Board Members in the Service
Industry: An Empirical
Examination of the
Relationship Between
Corporate Social Responsibility
Orientation and Directorial Type
ABSTRACT. One area of business performance of
particular interest to both scholars and practitioners
is corporate social responsibility. The notion that
organizations should be attentive to the needs of con-
stituents other than shareholders has been investigated
and vigorously debated for over two decades. This has
provoked an especially rich and diverse literature
investigating the relationship between business and
society. As a result, researchers have urged the
Nabil Ibrahim is Professor of Business Administration and
holder of the Grover Maxwell Chair of Business
Administration at Augusta State University. He teaches
courses in Strategic Management and Applied Statistics.
He has authored numerous articles in academic and prac-
titioner journals, including Health Care Management
Review, Journal Professional Services Marketing,
Journal of Business Ethics, and Journal of Hospital
Marketing.
Don Howard is Associate Professor of Management at
Augusta State University. He teaches courses in Strategic
Management and Small Business Management. His
research interests are in the areas of health care admin-
istration and entrepreneurship. He has authored articles
in Health Care Management Review and The
Journal of Applied Case Research.
John Angelidis is Professor of Management and Chair of
the Department of Management, St. John’s University.
He teaches courses in Strategic Management, Business
and Society, and Entrepreneurship. He has authored
many articles in academic and practitioner journals,
including Journal of Business Ethics, Journal of
Global Marketing, and International Journal of
Commerce and Management.
Journal of Business Ethics 47: 393–401, 2003.
© 2003 Kluwer Academic Publishers. Printed in the Netherlands.
Nabil A. Ibrahim
Donald P. Howard
John P. Angelidis
study of the profiles and backgrounds of corporate
upper echelons in order to better understand this
relationship.
There is ample evidence that corporations have
in recent years increased the proportion of outside
directors on their boards. This has been partly in
reaction to increased interest in the corporate social
responsiveness of business organizations and sugges-
tions that the board of directors could play a unique
role in this area. The expectation on the part of
practitioners, researchers, and governmental regula-
tors is that outside directors will advocate greater
corporate responsiveness to society’s needs by
playing a more active role in overseeing managerial
decisions.
The purpose of this study is to partially fill a void
in the literature by determining whether or not these
expectations are justified, particularly in the service
industry. Data were collected as part of a larger cross-
national study of corporate social responsibility. A
multivariate analysis of variance (MANOVA) of the
results of a survey of 307 board members (198 outside
and 109 inside directors) indicates that outside
directors exhibit greater concern about the discre-
tionary component of corporate responsibility and a
weaker orientation toward economic performance.
No significant differences between the two groups
were observed with respect to the legal and ethical
dimensions of corporate social responsibility. Some
explanations as well as limited generalizations and
implications are developed.
394 Nabil A. Ibrahim et al.
Introduction
For over a decade, researchers in business strategy
have urged the study of the profiles of corporate
upper-echelons in order to understand an
organization’s strategic processes. For example,
Hambrick and Mason (1984) have proposed a
number of hypotheses for testing the relationship
between organizational outcomes and certain
demographic characteristics of senior managers.
They contend that strategic decisions reflect the
background of an organization’s most powerful
managers and what the organization does could
be explained in part by the profile of its upper-
echelon. Consistent with this view, a relatively
small body of literature has focused on one
important segment of the organization – its board
of directors.
As the stockholders’ formal representatives,
directors are ultimately responsible for super-
vising management’s performance and ensuring
that corporate decisions are designed to
maximize the value of the firm (Rechner and
Dalton, 1991). They are expected to help shape
corporate strategic management by providing
impartial, sound, and experienced advice
(Andrews, 1980; Jones and Goldberg, 1982;
Goldstein et al., 1994).
The present study was designed to address this
issue. Specifically, this article seeks to determine
whether a relationship exists between a board
member’s directorial type (inside/outside) and
level of CSRO.
Corporate Social Responsiveness Orientation
(CSRO)
There have been several streams of research and
theory in this area. One line of research has
attempted to develop various conceptual models
for analyzing the relationship between business
and its larger environment (Angelidis and
Ibrahim, 1991; Carroll, 1979; Freeman, 1984;
McMahon, 1986). A separate line of research has
focused on the relationship between a firm’s
social responsibility and its financial performance
(Aupperle and Hatfield, 1985; McGuire et al.,
1988; Orlitzky, 2001; Murphy, 2002; Simpson
and Kohers, 2002).
