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CORPORATE GOVERNANCE, RESPONSIBLE MANAGERIAL BEHAVIOR, AND CORPORATE
SOCIAL RESPONSIBILITY: ORGANIZATIONAL EFFICIENCY VERSUS ORGANIZATIONAL

LEGITIMACY?
Author(s): IGOR FILATOTCHEV and CHIZU NAKAJIMA
Source: Academy of Management Perspectives , August 2014, Vol. 28, No. 3 (August
2014), pp. 289-306
Published by: Academy of Management
Stable URL: https://www.jstor.org/stable/43822069
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® The Academy of Management Perspectives
2014, Vol. 28, No. 3, 289-306.
http://dx.doi.org/10.5465/amp.2014.0014
SYMPOSIU M
CORPORATE GOVERNANCE, RESPONSIBLE MANAGERIAL

BEHAVIOR, AND CORPORATE SOCIAL RESPONSIBILITY:
ORGANIZATIONAL EFFICIENCY VERSUS ORGANIZATIONAL
LEGITIMACY?
IGOR FILATOTCHEV
City University London and Vienna University of Economics and Business
CHIZU NAKAJIMA
London Metropolitan University
Building on corporate governance research and institutional theory, this paper ex-
plores interrelationships between the firm's corporate governance, responsible lead-
ership, and corporate social responsibility approaches in different institutional con-
texts. We present a critique of corporate governance research grounded in agency
theory with its focus on corporate social responsibility as mere compliance with rules
and regulations. We link different leadership orientations and corporate social respon-
sibility approaches to two key process dimensions of corporate governance related to
monitoring and incentives. This analysis builds on previous research that differenti-
ates between governance mechanisms based on strategic as opposed to financial
controls and explains how these types of control may be related to responsible man-
agerial behavior and the firm's corporate social responsibility strategies. Building on
governance studies grounded in sociology and organizational theory, we further argue
that links between corporate social responsibility strategies and corporate governance
factors such as boards of directors, ownership patterns, and executive incentives may
differ depending on the legal system and institutional characteristics in a specific
country. Our discussion suggests that researchers need to develop a more holistic,
institutionally embedded governance framework to analyze organizational ap-
proaches to corporate social responsibility.
Organizational theorists have developed a signif- Waldman, 2012; Tenbrunsel & Smith-Crowe, 2008;
icant body of research on individual, firm-level, Voegtlin, Patzer, & Scherer, 2012; Waldman & Gal-
and macro-institutional factors that affect manage- vin, 2008; Waldman & Siegel, 2008). However, cor-
rial approaches to corporate social responsibility porate governance research emphasizes that organ-
(CSR) (see Aguilera, Rupp, Williams, & Ganapathi, izational leaders make decisions, including CSR
2007; Crilly, 2011; Devinney, 2009; Husted & Allen, strategies, within the framework of firm-level gov-
2006; Sully de Luque, Washburn, Waldman, & ernance mechanisms (Filatotchev, 2012) that may
House, 2008; and van Oosterhout, 2010, among shape the foundations of leadership responsibility
many other studies). An important domain within and accountability not only to shareholders but
this both theoretically and empirically diverse lit- also to a wider body of stakeholders (Scherer, Bau-
erature is focused on antecedents and organiza- mann-Pauly, & Schneider, 2013).
tional outcomes of responsible leadership and on Surprisingly little attention has been devoted to
ethical decision making that takes into account in- how corporate governance and organizational control
terests and objectives of organizational stakehold- systems may affect the firm's leadership approach to
ers (e.g., Brown & Treviño, 2006; Pless, Maak, & CSR strategy and the way it is implemented. Al-
289
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13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
290 The Academy of Management Perspectives August
search
though previous research on wasresponsible
predominantly on compliance
leader-with
laws andaregulations
ship and CSR helps to develop better (Devinney, Schwalbach, &
understand-
ing of the economic and social
Williams, challenges
2013), including accounting rulesthat
and
confront corporate leaders,anti-fraud policies (Ball, Robin,
its findings are & Wu,
yet2003; to
Bush-be
man, Piotroski, & corporate
integrated into the mainstream Smith, 2004). Less attention has
gover-
nance domain. However, asbeende paidGraaf
to the role ofand Stoelhorst
corporate governance in pro-
