CHAPTER ONE

INTRODUCTION

1.1 Background To The Study

Both policymakers and academics have been paying close attention to CSR and CSR transparency in recent years. Corporations have a greater social obligation under the social responsibility idea, which requires them to assess and address the social and environmental consequences of their activities (and not just the economic aspects).

As a result of CSR reporting, information asymmetry between stakeholders and management is reduced, and firms and their insiders, directors and managers are held more accountable (Jizi & Stratling, 2014). Companies may be able to assess their strengths and limitations in respect to the social and environmental aspects of business by sharing information on CSR concerns. It also allows businesses to examine the impact of their activities on society and the environment, giving them the chance to mitigate negative effects and contribute to long-term growth.

Even though CSR is growing more important, research reveals that certain organizations’ CSR performance and reporting are restricted in comparison to others (Golob & Bartlett 2007, Truscott et al., 2009). CSR reporting is voluntary in many countries, including Sweden (Galbreath 2010), hence there appears to be less incentive for corporations to disclose CSR information to their stakeholders.

Control measures, particularly corporate governance procedures, are therefore critical in ensuring that corporations, or individuals in charge of making CSR choices, successfully perform their responsibility. Indeed, several theories, such as agency theory and stakeholder theory, as well as corporate rules, suggest that corporate governance improves transparency and accountability, and so has the potential to improve overall company disclosure. In this regard, governance is a key and significant part of increasing annual report information sharing (Htay et al., 2012).

The function of the board of directors should be considered while addressing corporate governance, as board members are regarded to be among the most significant players in controlling a firm (Shivdasani 1993, Fama & Jensen, 1983). Although formerly, governance requirements were restricted to a board’s obligation and accountability to shareholders, that responsibility and accountability are now extended to a broader set of stakeholders.

The literature is more accepting of boards’ extended responsibilities to stakeholders (Kolk & Pinkse, 2010), leading many writers to believe that corporate governance, specifical boards of directors, plays an essential role in ensuring that corporations accomplish CSR objectives (Mackenzie, 2007). Furthermore, there is evidence that board composition has a favourable impact on CSR performance (Yin & Zhang 2012, Chang et al., 2015) and CSR reporting (Jizi et al. 2014, Michelon & Parbonetti 2012, Muttakin et al. 2015).

So far, the majority of board composition research has focused on its impact on company financial performance, with considerably less emphasis paid to how specific board qualities influence CSR and CSR reporting. Diversity, one of the board attributes, is a new topic in the corporate governance literature that is gaining traction among academics and practitioners alike (Catanzariti & Lo, 2011). Although it has been suggested that board diversity has the potential to affect company performance and reporting (Rose 2007), only a few research have been conducted to see if this also extends to non-financial performance and reporting (in this case, CSR decisions and CSR reporting).

Various researchers like (Bear et al. 2010, Post et al. 2011, Wang & Coffey 1992) have attempted to relate corporate responsibility (i.e. CSR) with board diversity, and they have found that diversity can have a beneficial influence on some aspects of CSR. These studies are founded on the belief that a diverse board is more likely to have a wide range of beliefs, expertise, ideas, and perspectives, all of which can have a good impact on board level results, including CSR. Furthermore, it is anticipated that a diverse board of directors would contribute a wide range of opinions to the decision-making process, which is crucial for optional and difficult issues like CSR disclosure.

Unlike earlier research, which assumed that board characteristics directly impact CSR disclosure, this thesis assumes that CSR is a strategy, and boards of directors, as strategic decision-makers, influence CSR reporting through their decision-making processes. This assumption is based on the fact that boards of directors, as the primary strategic decision-making body Jensen & Zajac, (2004), are likely to be responsible for the development of long-term business strategies (Post et al. 2011), and it is at this level that CSR policies can be influenced (Kakabadse, 2007, Kassinis & Vafeas, 2002)

Furthermore, one aspect of board diversity, gender, has been the subject of controversy, with a growing body of research emphasizing the relevance of gender diversity in boardroom choices. Women are thought to bring unique skills and capabilities (Carter & Simpson, 2007), different (non-traditional) professional and educational experiences (Hillman et al. 2002, Singh et al. 2008), fresh mindsets for complex issues (Campbell and Mnguez-Vera 2008, Francoeur et al. 2008), and that women in top management have a positive impact on firm performance (Campbell and Mnguez-Vera 2008, Francoeur et al. 2008). (Carter et al. 2003, Carter et al. 2007, Francoeur et al. 2008, Joecks et al. 2013, Campbell and Vera 2010).

1.2 Problem statement

The increasing relevance of CSR in assessing corporations has been noted all over the globe (Kakabadse 2007), however, research suggests that Swedish companies’ CSR reporting is still restricted (Truscott et al. 2009, Golob and Bartlett 2007). There could be several reasons for this, but one that has recently gained ground in the governance and board composition literature is that a lack of diversity among the major players in a company’s governance system (particularly boards of directors) limits their decisions to a narrow and homogeneous perspective.

Companies are less likely to provide non-mandatory CSR information since, as previously stated, CSR reporting is a voluntary procedure. Furthermore, there may be possible conflicts of interest among shareholders, other stakeholders, and the general public (Jizi et al. 2014). Furthermore, the advantages of CSR reports are difficult to quantify in terms of dollars and are sometimes do not appear in the short term. CSR concerns are unlikely to be given a high priority at the management level since top-level managers are generally focused on short-term gains (especially in money terms). These choices are more likely to be made at a strategic level, such as by the Board of Directors, who are more likely to take an inclusive approach to compete stakeholder requirements.

1.3 The objective of the study

The main objective of this study is: To investigate the impact of board ethnic and gender diversity on CSR disclosure practices of firms.

Specifically, the study seeks;

1. To assess the relationship between the proportion of women on board and CSR disclosure
2. To assess the relationship between the proportion of foreigners on board and CSR disclosures.

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