A third stream has addressed the attitudes of
corporate upper-echelons toward corporate social
responsibility. An examination of this research
reveals that, among corporate upper-echelons,
many feel that they have certain responsibilities
to make some desirable contribution to main-
taining or enhancing societal welfare (Ford and
McLaughlin, 1980; Frederick, 1983; Holmes,
1976).
Finally, a fourth line of research concerns
the effects of board members’ demographic and
non-demographic characteristics on their indi-
vidual corporate social responsiveness orientation
(Ibrahim and Angelidis, 1991; Kelley and
Whatley, 1987).
Type of director
Criticism of the role and functions of corporate
boards has increased dramatically in recent years.
There is ample evidence that prior to the 1990s
boards of directors in the United States tended
to tolerate mediocre management (Salmon,
1993). However, recent revelations about out-
breaks of ethical failings and questionable prac-
tices by corporate executives, including the
Enron scandal in the United States, the improper
use of insider information, hazardous consumer
products, and the Baring Brothers’ huge losses
have prompted fresh concern over the societal
impact of corporate activities.
One outcome of these developments has been
greater concern with the board’s ethical and
social responsibilities in corporate governance.
For example, Harold Geneen (the former CEO
and Board Chairman of ITT) wrote, “Among the
boards of directors of Fortune 500 companies, I
estimate that 95% are not fully doing what they
are legally, morally, and ethically supposed to do”
(Geneen, 1984a, p. 28). The importance of
boards of directors in governing the behavior of
top executives was recently demonstrated by two
studies. The first found higher performance in
firms with boards that participated more actively
in organizational decisions, compared to firms
 Board Members in the Service Industry
with “caretaker boards” (Judge and Zeithaml,
1992). The second study reported that boards
need sufficient power to both monitor and dis-
cipline CEOs. A vigilant board is the best defense
against executive entrenchment (Pearce and
Zahra, 1991).
In response, scholars, governmental regulators,
and practitioners have argued that organizations
should appoint to their boards of directors
members of groups who traditionally were not
adequately represented (see The Economist, 1993;
Firstenberg and Malkiel, 1980; Geneen, 1984b;
Securities and Exchange Commission, 1980;
Rechner, 1989). The expectation is that, in their
role as overseers of a firm’s strategic decisions,
members of such groups would actively support
greater corporate responsiveness to society’s
needs. Because of this broader diversity of back-
grounds, they are less likely to be viewed as
“creatures of the CEO” whose main function is
to legitimize top management’s decisions.
According to this view, these outside board
members are more likely than inside directors to
oppose a narrow definition of organizational per-
formance which focuses primarily on financial
measures and will tend to be more sensitive to
society’s needs. Because of CEO dominance of
corporate boards, particularly in the U.S., it is
important for outside directors to be vigilant,
independent, and provide a bridge between pro-
fessional managers and society (Bowen, 1995).
Indeed, a number of practitioners have urged
directors to meet in “executive sessions” in
which only outside directors meet to “assess what
is working and what isn’t . . . and assign one
director responsibility for reporting on these
sessions to the CEO” (Harris, 2001, p. 40).
Outside directors are assumed to be in a better
position than insiders to protect and further the
interests of more than just stockholders and the
entrenched executives.
Yet much of what we know about the rela-
tionship between directorial type and corporate
social responsibility is either speculative or anec-
dotal. Of the few empirical investigations that
have been conducted, two recent studies reported
mixed results. Zahra and Stanton (1988) found a
positive relationship between the proportion of
395
outside board members and measures of corpo-
rate social responsibility. However, when the
commission of illegal acts by the firm was used
as a proxy measure for corporate social respon-
sibility, Kesner et al. (1986) reported that outsider
domination does not lead to improved social per-
formance. In addition to their inconsistent
findings, these studies did not directly measure
board members’ CSRO. To date, only two such
investigations were conducted. The first, by
O’Neill et al. (1989), reported that outsiders have
a higher level of CSRO than their inside coun-
terparts. However, their study did not consider
the effects of the several components of CSRO.
Rather, a single overall measure of the construct
was employed. The second study, conducted by
Ibrahim and Angelidis (1995) compared the
CSRO of outside and inside directors. Although
it reported significant differences between the
two groups, several industries were represented
in the sample that was analyzed. The study did
not attempt to determine whether these differ-
ences exist among directors in any particular
industry.
The present study, then, is designed to inves-
tigate this issue. It extends the research on cor-
porate social responsibility and boards of
directors. It is intended to fill the void in this
literature by seeking to determine whether dif-
ferences exist between inside and outside direc-
tors in the service industry with respect to their
CSRO.