(2009, p. 282) argued, "If CSR
moting is
CSR policies thatabout ways
go beyond mere compliance to
and recognizing company
develop a constructive relationship responsibilities with
between busi-re-
ness and society, then governance structures and
gard to wider external stakeholder constituencies.
systems present themselvesStrategic
as a management
natural research
focal takes apoint
broader
view on aims
for CSR research." This paper responsibleto managerial
address behavior, these
defined
important governance-relatedas intentional dimensions
actions taken by managersof cur-
to benefit
the stakeholders
rent CSR research and debates. Within of the company
this and/or sympo- actions
sium, it extends the paper taken to by Stahl
avoid harmful and for
consequences Sully
corporate de
stakeholders important
Luque (this issue), who outline and the larger society linkages
(Burton &
Goldsby, 2009; Voegtlin etand
between individual-, organizational-, al., 2012). A number of
country-
level influences, and theoretically connects
studies contribute to corporate governance to researchre-
search by Pearce, Wassenaar,by linkingand Manzof(this
such characteristics the firm's issue)
gover-
and Doh and Quigley (this nance system as on
issue) owners'shared
identity, boardleader-
processes,
and executive incentives to the managerial choice
ship and stakeholder management.
of CSR approach
Corporate governance relates to the and how it is implemented.of
structure More
rights and responsibilities specifically,
among thistheresearch differentiates
parties between a
with
governanceEffective
stake in the firm (Aoki, 2001). mechanisms based on strategic as op-
corporate
governance implies mechanisms
posed to financial to ensure
controls (e.g., Baysingerthat& Hosk-ex-
ecutives respect the rights isson,
and 1990; Filatotchev, Jindra,
interests of& Stephan,
company 2008),
stakeholders, as well as to and
make links thesethosegovernance stakeholders
constellations to the
managers' social orientation
accountable for acting responsibly with (Pless et al., 2012; to
regard
the protection, generation, Waldmanand & Galvin,distribution
2008) and choice of CSR strat-of
wealth invested in the firm egy. Therefore,
(Aguilera, in addition to managers' personal
Filatotchev,
Jackson, & Gospel, 2008). However,
traits and characteristics of the the bulk
top management of
team,
corporate governance studiesidentified in have
prior research attempted
as important antecedents to
link various governance factors,
of responsible leadership such
(e.g., Brown as board
& Treviño,
structure and composition, 2006; O'Fallon & Butterfield, 2005; Sully
shareholder de Luque
engage-
et al., 2008; Wong,
ment, and executive incentives, Ormiston, & Tetlock,
directly with 2011),the
firm's financial performancethese differences
rather in than
corporate governance
with man- mecha-
agerial strategic decisions nisms at the firm level may also&
(Filatotchev haveWright,
an impact on
how executives a
2005). In this paper, we develop adopt a CSR lens when developing
multilevel theo-
strategic decisions. corporate gover-
retical framework that combines
nance research and studies Finally,
onweresponsible
will integrate both institutional
leader- and
ship and CSR by focusing governance
on aperspectives
complex on responsible leadership,
interplay
between actions of corporatein line with research on the(both
leaders "institutions/pressure/
the "do
no harm" and "do good" dimensions
firm" triplet (Eesley & Lenox, of 2006), bysocially
showing
responsible behavior; see how
Stahl differentand constellations
Sully of corporate
de Luque, gover-
nance and institutional
this issue), corporate governance factors may lead to differ-
mechanisms, and
external institutional pressures to engage
ent managerial approaches to CSR as well in ethi-
as differ-
cally responsible corporate encesbehavior.
in CSR performance at the firm level. As
As Delmas and Toffel (2008)Ioannou and Serafeim (2012, p. 835)
suggested, argued regard-
organiza-
tional authority moderates ing the perceptions
different corporate governance of institu-
and institu-
tional pressures and thustional
the factors that may lead to different
managerial managerial
practices
that are adopted. Although approaches
these to CSR: "Institutional theory
arguments long es-
under-
tablished that
pin earlier studies of corporate organizations are embedded
governance effects within
on responsible managerial broaderbehavior in economics
social structures, comprising different types
and finance literatures, the main focus of this re- of institutions that exert significant influence on the

