autocorrelation exists due to non-independence, compared
boards may bring more expertise and knowledge (Dalton to fixed- or random-effects models (Liang and Zeger 1986).
et al. 1999), board size should be related to effective Because the GEE model is based on fewer assumptions
stakeholder management. Previous studies (e.g., Oh et al. than RE models, it is more robust to erroneous assumptions
(2011)] found that ownership characteristics also affect about the RE in the model. In addition, the GEE model is
CSR. With respect to ownership characteristics, Outside less subject to instability and convergence problems be-
Director Ownership and Managerial Ownership are mea- cause it is less computationally intensive than either fixed-
sured by the percentage of shares held by independent or random-effects models (Quintana-Garcı́a and Bena-
outside directors and top executives, respectively. vides-Velasco 2008, p. 499).
Finally, we considered industry dummy variables to Furthermore, a modified Wald test for group-wise
control for industry-specific effects. KEJI provides the heteroskedasticity revealed the presence of heteroskedas-
following industry classifications: electronics/IT industry, ticity in our sample (p \ 0.001). In order to address
metal/steel/chemistry industry, food/textile/papers indus- heteroskedasticity in our data, we used robust standard
try, and service/non-manufacturing industry. All control error (e.g., Baltagi 2005). Also, we evaluated the multi-
variables, except industry dummy variables, were lagged collinearity by using VIFs, which ranged from 1.06 to 2.92,
by 1 year. where tolerance ranged from 0.34 to 0.94. The range of
VIFs falls outside the conventional threshold of 10 (Neter
Analysis et al. 1985), thus our data does not have multicollinearity
issues.
Our final dataset consists of panel data of 780 firm-year
observations, thus our data include both cross-sectional and
time-series components. Such data structures violate the Results
assumption of independence across observations necessary
for ordinary least squares (OLS) regressions. We therefore The means, standard deviations, and correlations for all the
used generalized estimating equations (GEE) to estimate variables, except industry dummy variables, are reported in
the parameters for all our analyses for several reasons. Table 2. The average CSR rating is 45.01 out of 75.
Because different board characteristics influence a firm’s We perform GEE regression analyses in five steps, as
CSR, either GEE or random-effects (RE) GLS2 models can reported in Table 3. In the first step, all control variables
are included in Model 1. Firm Size is positively associated
2
For the sake of robustness, we also conducted a GLS random- with CSR (p \ 0.001) and Board Size is also positively
effects model, and the results are similar to the reported ones: squared related to CSR (p \ 0.05).
terms of board independence (b = 0.86, p B 0.05), CEO-outside
director social ties (b = -2.73, p B 0.05), and educational diversity Hypothesis 1 proposes that the effect of representation
(b = 2.91, p B 0.05). of outside directors on CSR should be curvilinear with an

123
Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea

Table 3 Results of GEE regression analysis


Model 1 Model 2 Model 3 Model 4 Model 5
b SE b SE b SE b SE b SE

Constant 44.96*** (0.31) 44.83*** (0.31) 45.23*** (0.32) 44.90*** (0.31) 45.06*** (0.32)
Control variables
Company age 0.01 (0.01) 0.02  (0.01) 0.01 (0.01) 0.01 (0.01) 0.02  (0.01)
Firm size 0.95*** (0.20) 0.79*** (0.20) 0.94*** (0.20) 0.94*** (0.20) 0.78*** (0.19)
Return on assets (%) 0.03 (0.02) 0.03 (0.02) 0.03 (0.02) 0.03 (0.02) 0.03 (0.02)
Change of CEO 0.48  (0.26) 0.40 (0.26) 0.51  (0.26) 0.48  (0.26) 0.43  (0.26)
Directors’ average age 0.04 (0.03) 0.04 (0.03) 0.04 (0.03) 0.04 (0.03) 0.04 (0.03)
Board size 0.18* (0.08) 0.15  (0.08) 0.18* (0.08) 0.20* (0.08) 0.17* (0.08)
Outside director ownership 0.04 (0.42) 0.04 (0.47) 0.08 (0.40) 0.04 (0.42) 0.09 (0.44)
(%)
Managerial ownership (%) -0.02  (0.01) -0.02  (0.01) -0.02  (0.01) -0.02  (0.01) -0.02  (0.01)
Testing variables
Proportion of outside 2.89* (1.19) 2.71* (1.20)
directors
Proportion of outside 0.82* (0.37) 0.82* (0.38)
directors-squared
CEO-outside director 1.12* (0.49) 1.03* (0.48)
social ties
CEO-outside director -2.75* (1.28) -2.80* (1.28)
social ties-squared
Board educational diversity -0.17 (0.87) -0.14 (0.86)
Board educational 2.79* (1.43) 2.90* (1.39)
diversity-squared
Wald chi-square (d.f.) 123.98 167.47 138.10 128.69 189.17
(11)*** (13)*** (13)*** (13)*** (17)***
Number of observations 780 780 780 780 780
Robust standard errors are in parentheses and individual industry dummies are not reported for the sake of brevity
* p B 0.05; ** p B 0.01; *** p B 0.001;   B 0.10, Two-tailed coefficient tests