Methods
Sample
Data were collected as part of a larger cross-
national study of corporate social responsibility.
The Standard and Poor’s Register of Corporations,
Directors and Executives in the United States
formed the pool from which board members
were identified. A first mailing and two follow-
up mailings of 1,000 questionnaires generated
322 responses. Since 56 questionnaires were
returned as undeliverable and 15 responses were
unusable, this resulted in 307 usable responses
396 Nabil A. Ibrahim et al.
(32.5%). Because the response rate compares
favorably with similar studies of upper-echelons
(Aupperle et al., 1985; Ungson et al., 1984;
Ibrahim and Angelidis, 1995), we did not
consider tests of nonresponse bias necessary. The
sample comprised 198 (64.5%) outside directors
and 109 (35.5%) inside directors.
Measures
A questionnaire was developed to measure the
variables of interest. Respondents were asked to
indicate whether they were inside or outside
directors, and their respective companies’ annual
sales, number of employees, and total assets. Each
director’s CSRO was measured with an instru-
ment developed by Aupperle et al. (1985). It is
based on the four-part construct proposed by
Carroll (1979). The instrument adopts a forced-
choice format to minimize the social desirability
of responses.
Respondents are asked to allocate up to 10
points among four statements in each of several
sets of statements. Each of the four statements
in a set represents a different underlying dimen-
sion of Carroll’s four components – economic,
legal, ethical, and discretionary responsibilities.
Carroll lists these four areas in order of priority.
The first component, economic responsibility,
requires the firm to produce goods and services
of value to society. Legal responsibility dictates
that the business operate within the legal frame-
work. To be ethical, a decision maker should
follow the generally held beliefs about how one
should act in a society. Finally, discretionary
responsibilities are the purely voluntary obliga-
tions a corporation assumes. They are guided by
a firm’s attempt to make some desirable contri-
bution not required by economics, law, or ethics
to maintaining or improving the welfare of
society. Carroll contends that these four compo-
nents “address the entire spectrum of obligations
business has to society” (1991, p. 40).
The instrument used in this study contained
20 such statements. The mean of each respon-
dent’s scores on each of the four dimensions was
calculated to arrive at a respondent’s orientation
toward each of the four components.
Analysis and results
On average, the companies which were repre-
sented had 1,024 employees, annual sales of
$162.8 million, and total assets of $108.5 million.
The analysis of the data was conducted in three
stages. First, zero-order intercorrelations and reli-
abilities were calculated. These are reported in
Table I. Cronbach alpha coefficients are in the
diagonal cells.
Consistent with the study results of Aupperle
et al. (1985), Smith and Blackburn (1988), and
Ibrahim and Angelidis (1995), this study found
a significant negative correlation between the
economic component and each of the other
three variables. Also, similar to this study, all three
previous studies reported that the strongest cor-
relations were between the economic and dis-
cretionary dimensions as well as the economic
and legal components. The negative correlation
between the ethical and discretionary dimensions
supports the Smith and Blackburn and the
Ibrahim and Angelidis results but contradicts
Aupperle, Carroll, and Hatfield’s findings.
Next, a MANOVA procedure was deemed to
be the most appropriate analytic technique for
exploring differences in CSRO scores between
the two groups. This procedure compensates for
variable intercorrelation and provides an omnibus
test of any multivariate effect. However, given
the large differences in the sizes of the two
groups (198 versus 108), it was necessary to test
for unequal variances between the two groups
as a preliminary check for robustness (Hair et al.,
1992; Tabachnick and Fidell, 1989). Box’s M test
for homogeneity of dispersion matrices produced
TABLE I
Intercorrelations and reliabilitiesa, b
Variables 1 2 3 4
Economic –0.85c
Legal –0.37c –0.93
Ethical –0.32c –0.25 –0.82
Discretionary –0.45c –0.22 –0.29 0.88
a
N = 307.
b
All correlations are significant (p < 0.001).
c
Values on the diagonal are Cronbach alphas.
 Board Members in the Service Industry 397

a nonsignificant F (p = 0.36). This confirmed the
homogeneity of the two variance-covariance
matrices thus validating the appropriateness of
the use of the MANOVA in the analysis. The
MANOVA revealed significant differences
between the two groups (F = 18.63, p < 0.001).
That is, the CSRO of inside board members was
significantly different from that of outsiders.