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
2014 Filatotchev and Nakajima 291
corporations' decision-making."
policies, or "profit-motivated responses to public pol- I
Filatotchev, and
icies and Aguilera
government regulation" (Blair &(2014
Knight,
governance is a2013, p. 535). Some policies demand
product not adherence to
only
demands imposed law (e.g.,
by in the United
market States, the Sarbanes-Oxley
effici
Act of 2002
rationalized norms and the Foreign Corrupt Practices Act the
legitimizing
propriate governance practices.
of 1977); others require compliance with the regu-
In some cases, this processagencies,
lations of different government ofsuch as
legit
lead to changesthe in
U.S. Securities
the and Exchange
firm'sCommission or gov
itself, such as the creation of a board's CSR com-
Environmental Protection Agency. According to
mittee or the introduction of nonfinancial metrics this research, managers may attempt to obtain per-
into internal controls, risk management, and incen- sonal benefits associated with noncompliance, es-
tive systems. In turn, these "legitimate" governance pecially in environments where their behavior
practices may have profound effects on the firm's is not easily observed. Because penalties for non-
leadership and its strategic decisions. Therefore, compliance, both legal and reputational, can be
responsible managerial practices may be an out- substantial for the firms involved, as exemplified
come of the firm's responses to institutional pres- by the Deepwater Horizon oil spill in the Gulf of
sures beyond mere compliance with regulatory Mexico, it is paramount for corporations to put in
constraints, leading to several key research ques- place governance mechanisms to monitor and pun-
tions within this framework: Where do the pres- ish noncompliance.
sures come from? How do they drive the legitimi- These agency-grounded theoretical arguments
zation process, including changes in the firm's underpin a growing body of empirical research in
governance systems? How do these changes, in economics, finance, and accounting literatures that
turn, affect the firm leaders' approach to CSR? By attempts to link various governance factors with
exploring these questions in the following sections, preventing such practices as corporate fraud (e.g.,
we intend to outline the existing approaches to the Yu, 2013), accounting irregularities (Ball et al.,
complex interface between governance and CSR 2003; Bushman et al., 2004), and poor social and
and discuss avenues for future research as well as environmental disclosure (Choudhary, Schloetzer,
some important managerial implications of the & Sturgess, 2013; Milne & Adler, 1999; Trotman &
multilevel analysis of governance and CSR. Bradley, 1981). Much of this research is based on a
universalistic model outlined by principal-agent
CSR IN THE CONTEXT OF AGENCY-
theory (Fama & Jensen, 1983; Jensen, 1986). The
GROUNDED CORPORATE GOVERNANCE central premise of this framework is that managers
RESEARCH and shareholders have different access to firm-spe-
cific information, and managers as agents of share-
holders
The principal-agency framework dominates eco- (principals) can engage in self-serving be-
nomics and finance research on corporate gover-
havior by making unethical (or sometimes illegal)
nance. Here the efficiency of various corporatedecisions
gov- that may be detrimental to shareholders'
wealth maximization. This stream of research iden-
ernance mechanisms is studied from the perspective
of shareholders, who invest resources and seek tifies situations in which shareholders' and manag-
maximum return on their investment. This ap- ers' interests are likely to diverge and proposes
proach has emphasized the role of self-interested mechanisms that can mitigate managers' self-serv-
opportunism and "arm's-length" contracting being behavior.
tween shareholders and managers (Filatotchev & Within agency-grounded research, governance
Wright, 2005; Shleifer & Vishny, 1997). Corporate effectiveness is associated with structural charac-
governance is thus conceptualized as a set of organ- teristics of the firm's governance mechanism, such
izational practices aimed at monitoring and, if as board independence (e.g., a proportion of inde-
needed, restraining managerial discretion. In addi- pendent directors on the firm's board and separate
tion, well-designed incentive schemes should in- roles of CEO and chairman) and ownership struc-
crease corporate productivity and value by better ture (e.g., ownership concentration or fractional
aligning top managers' interests with those of ownership held by large-block holders). For exam-
shareholders (Bruce, Buck, & Main, 2005). ple, Yu (2013) and Agrawal and Chadha (2005)
This perspective associates ethical (or socially provided evidence that the incidence of accounting
responsible) behavior of managers with compliance fraud and earnings manipulation is lower in com-