exponential growth curve. As shown in Model 2, both relationship between board educational diversity and CSR
the proportion of outside directors (positive) and its is negative to a certain point, but turns positive after that
square-term (positive) are significant (p \ 0.05). This point. Thus, Hypothesis 3 is supported.
result indicates that CSR increases at an increasing rate In Model 5, all hypotheses are tested simultaneously in
as board independence increases. Thus, Hypothesis 1 is one equation. We observe similar results with Models 2, 3,
supported. and 4, which indicates the robustness of our findings. In
Hypothesis 2 proposes that the effects of CEO-outside order to demonstrate the non-linear patterns, we plot the
director social ties on CSR should be an inverted U-shape relationships in Figs. 1, 2, and 3, respectively.
(or concave relationship). As shown in Model 3, both CEO-
outside director social ties (positive) and its square-term
(negative) are statistically significant (p \ 0.05). This re- Discussion
sult indicates that the relationship between CEO-outside
directors’ social ties and CSR is positive to a certain point, Most of the previous CSR literature has focused heavily on
but turns negative after that point. Thus, Hypothesis 2 is Western contexts. In response to a lack of understanding of
supported. CSR in other institutional environments, researchers have
Hypothesis 3 proposes that the relationship between begun to pay close attention to CSR in Asian countries.
directors’ educational diversity and CSR should be a Despite the growing attention to CSR in Asia, the rela-
U-shape (or convex relationship). As shown in Model 4, tionships between board characteristics and CSR have been
the squared term of educational diversity (positive) is sig- relatively under-investigated. In our study, we examined
nificant (p \ 0.05). This result indicates that the the effects of board characteristics on CSR among Korean

123
Y. K. Chang et al.

48.5 firms, beginning with the following research question: ‘‘Do


48 existing theories from the Western literature have a similar
47.5
application in the Asian context?’’ Existing theories re-
garding the relationships between board characteristics and
47
CSR include agency theory and resource dependence the-
46.5 ory (Hillman and Dalziel 2003). We found idiosyncratic
46 curvilinear patterns between CSR and the following board
45.5 characteristics: board independence (i.e., exponentially
growing shape), CEO-outside director social ties (i.e., in-
45
verted U-shape), and educational diversity (i.e., U-shape).
44.5
Thus, our findings imply that the fundamental assumptions
44 of existing theories (e.g., a separation of ownership and
Low High
Proportion of outside directors control) should be carefully applied depending on the in-
stitutional contexts where the firms are embedded. Our
Fig. 1 Curvilinear relationship between board independence and study advances the current stream of research, suggesting
CSR that any examination of the board-CSR linkage should
consider the institutional context.
Therefore, our study sheds additional light on the rela-
45.5 tionship between corporate governance and CSR. First,
45.3 while most previous studies found the board independence-
45.1 CSR linkage to be linear and positive (e.g., Johnson and
44.9 Greening 1999), we found a curvilinear relationship with
44.7 an exponential growth curve. Since outside directors in
44.5 Korea have often been viewed as an indication of ‘coercive
isomorphism’ caused by government pressures (Kim
44.3
2007), outside directors may not function properly in
44.1
shaping CSR-supportive decisions unless the proportion of
43.9
outside directors exceeds the regulatory requirement (i.e.,
43.7 more than 25 %). However, as firms voluntarily nominate
43.5 more outsiders beyond the regulatory requirement, outside
Low High
directors should be able to exercise a bona fide effort to
CEO-outside director social ties make CSR-committed decisions. This finding implies that
Fig. 2 Inverted U-shaped relationship between CEO-outside director
outside directors do not always play a meaningful role in
social ties and CSR promoting CSR, in contrast to what the Western-focused
literature has found. Rather, it is more important to create a
decision-making environment in which outside directors
45.7 are empowered to become fully involved in corporate de-
45.6 cisions. Indeed, since 1998, all publically traded firms in
Korea have been requested to assign at least 25 % outside
45.5
directors to corporate boards. Therefore, the proportion of
45.4 outside directors beyond this required level could reflect
45.3 the fact that ‘‘firms recruit, invite, and nominate outside
directors proactively rather than passively’’ (Chang et al.
45.2
2012, p. 496), where outside directors should be able to
45.1 play a significant role in pursuing social goals.
45 Second, this study has been the first to explore the re-
44.9
lationship between CEO-outside director social ties and
CSR. What it found was an inverted U-shape pattern to this
44.8
Low High relationship. This finding suggests that social ties between
CEOs and outside directors can be a double-edged sword.
Board educational diversity
Social ties between CEOs and outside directors can pro-
Fig. 3 U-shaped relationship between board educational diversity mote CSR until the strength of the ties reaches a certain
and CSR point, mainly due to the improved resource provision of