Finally, to understand the underlying contri-
butions of the variables to the significant multi-
variate effect, we proceeded to test each
dependent variable using one-way ANOVAs with
the two groups representing two levels of the
independent variable. These results, depicted in
Table II, show that differences between the two
groups were significant on two of the four vari-
ables. Specifically, the mean scores on the
economic component were 3.83 for the inside
directors and 3.31 for the outsiders. Mean scores
on the legal dimension were 2.59 for the insiders
and 2.65 for the outsiders. On the ethical dimen-
sion, the scores were 2.14 and 2.19, respectively.
Finally, the insiders’ mean score on the discre-
tionary component was 1.34 while the outsiders’
mean score was 1.73.
From the univariate ANOVAs, we see that
important differences exist between the groups
with respect to the economic (F1,305 = 10.703,
p = 0.0012) and discretionary (F1,305 = 7.235,
p = 0.0075) components. Compared to their
outside counterparts, inside directors in the
service industry exhibit greater concern about
corporate economic responsibilities and a weaker
orientation toward the discretionary responsibil-
ities. No significant differences between the two
groups were observed with respect to the legal
(F1,305 = 0.149, p = 0.7038) and ethical (F1,305 =
0.171, p = 0.6839) dimensions.
Discussion and conclusion
An effective board of directors is one of the firm’s
major competitive and strategic tools. Although
boards of directors have been examined quite
extensively, few studies have investigated the
board’s internal role. The purpose of our study
was to extend available research on boards by
examining the relationship between directorial
type and corporate social responsiveness orien-
tation in the service industry.
Considerable concern has been expressed in

TABLE II
MANOVA and ANOVAs for differences between inside and outside board members

Dependent variables 0000000000000000000Group meansa F p

Outsiders Insiders
(n = 198) (n = 109)

Economic 3.31 3.83 10.703 0.0012

(1.21) (1.48)
Legal 2.65 2.59 00.149 0.7038
(1.11) (1.04)
Ethical 2.19 2.14 00.171 0.6839
(1.09) (1.12)
Philanthropic 1.73 1.34 07.235 0.0075
(1.34) (0.93)
Multivariate tests
Wilks’ lambda 0.5402
Pillai’s trace 0.4938
Hotteling-Lawley trace 0.7960
a
Figures in parentheses are standard deviations.
398 Nabil A. Ibrahim et al.
recent years regarding the effectiveness with
which board members are discharging their
responsibilities. While an active board can be a
valuable asset which can contribute to better cor-
porate strategic decision making, we know little
about what makes them effective or ineffective.
An interesting aspect of the present study is
that it analyzed separately the four components
of CSRO. Although previous research (Ibrahim
and Angelidis, 1995) on boards of directors
showed that, overall, outsiders are less econom-
ically driven and more philanthropically oriented
than insiders, this study showed similar differ-
ences in the service industry. Finally, the data
indicate that both groups had similar orientations
toward the legal and ethical dimensions of social
responsibility.
Various explanations could be advanced for
these results. With respect to the similarities
between the two groups, this finding is not sur-
prising given current trends in American society.
In the corporate world, numerous laws and
extensive government regulation affect virtually
every aspect of business activities. They touch
“almost every business decision ranging from the
production of goods and services to their pack-
aging, distribution, marketing, and service”
(Carroll, 1989, p. 174). In addition, both the
popular business press (Barron’s, 1986; Galen,
1992) and the academic literature (Samuelson,
1990; Whitehill, 1989) have suggested that orga-
nizations, particularly in the United States, face
an increasingly litigious environment. Indeed,
legal actions have driven otherwise financially
sound corporations such as Texaco (1987) into
bankruptcy. Also, the recent takeover battles
involving some of the largest corporations have
resulted in a growing concern over risks of
personal liability among corporate directors
(Janjigian and Bolster, 1990; Kesner and Johnson,
1990).
The results concerning the ethical orientations
of both groups are in line with previous research
findings suggesting that, in response to pressures
from the public, a large number of organizations
are keenly aware of the importance of ethical
behavior, have developed codes of ethics, and
are conducting training programs in this area
(Berenbeim, 1988; Loucks, 1987). Not only are
certain ethical standards mandated by law (Steiner
and Miner, 1986), but a great majority of boards
of directors have established a committee con-
cerned with ethical behavior (The Center for
Business Ethics, 1986). In today’s complex world
in which interdependence is increasing, there is
a greater realization that businesses must improve
their ethical conduct and demonstrate their com-
mitment to ethics (Etzioni, 1992). According to
Hosmer (1996),
there is a long-term cost to unethical behavior that
tends to be neglected. That cost is the trust of the
people involved. Companies today . . . are much
more dependent than ever upon the trust of
workers, specialists, managers, suppliers, distribu-
tors, customers, creditors . . . and international
agencies. People in any of those groups who
believe they have been misgoverned by bribes,
sickened by emissions, or cheated by products tend
. . . to lose trust in the firm responsible for those
actions.