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
panies whose boards and audit

andcommittees include
focus on the responsibility
independent directors withand
financial expertise.
the accountability of the
Choudhary and colleagues (Blair
(2013)& associated the
Stout, 2001).
firm's disclosure quality (in terms
This of its complete-
discussion indicates that
ness, timeliness, and readability) with
research in board inde- finance,
economics,
pendence and the quality ofpredominantly
audit. focused on the ef
A separate strand of research investigates
porate the im-
governance mechanisms in
pact of executive compensation schemes onmanagerial
ing fraudulent man- beh
agers' propensity for noncompliance. For example,
ing, and various forms of nonco
some authors provide evidence that equity-based
and regulations - practices that s
compensation plans, which ironically are designed
called "negative CSR" (e.g., Ar
2011,
to align interests of managers p. 136). More
and shareholders, canrecently,
perversely motivate executives to manipulate
cussed earn-effects of "
organizational
ings and distort material information
goes beyond (Berrone
compliance& with la
Gomez-Mejia, 2009; Peng & and Roel,
may2008; Yu, 2013).
include "actions on th
However, the executives' opportunism may be
that signal their ef-
willingness to a
fectively constrained by large-block
identifiable institutional
stakeholder groups,
investors, and their presence the local
in the community,
firm's owner- nongover
ship structure makes noncompliance less likely
tions, or broader societal objec
Siegel,
(Coffey & Fryxell, 1991; David, 2008,
Bloom, & p. 117).
Hillman,
2007; Filatotchev, Zhang, & Piesse,
However,2011).
agency-grounded r
Legal literature on corporateguegovernance
that companiestakes should
a eng
different approach to compliance and
ties only iffocuses on
they anticipate an
through
the agency relationship between reputation
the board of direc- enhancem
ployee and
tors and the corporation, as corporate law customer
restrains loyalty, a
management's opportunisticstakeholder
behavior by support
devising (see McW
2001,
rules to regulate the actions of the and
board the
of debate
direc- in Waldm
tors - not of managers generally (Nakajima, 2012).
Some governance studies go even
Such rules may include the resolution
gest that CSR of policies
conflictsthat are no
of interest through disclosure and consent,
profit the re-
maximization may be a ma
dress of information asymmetry through
cipal-agent disclosure
conflict and manager
and the imposition of confidentiality, and the
in that managers re-
may use CSR st
straint of management opportunism
guise their by imposing
opportunistic behav
accountability on the board portof directors
from stakeholders (Nakajima when t
& Sheffield, 2002). By makingby the shareholders
board of directors (Mallin, Michel
accountable primarily to the corporation,
Therefore, CSR that legal goes beyon
scholars argue, the board of directors,
may be anin its gover-
outcome of poor gove
ple, in support
nance role, is responsible for ensuring that the of corpo- this view, C
(2013) laws
ration is compliant with relevant provided and regula-empirical analy
gies of Korean
tions. While corporate law recognizes the importance firms and showed
of shareholders as members are of used
the corporation,
by chaebol firms it with h
retains its main focus on the relationship
ership concentration between to deflect at
unethical financial practices, s
the corporation and its directors.
It follows that the board of fraud
directors andmay earnings be ac-manipulatio
countable to shareholders as a whole, but
Therefore, through
agency-grounded r
its relationship with the corporation.
responsible Shareholder
leadership actions m
actions are taken against erranttext directors
of profit on behalf
maximization and
of corporations, and resulting eters
damages of compliance
are returned with rules
to corporations, not to shareholders.
ternal toTherefore,the organization, by in line
the "instrumentalist"
placing the relationship between the board ("transactional")
of di- view of
rectors and the corporationleadership
in a central
(e.g., Scherer &position,
Palazzo, 2011; Waldman
legal theories move away from theor shareholder-
& Siegel, 2008) "traditional economist orienta-
management dichotomy (Lan tion" & Heracleous,
of leaders (e.g., Pless et al.,2010)
2012). As Scherer