123
Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea

directors. However, CEO-outside director social ties can stemming from different educational backgrounds can play
also have a detrimental effect on CSR as the ties become either a positive or a negative role, and that understanding
too tight. This is because excessive social ties (e.g., ‘‘good these dual roles requires taking country-specific culture and
old boys clubs’’ in Kim 2005), as agency theory implies, norms into account.
prevent outside directors from being socially independent Furthermore, given the increasing attention to Asian
when they monitor executives. Therefore, our findings contexts in CSR research, our in-depth investigation of
suggest that in order to promote CSR, firms need to be CSR in the Korea context might serve as a catalyst for
careful when they are recruiting, inviting, and nominating future CSR research in other countries. Specifically,
outside directors, to avoid situations in which social ties Chaebol in Korea often have been juxtaposed against
between the CEO and outside directors are too strong. Keiretsu in Japan in terms of their respective corporate
Third, we also found a non-linear pattern (i.e., U-shape) governance systems, while collectivism in Korea shares the
in the relationship between board educational diversity and same roots with Confucian-based cultural traditions in
CSR. This distinct pattern can be explained by cultural China. Therefore, this study can also inform CSR research
differences across countries. Contrary to individualistic that focuses on East Asian countries such as China and
culture, collectivistic culture often stifles diversity and in- Japan, even though institutional differences still exist
dividuality by emphasizing shared social norms and a among these countries to some extent.
shared identity, and seeks harmony as a social virtue. As In addition to its theoretical contributions, this study
such, if some directors have ‘minority’ views, they may offers insightful practical implications. First, a growing
feel pressure to obey the group decision; consequently, number of companies have been developing various CSR
board diversity will not have a positive influence on CSR. initiatives and practices as an important part of their
However, as diversity increases, directors may feel freer to strategic agendas, which necessitates significant manage-
bring in their own opinions, and the corporate board, in rial attention. As CSR becomes a more central part of
turn, is likely to be more committed to CSR. This finding firms’ strategic agendas, managers should pay more at-
implies that Korean firms can benefit from board educa- tention to the nature of the relationship between board
tional diversity in terms of promoting CSR when there is characteristics and CSR. Second, this study suggests that
little diversity (highly homogeneous) or when there is a there is no ‘‘universal’’ feature of CSR-supportive board
high level of diversity (highly heterogeneous). Thus, the characteristics. For example, board diversity has been
findings of this study expand upon the Western-focused recognized as positively affecting CSR in the US, but a
literature (e.g., Siciliano 1996; Webb 2004; Williams 2003) negative affect was also partially detected in this study.
that has viewed board diversity CSR-supportive resource. Therefore, managers need to be fully aware of the influence
Therefore, Korean firms that are devoted to CSR need to be of cultural and institutional environments when consider-
careful in pursuing board diversity in order not to get stuck ing board composition to promote CSR. Finally, our con-
in the middle. text-rich approach might be most insightful for
Based on its unique findings, this study makes several multinational enterprises (MNEs) that should strive for
theoretical contributions. First, it offers more context-rich local adaptation with respect to CSR, as well as for inter-
theoretical solutions to predicting the relationship between national investors and fund managers who seek the best
board characteristics and CSR in Korea. The idiosyncratic portfolio in terms of social investment. For MNEs, it is
findings of this study suggest that existing theories may important to understand that CSR-supportive board struc-
have limited application in other institutional contexts; tures in home countries may not be equivalent to those of
therefore, the board-CSR linkage should be carefully ex- the host countries. For international investors and fund
amined, and should consider the institutional context and managers, in order to figure out the best portfolio in terms
how it affects various corporate decisions. Specifically, our of social investment, they need to investigate the board
study suggests that agency theory could be more applicable characteristics by country-specific criteria.
to Anglo-American capitalist countries, where principals Although the study makes clear contributions, it also has
and agents are ‘‘meaningfully independent,’’ compared to several limitations. First, we used regional and school in-
Asian countries, where agents are not independent from, formation as a proxy for social ties between CEOs and
and may even be strongly affiliated with, principals such as outside directors. While demographic similarities have
founding owners or large shareholders. Similarly, our study been widely used as proxies for social capital (Belliveau
also suggests that a conventional resource dependence et al. 1996), regional ties are not a common measure for
theory should be reinterpreted for Asian contexts. While social networks in most research of this type. However, for
previous studies that rely on resource dependence theory culturally and ethnically homogeneous countries like
generally assume that board diversity plays a positive role Korea, being born and growing up in the same hometown
in terms of CSR, our study suggests that diversity indicates very important social capital. Nonetheless, the