Indeed, a number of writers have argued that
ethical conduct is simply “good business.” For
example, Lee and McKenzie (1995) contend that,
in today’s environment, “if business people act
honestly, it is in part because they pay a high
price for behaving dishonestly” (p. 5). Because
they are aware that “they are in for the long run,
the temptation to cheat a customer is greatly
tempered when a significant amount of repeat
business is possible” (p. 5). This view is supported
by Hyman and Blum (1995) who assert that “for
companies and people alike, having an . . .
honest, just, and ethical self-image can tip the
balance of fate in favor of prosperity” (p. 48). It
is not surprising, then, that there is general agree-
ment among both inside and outside directors
that the firm should behave in an ethical manner
and operate within the legal framework.
Concerning the differences between the two
groups with respect to the economic and discre-
tionary dimensions, it is possible that outside
directors are more likely to be found in service
firms that are more economically successful and
therefore can afford the luxury of being sensi-
tive to philanthropic needs. This possibility can
never be ruled out but seems implausible. Future
research efforts need to consider more clearly
these possible relationships.
 Board Members in the Service Industry
Perhaps the most plausible explanation – and
the one receiving the widest support from the
literature – is that outside directors exhibit
greater responsiveness to philanthropic needs and
show less concern for the firm’s economic goals
merely because they are outsiders. This view
would be consistent with assertions that outsiders
tend to have a broader range of experience and
interests (Vance, 1983; Williams and Shapiro,
1978) and with Zahra and Stanton’s (1988)
findings that boards dominated by outsiders show
greater social responsiveness. This is further sup-
ported by reforms to make corporations more
responsive to society’s needs by increasing the
number of outside directors. For example, the
New York Stock Exchange is requiring that listed
firms have board audit committees composed
solely of outsiders (see, e.g., Kesner, 1988).
According to Worthy and Neuschel, “more and
more, society will expect the board to provide
the fine line between achieving economic objec-
tives of the corporation and meeting the broader
needs of society” (1983, p. 100). Another trend
which supports this conclusion is the increasing
tendency of outside directors to be appointed
to chair corporate boards (Fuchsberg, 1993). An
additional trend is the growth in the number
of public-policy committees. Their purpose
is to give board-level attention to company
policies and performance on a number of areas
including business ethics and consumer affairs
(Weidenbaum, 1994).
The results would also be in line with previous
research findings regarding differences in per-
ceptions of business’ obligations toward society.
Sonnenfeld (1981) suggests that those who are
distant from the pressures of the market place,
such as outsiders, see a close link between a
decision maker’s personal views and support for
socially responsible behavior. However, insiders
– who by definition are corporate executives
and therefore tend to be closely involved in day-
to-day corporate decisions – would attribute
questionable corporate practices to competitive
pressures. It is not surprising, then, that insiders
were found to be more sensitive to the organi-
zation’s economic needs.
Certainly, caveats must be offered regarding
the conclusions generated by this research. Future
399
extensions of this research should give thought
to including smaller-sized firms. Also, additional
research is necessary to determine whether a
director’s orientation toward corporate social
responsiveness does translate into corporate
action. Finally, a comparison of service-industry
companies in the U.S. with their counterparts
in other countries would be a fruitful research
avenue.
In conclusion, the findings of this study
provide insights into an area of concern for both
service organizations and society. The involve-
ment of directors in the strategic management
process is likely to expand due to the increased
risks of legal liability. The implications of this
study are a reminder to the business community,
scholars, and regulatory agencies that major dif-
ferences do exist between outside and inside
board members. The results reported here clearly
demonstrate that, by having outsiders on the
board of directors, a firm in the service industry
is more likely to engage in socially responsible
activities. This offers proponents of changes in
board composition – particularly regarding the
inclusion of more outside directors – support for
their normative suggestions.
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Nabil A. Ibrahim
College of Business Administration,
Augusta State University,
Augusta, GA 30904-2200,
U.S.A.
E-mail: nibrahim@aug.edu
Donald P. Howard
College of Business Administration,
Augusta State University,
Augusta, GA 30904-2200,
U.S.A.
E-mail: dhoward@aug.edu
John P. Angelidis
St. John’s University,
Grand Central & Utopia Parkways,
Jamaica, NY 11439,
U.S.A.
E-mail: angelidj@stjohns.edu