Board Gender Diversity, Corporate Social Commitment and Sustainability

19 May 2022
The Sasin Research Seminar series continued with a fascinating talk by Sasin Ph.D. 2020 Student, Mr. Pochara Arayakarnkul, looking at the effects of boardroom diversity on Corporate Social Commitment and Sustainability. The lecture began by establishing that sustainability has become a top priority for most organizations over the past decade. There is also emerging evidence that sustainable strategies lead to better financial performance. It was noted that ESG measures had been used to assess long-term company resilience to environmental, social, and governance issues. Prior research has found a positive correlation between social and financial performance, and examples were discussed. Research from financial data provider Refinitiv was examined, including four elements important for good relationships with internal and external stakeholders. These were: workforce and maintaining job satisfaction; a respect for human rights; community and business ethics; and product responsibility. Unfortunately, evidence shows that some managers may lack interest in CSR activities as they might not provide significant short-term gains and can be related to complex ethical issues. Mr. Arayakarnkul pointed out that a board of directors is a crucial corporate governance mechanism. They are typically responsible for monitoring and advising management and developing the company’s long-term direction, including the ESG strategy. Consequently, board characteristics have a significant impact on firm behavior and performance. Next, he looked at Board Gender Diversity and the vital role it plays. For example, women are expected to be more relationship-oriented, kind, helpful, concerned, and sympathetic to others’ needs. In addition, when there are more than three women on a board, challenging questions and increased collaboration in decision making is evident. The steps leading up to the hypothesis – Having board gender diversity can lead to increased social commitment by companies – were then presented and discussed. The data sample included US publicly listed firms from 2002 to 2008 and the financial accounting data and ESG Social Pillar Scores from Refinitiv. The study also used regression analysis to examine the data. Next, Mr. Arayakarnkul explained the various models used and the results surrounding Board Gender Diversity. It was found that a rise in BGD by one standard deviation results in an increase in social commitment of 5.52%. This was not only statistically significant but also economically significant. Other models, regression results, and robustness checks, such as propensity score matching and entropy balancing, were examined and discussed. There were several conclusions resulting from the research and its findings. The first was that profit is no longer the sole objective of business, but instead being able to survive and thrive in the long term. This highlights the importance of social commitment and good relationships between companies and stakeholders. The study also found that companies with an effective board mitigate conflicts of interest and ensure long-term goals are included in strategies. Board effectiveness can be improved with greater board gender diversity, and the data revealed that this leads to increased social commitment by companies. The talk was insightful and well received. It was followed by a lively Q&A session that covered a wide range of topics and suggestions. There has been a lot of recent literature on this topic, and terminology and definition of terms like ‘board diversity’ were discussed. For example, if a board were 100% female, it would not be a diverse board. Other topics discussed included studies that looked at the relationship between board diversity and financial performance, as opposed to corporate social performance. Further questions related to different types of diversity, such as age and race. Robustness techniques and using other variables and samples were discussed. There was also a look at what further research might result from this fascinating topic.  
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