123
Y. K. Chang et al.

generalizability of our findings needs to be re-evaluated in Boulouta, I. (2013). Hidden connections: The link between board
other countries (e.g., Japan) where cultural and ethnic di- gender diversity and corporate social performance. Journal of
Business Ethics, 113, 185–197.
versity are comparable to Korea. In addition, we only used Burke, L., & Logsdon, J. M. (1996). How corporate social respon-
educational background as a way to measure board diver- sibility pays off. Long Range Planning, 29, 495–502.
sity. Although this is justified by unique Korean traditions Chang, S. (2003). Ownership structure, expropriation and perfor-
that emphasize social engagement through educational mance of group-affiliated companies in Korea. Academy of
Management Journal, 46, 238–253.
achievements (Whitley 1999), other aspects of diversity Chang, Y. K., Oh, W. Y., Jung, J. C., & Lee, J. Y. (2012). Firm size
(e.g., diversity in terms of age and occupational back- and corporate social performance: The mediating role of outside
ground) also need to be investigated in the future. Fur- director representation. Journal of Leadership & Organizational
thermore, since our findings are based on an in-depth Studies, 19, 486–500.
Chapple, W., & Moon, J. (2005). Corporate social responsibility in
single-country study, what we provided was a deeper un- Asia: A seven country study of CSR website reporting. Business
derstanding of board-CSR linkages in specific institutional and Society, 44, 415–441.
environment. Therefore, future studies may benefit from Chapple, W., & Moon, J. (2007). CSR agendas for Asia. Corporate
testing whether the idiosyncratic curvilinear relationships Social Responsibility and Environmental Management, 14(4),
183–188.
can be found in other institutional contexts, including Cheung, Y. L., Tan, W., Ahn, H. J., & Zhang, Z. (2010). Does
North America, Europe, and other Asian countries. Finally, corporate social responsibility matter in Asian emerging mar-
our sample is limited to a relatively short time period, thus kets? Journal of Business Ethics, 92, 401–413.
future studies need to determine whether our hypotheses Cho, D. S., & Kim, J. (2007). Outside directors, ownership structure
and firm profitability in Korea. Corporate Governance: An
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In conclusion, our study explored the relationship be- Choi, J. S., Kwak, Y. M., & Choe, C. (2010). Corporate social
tween board characteristics and CSR, departing from responsibility and corporate financial performance: Evidence
Western-based theoretical underpinnings. Previous studies from Korea. Australian Journal of Management, 35, 291–311.
Clarkson, M. E. (1995). A stakeholder framework for analyzing and
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well as those with more resource provision roles, are likely Coffey, B. S., & Wang, J. (1998). Board diversity and managerial
to engage in CSR. However, this study offers more con- control as predictors of corporate social performance. Journal of
Business Ethics, 17, 1595–1603.
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knowledge of the board-CSR linkages. directors and financial performance: A meta analysis. Academy
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