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Demographic Diversity in The Boardroom. DOES GENDER AFFECT CORPORATE SOCIAL RESPONSIBILITY AND FIRM REPUTATION IN KENYA
Demographic Diversity in The Boardroom. DOES GENDER AFFECT CORPORATE SOCIAL RESPONSIBILITY AND FIRM REPUTATION IN KENYA
ABSTRACT
Received April 2016 Accepted May 2016
Board of directors is the decision-making organ in the organization that faces complex tasks
pertaining to strategic-issue processing. It comprises of directors from various backgrounds
hence face interaction difficulties that can prevent them from fulfilling their tasks. This study,
will investigate whether the board diversity influences CSR and firm reputation in Kenya. This
will capture the boards monitoring and resource provision abilities; and it will be in line with
Agency and resource dependency theories. The general objective to the study is to establish
whether board diversity influences firms CSR and corporate reputation in Kenya. There have
been studies on how board diversity on firm performance and CSR but no paper has been
published looking at the corporate reputation and more over concerning gender diversity on
boards in developing countries.The number of women in the board has a significant impact on
corporate social responsibility and corporate reputation. Women bring a number of strengths to
the board including an increased sensitivity to CSR and participative decision-making styles
and these benefits contribute to enhanced corporate responsibility strength ratings.This study
makes a theoretical contribution to the corporate governance literature by analysing board
diversity within the framework of two major theories Agency and Resource. This study also
makes a theoretical contribution to the diversity and governance literature by providing a better
understanding of the relationships between board gender, professional and experience diversity
and rms CSR and reputation.This study will be beneficial to the management of corporations
and top management in decision making especially on the issue of SCR and the firms
reputation. It will also lay ground for more studies to be conducted in Kenya and other
developing nations.
Key Words: Board, Board diversity, Gender, CSR, Reputation
(Dowling, 2006). Reputation can positively the concept of the independent director
affect financial performance, institutional emphasized in theory
investment, and share price. In this article, we propose to explore how
The board of directors is a key governance on boards of directors the diversity of board
function that links the organization to its resources and the number of women on
institutional context, boards transcend and boards affect firms corporate social
span organizational boundaries by responsibility (CSR) ratings, and how, in
providing access to external resources, turn, CSR influences corporate reputation.
information, and demands (Hillman & With the increased public scrutiny around
Dalziel, 2003; Walls & Hoffman, 2012). boardsand corporate governance, one
The role of women in board positions is expects board composition to affect
getting increased attention (Daily et al., corporate reputation, especially when it
2000; Vinnicombe et al., 2008; Terjesen et al., comes to characteristics such as the
2009). Many proposals for governance diversity of board resources and board
reform explicitly stress the importance of gender composition. However, whether and
gender diversity in the boardroom. how diversityof board resources (e.g.,
In the UK, the Higgs (2003) report, professional backgrounds ofdirectors)
commissioned by the British Department of affects corporate reputation is an
Trade and Industry, argues that diversity understudiedquestion that we propose to
could enhance board effectiveness and address here.
specifically recommends that firms draw Furthermore, the mechanisms through
more actively from professional groups in which diversity of board resources and
which women are better represented. In gender composition affect reputation have
Kenya even formal laws requiring female received limited attention. Studies that
representation on corporate boards have evaluate a direct relationship between
been introduced. Most of these legislative board gender composition and firms
initiatives are based on the view that the outcomes (e.g., reputation) usually assume
presence of women on boards could affect that board gender composition acts as a
the governance of companies in significant signal (e.g., the value firms place on hiring,
ways. One argument is that boards could retaining, and advancing women) which
enhance their effectiveness by tapping directly influences outside evaluators (e.g.,
broader talent pools for their directors. investors, influential business magazines).