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
and Palazzo (2011)

strategy." indicated,
In other words, the ultimate measurethis for
CSR activities is
ship is underpinned not moralassumption
by considerations of organ-
izational leaders but the instrumental value that
have fiduciary responsibility mai
these activities create for the
ers within the context of firm. Executives
profit who m
base their CSR-related decisions
societal responsibilities may on the principle
be of assu
"shared value"
advance the short- and (Porter long-term
& Kramer, 2006; Waldman & v
Galvin, 2008) consider CSR to be an integral part of
Even if societal responsibilities go b
pliance matters, organizational
the capabilities,
roleand, ofif aligned with the
"effect
is to ensure strategic
that goals of the company, CSR activities can
organizational le
viate from their be in profit
the best interests of the firm and its stakehold-
maximizati
ers (including the view
This overly narrow shareholders). of the r
tween governance and
These arguments responsib
have important implications for
research research
been criticized by on the interrelationships among corporate
grounde
governance, responsible leadership,
holder and stewardship perspectiand CSR. As
Voegtlin and colleagues (2012,
that the consideration of p. 2) argued,
a widermost
holders enables studies
the firm's
on responsible leadership remain sustain
primarily
term survival focused
(e.g., Donaldson
on the micro-level perspective of manage- &
Freeman, Wicks, & Parmar, 2004; Scherer et al., rial behavior. Therefore, by bridging the organiza-
2013). As Waldman and Galvin (2008, p. 330) ar- tional level of corporate responsibility with the in-
gued, although managers are hired and monitored dividual characteristics of leadership, researchers
by shareholders, they are responsible to a broader may be able to identify key antecedent factors of
set of stakeholders and "are likely to have a strong responsible leadership and its CSR strategies.
sense of values concerning the importance of the Scherer and colleagues (2013), for example, sug-
needs and interests of a wide variety of individuals gested that corporate governance structures, such
whom the leader's actions and decisions may as corporate boards, board committees, and domi-
affect." nant owners, should not only monitor managers'
Stewardship research also questions the negative compliance with laws and regulations, but also de-
behavioral assumptions of agency theory and sug- termine how deeply CSR principles are integrated
gests that governance studies should take into ac- into the decision-making process at the top, thereby
count benevolent managerial behavior, intrinsic mo- creating an important context within which CSR
tivation, and the need for self-fulfillment (Scherer et policies are developed and implemented. In other
al., 2013). Accordingly, Pless and colleagues (2012) words, this broader perspective on corporate gov-
suggested an "integrator" model of leadership by ernance claims that the governance mechanism is a
arguing that responsible leaders should go beyond key organizational function that determines not
just taking advantage of economic opportunities only leadership orientation but also affects how
provided by the recognition of stakeholder interests and when a company adds a social dimension to its
within the context of profit maximization. As these value proposition, in line with Porter and Kramer's
authors point out, organizational leaders as integra- (2006) arguments.
tors "have a stronger or broader sense of account- Various attempts have been made to bring this
ability, and thus attempt to deliver on multiple broader perspective on governance and leadership
bottom lines by reconciling, or actively integrating, into the mainstream corporate governance re-
goals across constituent or stakeholder groups" search. For example, Raelin and Bondy (2013) sug-
(Pless et al., 2012, p. 58). As a result, integrative gested a "double-layered agency" framework and
leaders are likely to pursue more proactive and argued that shareholders of the firm, being princi-
transformative approaches to CSR that may go be- pal to managers, also may be considered as agents
yond simply seeking economic returns for "doing to society at large. Therefore, "shareholders must
good" by trying to integrate social and environmen- be given the duty to actively seek out societal ex-
tal issues into formal and informal processes of pectations and protect societal rights . . . before
the firm. striving to maximize their firm's value" (p. 427). In
As noted by Porter and Kramer (2006, pp. 89- a similar vein, some authors have argued that firms
90), the "most strategic CSR occurs when a com- should develop governance mechanisms that align
pany adds a social dimension to its value proposi- responsible leadership and CSR with profit maxi-
tion, making social impact integral to the overall mization and long-term sustainability (Scherer et