However, research has failed to establish a However, it is also likely that gender
convincing case for the presence of women composition and diversity of board
on corporate boards of directors. As a resources affect firms social performance,
result, more studies are needed on the which, in turn, bolsters their reputation.
effects of women directors on board Building on the study of Mattingly and
decision-making and effectiveness. Another Berman (2006), we view CSR in terms of
argument is that, because they do not institutional strength and technical strength.
belong to the old boys club, female
directors could more closely correspond to CSR in Kenya
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their influence on board decisions and In view of the increasing pressure to raise
processes remains under researched the number of women directors as well as
(Nielsen and Huse, 2010). the changing demographics of the
In Kenya research has been limited to workplace in general, the results of this
governance in firms and their performance, study may have important implications for
yet governance in and its outcome on CSR both corporate boards as well as for policy-
and corporate reputation has been makers
overlooked since there was no publication.
This paper therefore will look at the role of Literature review
female directors on CSR and corporate Theoretical framework
reputation. To analyze the impact of governance
In this paper, we provide new evidence that mechanisms on environmental
is relevant to this debate by investigating performance, the researcher will adopt the
the hypothesis that gender diversity in the lens of the Agency theory (Jensen and
boardroom affects CSR and corporate Meckling 1973) and resource dependence
reputation. theory (Pfeffer et al., 2003; Hillman et al.,
Major Objective 2009). Board of Directors (BODs) has an
important role in the management of
To determine the relationship between organizations. Since, BODs are considered
board diversity and corporate reputation to be one of the important governance
and CSR of Kenya firms. mechanisms, these groups are increasingly
Specific objective being held responsible for the
1. To assess the relationship between
organizational performance. The
gender diversity to institutional
performance of the organizations is
strength of CSR
dependent on the realization of the roles of
2. To establish the relationship
BODs. This study will follow the study by
between gender diversity technical
Hillman and Dalziel (2003) framework that
strength of CSR
boards have two functions, namely, to
monitor (agency theory based) and to
Significance
increase access to resources (resource
This study will contribute to theory and
dependence theory based). Monitoring and
literature on corporate governance by
service are the two main board functions
analyzing how women directors improve
under the agency theory. Strategy planning
board effectiveness within the theoretical
is the most important board task under the
frameworks: Gender differences (Eagly &
strategic choice model, while acquisition/
Johannesen-Schmidt, 2001; Eagly &
provision of resources is of prime concern
Johnson, 1990) and Group effectiveness
in the resource dependency theory.
theories and (e.g., Cohen & Bailey, 1997;
Gladstein, 1984; Hackman, 1987; Pelled, Agency Theory
1996; Williams & OReilly, 1998). In agency theory, management initiates and
implements, whereas directors monitor
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(Jensen & Meckling, 1976; Deutsch et. al., importance to the firm; (3) provision of
2007).The monitoring function refers commitments of support from important
directly to the responsibility of directors to organizations or groups in the external
monitor and control of managers(including environment; and (4) creation of legitimacy
hiring and firing of the CEO) on behalf of for the firm in the external environment.
shareholders (Hillman and Dalziel2003; Directors are viewed to be actively involved
Brennan 2006). The primary driver of each and positively influence strategy and
of the monitoring functions of the board is programs (Hillman & Dalziel, 2003) and
the obligation to ensure that management boards can provide the management of a
operates in the interests of shareholders firm with important advice and may
an obligation that is met by scrutiny, contribute to the strategic decision making
evaluation, and regulation of the actions of (Finkelstein & Mooney 2003). The board
top management by the board (Hillman and resources of the corporation support in
Dalziel, 2003). The board of directors is understanding and responding to its
charged with oversight of management on environment (Hillman et. al., 2003). This
behalf of shareholders. It is assumed that suggests that resource-rich directors will be
board performance of its monitoring duties better placed to provide environmental
is influenced by the effectiveness of the resources, thereby influencing corporate
board, which in turn is influenced by actors environmental performance. Specific
such as board composition and quality, size activities that correspond to the fulfillment
of boards, duality of CEO/Chairman of the service task include providing expert
positions, board diversity, information and detailed insight during major events,
asymmetries and board culture (Brennan such as an acquisition or restructuring, as
2006).Board activities that are critical to the well as more informal and ongoing
fulfillment of the control task include activities, such as generating and analyzing
decisions regarding the hiring, strategic alternatives during board meetings
compensation, and replacement of the (Forbes and Milliken 1999). Therefore
firm's most senior managers, as well as the boards of directors may reinforce the top
approval of major initiatives proposed by management teams competencies and
management (Forbes and Milliken 1999). experiences by providing feedback or
refining their strategic proposals (Westphal,
Resource Dependency Theory 1999). Furthermore, boards can help
Pfeffer and Salancik (1978) argue that managers solve critical strategic issues
boards serve to link the corporation to other (Fiegener, 2005) or explore new market
external organizations in order to address opportunities (Zahra et al., 2000).
environmental dependencies. Pfeffer and In their study Nielsen & Huse (2010)
Salancik (1978) suggest four primary conclude that a board with a certain
benefits for the external linkages: (1) composition may be better at performing
provision of resources such as information one task than the other as the two distinct
and expertise; (2) creation of channels of sets of board tasks require different skills
communication with constituents of for their effective performance.
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Gardberg (2000) argue that CSR can be a Salancik, 1978). Hence, board resources can
safety net by reducing reputational damage. help the firm manage business challenges
A positive reputation for CSR can reduce (Boyd, 1990) and enable it to deal more
the damage fromnegative publicity during a effectively with external organizations
crisis (Vanhamme and Grobben, 2009). (Pfeffer, 1972). The boards human capital
resources are based on the collective
Diversity of Director Resources experience and expertise of board members.
An effective board provides resources to the This expertise includes insiders with
corporation including advice and counsel knowledge of company strategy and
and links to other organizations (Hillman operations, business experts with
and Dalziel, 2003).Diversity refers to knowledge of corporate strategy, support
policies and practices that seek to include specialist with knowledge of legal and
people who are considered some way regulatory affairs, community influential
different from traditional members (Herring with knowledge and relationships with
2009). Traditional members are people external stakeholders including the
from same background in terms of race or government and local communities
gender. In their study of understanding the (Hillman et al., 2000). Diversity of
effects of diversity in organizational groups experience is an important asset as studies
Milliken & Martins (1996) categorized with management teams have shown that
diversity into observable demographic and functional diversity can enhance team
non-observable cognitive dimensions. innovation through the generation of
The boards human capital resources are alternative solutions and innovation (Bantel
based on the collective experience and and Jackson, 1989; Joshi and Roh, 2009).
expertise of board members. Research has Diversity in the boardroom allows members
shown that lack of diversity within the to make better decisions as a more complete
boardroom results in a manila mindset to picture of the issues at hand are typically
solving corporate problems (Burgess and discussed (Adams and Flynn, 2005)
Tharenou, 2002) this leads to group think Accordingly, the greater the diversity of
issues as well as lack of achievement within board resources, the greater the potential
the company. Over the past decade, for understanding and problem solving that
homogenous boards have been a can enable the board to effectively address
contributing factor to spectacular failures the business environment and encourage
and overall poor governance (Brownet positive ratings for CSR. Board resource
al.,2002). A more diverse board results in an diversity may also enhance network ties
increased representation of moral and (Beckman and Haun schild, 2002). Insiders
ethical view points in the discussions prior offer strong internal network connections.
to making decisions (Arfken et al., 2004). Business experts may offer connections to
their focal firms and to suppliers,
These linkages can provide channels for customers, and other boards. Support
communication with, and access to support specialists have connections with their focal
from external organizations (Pfeffer and firms, customer networks, and with
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CSR. Research already suggests that firms management (Hillman and Dalziel, 2003).
with a higher percentage of female board Women also increase the demographic
members do in fact have a higher level of diversity of the board, helping to ensure the
charitable giving (Wang and Coffey, 1992; boards demographic difference from
Williams, 2003), more favorable work management. Westphal and Zajac (1995)
environments (Bernardi et al., 2006; Johnson found that CEOs attempt to select board
and Greening, 1999), and higher levels of members who are demographically similar
Environmental CSR (Post et al., 2011). to them to secure support, and that this
Increasing board gender diversity (which, support led to higher compensation.
for all practical purposes, means increasing Consequently, gender diversity on the
the number of women on boards) can board can help ensure demographic
enhance decision making, as a wider variety differences from the CEO needed for
of perspectives and issues are considered effective monitoring.