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
al., 2013; Waldman & Siegel, captures 2008). However,

the interactions al-
of corporate governance
though this argument suggests that the
factors with responsible interrela-
leadership, in particular in
tionships between corporate institutionally and culturally diverse
governance andenviron-
CSR
policies may be much broader ments. As argued
than earlier,
was research on the anteced-
previously
suggested by research focused onmanagerial
ents of responsible compliance is-
behavior and firms'
sues, it is still unclear howCSR choices remains underdeveloped,
differences in organiza- and avail-
tional governance practices able frameworks
may have, for mechanisms
affect the most part, not taken
of leadership's responsibility
into accountand accountability,
the complexity of the governance fac-
which, in turn, have a profound
tors affecting firms'impact
CSR approacheson the
and how they
firm's CSR choices. are implemented.
Building on the "open system" approach to cor-
STRATEGIC VERSUS FINANCIAL CONTROLS
porate governance (see Aguilera and colleagues,
2008, for a comprehensive analysis), organizational
Our discussion above suggests that corporate theorists
gov- started developing a broader perspective
ernance research in economics, finance, and account-
that links different constellations of governance
practices, including different objectives and time
ing fields puts emphasis on the shareholder-manager
horizons
dichotomy, and it sees CSR-related functions of the of governance participants (investors,
firm's governance mechanism predominantly inmembers, and managers, among others), and
board
terms of ensuring compliance with formalthe firm's sensitivity to CSR issues. Within this
rules
perspective, Arora and Dharwadkar (2011, p. 138),
and regulations that govern various types of trans-
actions within and outside the firm. Structural for example, argued that "effective governance
characteristics of corporate governance (such as theshould always curtail negative CSR, while deter-
proportion of independent directors on the board) mining the level of positive CSR based on a cost-
or ownership patterns are generally used as proxiesbenefit analysis." The balance between costs and
of governance efficiency in terms of dealing with benefits, in turn, depends on risk preferences, time
managerial unethical behavior within this transac- horizons, and awareness of social needs that vari-
tional model of the firm (Walsh & Seward, 1990). ous participants in the firm's governance mecha-
Aguilera and colleagues (2008) argued that this nism may have. Therefore, this stream of research
has less focus on the structural characteristics of
"closed system" approach found within agency
corporate governance that are at the core of eco-
theory posits a universal set of linkages between
nomic and finance literatures. Instead, it shifts the
corporate governance practices and managerial be-
havior that devotes little attention to the distinct emphasis toward organizational and process as-
contexts in which firms are embedded. Meanwhile, pects of different governance constellations and
studies in organization theory and strategic man- their impact on CSR policies.
agement suggest several alternative views about the While CSR has potential benefits for the firm's
nature of corporate governance. As we indicatedcompetitiveness and performance, these benefits
above, stewardship theory relaxed some of the as-are long-term and uncertain. Therefore, as Raelin
sumptions about managerial behavior found inand Bondy (2013, p. 426) suggested, some investors
agency theory, arguing that managers may act as and corporate boards are more likely to act as
stewards for the good of the organization in situa- "guardians of society," while others see short-term
tions where only relatively minor conflicts of inter- profit maximization as their guiding principle. For
est exist (Davis, 2005). Likewise, stakeholder the- example, a growing body of research moves empha-
ory (Donaldson & Preston, 1995; Freeman, 1994) sis from ownership structure as a governance factor
recognizes that the effectiveness of corporate gov- to analyzing who the owners are (Hoskisson, Hitt,
ernance practices depends on a wider set of firm- Johnson, & Grossman, 2002). More specifically,
related actors and their interactions. These research analysis of investors' involvement in CSR has ad-
strands shift attention from efficiency arguments dressed the relationship between investor charac-
(e.g., narrow definitions of performance) toward a teristics and their influence on CSR strategies (Cof-
broader understanding of effectiveness in goal attain- fey & Fryxell, 1991; Cox, Brammer, & Millington,
ment in relation to the multiple objectives of different 2004; David et al., 2007; Graves & Waddock, 1994;
stakeholders, including shareholders (Connolly, Neubaum & Zahra, 2006). Johnson and Greening
Conlon, & Deutsch, 1980). Yet it has not developed (1999, p. 564), for example, argued that "some cat-
a comprehensive and systematic framework that egories of institutional investors act more as traders