and a broader range of outcomes is assessed The effectiveness of women on boards may
(Daily and Dalton, 2003). The presence of increase with the addition of female
more female directors may stimulate more directors. While a single female director
participative communication among board may have a positive impact on firms
members, if one assumes that gender reputation, she may also face challenges.
differences in leadership styles, as Groups with a single minority member
evidenced in some studies, also exist at (e.g., a female director) may consider that
board director levels. If female directors are minority member to be a token; they may
more participative (Eagly et al., 2003), perceive the minority individual as less
democratic (Eagly and Johnson, 1990), and competent and of lower status.
communal than men (Rudman and Glick, Consequently, the group may fail to take
2001), then having more women on a board the tokens opinions or contributions
could encourage more open conversations seriously (Brewer and Kramer, 1985; Kanter,
among members of the board. A broader 1977a; Lord and Saenz, 1985). Furthermore,
perspective may enable the board to better research suggests that minority voices are
assess the needs of diverse stakeholders. not easily expressed or heard in groups
The result may enhance the boards ability (Nemeth, 1986) because social pressures
to effectively address CSR. encourage conformity with the majoritys
Gender diversity can also affect the boards opinion (Asch, 1955). However, when a
critical function of monitoring management. group is faced with consistent opinions
Having more women on the board from multiple minority members, it is more
enhances the boards expertise by likely to consider and learn from the
increasing the range of professional minority voice (Asch, 1955). Empirical
experience and augmenting the number of evidence suggests that these processes may
board members with advanced degrees also be at play on boards. For example,
(Hillman et. al., 2002). These added qualities when a critical mass of women (i.e., at least
brought in by female board members enable three) is represented on a board, female
the board to more effectively monitor directors are able to ask challenging
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questions and work together to demonstrate Our findings indicate that as the number of
collaboration in decision making (Konrad et. female directors increases, so does the
al., 2008; Kramer et. al., 2006). It may be firms CSR, suggesting that the
possible that there could be too many contributions women bring to the board in
women on the board. Just as all male this area are more likely to be considered by
directors lack diversity and reduce board the board when the group diversity
effectiveness, all female directors would dynamics move away from tokenism to
lack diversity and reduce effectiveness. normality (Erkut et al., 2008).
Institutional strength reflects the firms
Methodology ability to meet expectations of the
This study will employ documentary community and diversity stakeholders
analysis design and the data was collected through philanthropy, community support,
from the journals, periodicals. This and hiring practices. Technical strength
measured ratio of board directors in the reflects positive exchanges with consumers,
firm boards in listed firms in Kenya. stockholders, and employees through
Study Area product quality, good governance, and
The area of study will is Kenya. employee compensation and benefits.
Stakeholders value these strengths as firms
Discussion and conclusions assets because enhancing overall reputation
The motivation for this study was to in these areas translates to a reservoir of
examine how the salient (gender goodwill that can be a tool to partially offset
composition) and underlying (professional the negative impact of bad publicity during
backgrounds) diversity among board a crisis (Gardberg and Fombrun, 2006;
directors affect corporate reputation both Vanhamme and Grobben, 2009).
directly, and, through improved CSR The A final contribution of the study is that
study extends current theory by women board members provide a broad
demonstrating that the number of women range of contributions to boards. This study
on the board has a positive relationship suggests that they play a role in enhancing
with the strength ratings for CSR. Women corporate reputation by contributing to the
bring a number of strengths to the board firms CSR.
including an increased sensitivity to CSR
(Williams, 2003) and participative decision- Managerial and Applied Implications
making styles (Konrad et al., 2008), and The findings of this research have important
these benefits may contribute to enhanced implications for boards and investors. For
corporate responsibility strength ratings. As boards, the positive impact of gender
the number of women on a board increases, diversification is significant as having more
communication barriers come down and the female directors can enhance critical board
minority voice becomes more assertive processes including analysis and decision
(Konrad et al., 2008; Kramer et al., 2006) making. This positive impact of women on
while, at the same time, the majority is more boards can improve ratings for CSR which
likely to heed attention to it (Asch, 1955). can, in turn, enhance corporate reputation
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