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
concerned predominantly level corporate governance factors with with leadership

qu
and the others orientation act and as long-term
CSR strategies.
latter would be more concerned with CSR because Despite a wide diversity of topics and empirical
it may affect the long-term performance and growthcontexts, these studies have one common feature:
of the firm. Family- and government-controlled They suggest that to better understand potential
links
firms, in particular, are considered relatively more between corporate governance and CSR, re-
CSR-sensitive, compared to companies owned by a searchers have to move away from structural char-
diffused body of shareholders (McGuire, Dow, & acteristics of corporate governance toward a more
Ibrahim, 2012; Ntim & Soobaroyen, 2013). fine-grained analysis of governance processes on
Organizational theorists also cast doubt on thethe firm level, and how they are related to demands
importance of structural characteristics of corpo-and aspirations of a wider body of stakeholders.
Although
rate boards (e.g., the fraction of independent direc- agency-grounded research has discussed
corporate
tors, CEO duality, etc.) and focus instead on study- governance effectiveness in terms of
ing how CSR activities are influenced by the managerial incentives, monitoring, and oversight,
diversity of boards (Bear, Rahman, & Post, 2010; it is important to understand how these functions
Hafsi & Turgut, 2013; Williams, 2003) and the are organized and performed within the firm's gov-
board's processes (Coffey & Wang, 1998). This re- ernance mechanism. This understanding, in turn
may
search suggests that diverse boards are more likely help to uncover the links between governance
to be connected to the stakeholder constituencies and CSR within a more "open" model of corporate
governance that goes beyond the shareholder-man-
and less likely to focus exclusively on short-term
ager dichotomy.
financial goals. Different types of management in-
centives have also been scrutinized in terms of To address criticisms of the agency-driven per-
spective on corporate governance, some research-
their impact on CSR (Berrone & Gomez-Mejia,
ers suggest differentiating between strategic and
2009; McGuire, Dow, & Argheyd, 2003). financial controls as two distinctive mechanisms
In addition to a robust system of monitoring and
that underpin the workings of the governance sys-
control, agency-grounded research also suggests
tem on the firm level (Baysinger & Hoskisson, 1990;
that companies may deal with potential managerial
Filatotchev et al., 2008; Hitt, Hoskisson, Johnson, &
opportunism by introducing performance-related
Moesel, 1996). Table 1 outlines the main gover-
executive schemes. As Jensen and Murphy (1990, nance characteristics of the two mechanisms.
p. 242-243) observed, "Agency theory predicts that
For example, when company shareholders are
compensation policy will tie the agent's expected
predominantly concerned with short-term profit
utility to the principal's objective." In other words,
maximization, they rely heavily on structural cor-
the key metric in effecting positive organizational
porate governance mechanisms related to monitor-
outcomes is pay-performance sensitivity (Bruce et oversight, as usually is the case when a
ing and
al., 2005). However, by linking executive compen- company is controlled by dispersed owners or
sation with financial performance of the firm, "transient" investors such as hedge funds (Hosk-
boards may shift managers' attention toward short-isson et al., 2002; Johnson & Greening, 1999). In
term profitability and away from consideringthis thecontext, various studies associate effective
wider societal implications of their actions. There-
monitoring of managerial discretion with financial
fore, board directors have to realize that they controls
must that may be provided by an independent
balance the financial success of the companyboard, withinformation disclosure procedures, and in-
principles of fair play, sustainability, or social re-and external audit (Bell et al., 2014). The
ternal
sponsibility, within a "triple bottom line" systemfirm'sofgovernance relies on a centralized, hierarchi-
performance evaluation (Elkington, 1997). Finally,cal system of accountability and reporting, and
de Graaf and Stoelhorst (2009) in their study boardofmonitoring and risk management use finan-
Dutch banks showed that exposing managers to
cial performance indicators extensively as key
markets for corporate control had a negative impact
benchmarks. These systems of financial control are
on their stakeholder orientation by shifting strate-
effective to the extent that they reduce agency costs
gic emphasis toward interests of investors. and How- are hypothesized to result in positive effi-
ever, the existing literature is still fragmented, andoutcomes and better financial performance.
ciency
there is a dearth of studies that provide a compre- Another pillar of "good governance" within this
hensive analysis of links between various firm- type of organization is equity-based remuneration.

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TABLE 1
Financial vs. Strategic Controls and Their Underlying Governance Practices
Governance factors Financial controls Strategic controls
Ownership structure • Dispersed ownership • Large-block shareholdings

• "Transient" institutional owners • Long-term institutional investors
• SRIs
Accountability and reporting Centralized systems of accountability • Non-hierarchical systems of

and communications communication
• Accountability to external
Board monitoring focus Financial performance of the firm Strategic objectives, including long-term
(ROS, ROA) sustainability of the firm
Managerial incentives • Executive share options • Incentives include, alongside financial

• Incentive schemes linked to financial performance, broader indicators such as
performance social performance
• Focus on the "triple bottom li
Risk management and Risks are mainly related to financial and Risks include a wide range of economic and
control economic factors social factors
External governance Developed market for corporate control Consideration of reputation and trust
Relationships with external "Shareholder supremacy" Formal consideration of stakeholders'

stakeholders interests within the context of long-term
sustainability
This particular constellation of corporate gover- trols within their governance mechanisms. Thes
nance factors relies heavily on the shareholder su- strategic controls are less concerned with short
premacy governance principle, and it leaves very term financial performance but may be focused in
little scope for stakeholder engagement policy or stead on issues related to long-term sustainability,
formal recognition of stakeholder demands within growth in market share, and local stakeholder sup-
a set of managerial objectives. In conjunction with port (Baysinger & Hoskisson, 1990). Unlike formal,
external pressures associated with the U.K./U.S.- highly centralized systems of accountability an
style market for corporate control, the firm's system reporting based on financial indicators, strategi
of financial controls leads to what Pless and col- controls deploy more informal systems of commu-
leagues (2012) have called the "traditional econo- nication between managers and stakeholders, a
mist orientation'' of leadership. As Voegtlin and well as risk management systems focused on
colleagues (2012, p. 13) argued, "a centralized and
broader definitions of risk. In these types of com-
bureaucratic organization and highly specialized panies, reputational and trust considerations,
tasks with low autonomy and decision responsibil- rather than market for corporate control, underpin
ity do not offer many possibilities for responsibleexternal governance pressures on managers.
decisions and active involvement of internal and Similarly, when it comes to managerial incen-
external stakeholders." The authors use a case tives, companies increasingly recognize that new
study of BP and the 2010 oil spill in the Gulf business ofmodels and changes in the marketplace ne-
Mexico as an example of overreliance on financial cessitate the incorporation of softer, intangible, and
controls and financial performance pressures behavioral-based
that performance measures within an
may have contributed to managers' decisions objective
to setting and performance appraisal pro-
choose the cheapest but higher risk solutions for et al., 2012). Their performance manage-
cess (Stahl
drilling, which had disastrous consequences forment system combines the extent of achievement of
the
company and environment. individual performance objectives (the what) and
By contrast, firms with stakeholder-aware the values and behaviors required to deliver those
boards
and socially responsible investors (SRIs) areresults
more in a sustainable manner (the how), includ-
likely to rely on strategic rather than financial con- such as trust and integrity (Chua, Engeli,
ing values

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
& Stahl, 2005), previous

best studies described
have not discussed potential as
role
opposed to the of the firm's institutional environments
agency manageme in terms of
2005). As a result,
their impact ongovernance
the links among governance factors, ba
controls is moreresponsible
supportiveleadership, and organizational
of CSR the
of leadership suggested by
strategy. Aguilera and colleagues (2007, p. 836) Ples
(2012) that takes
suggested, into account
however, that "because business organ- a
stakeholder groups
izations arewhen maximizin
embedded in different national sys-
The French company Lafarge
tems, they will experience divergent degrees of in- is
company that hasternal and consistently
external pressures to engage in social re
controls when setting organization
responsibility initiatives." Therefore, contrary to
developing board processes
the universalistic and m
predictions of agency-grounded
tices that underpin a social,
research, different wider syste
political, and historic
involvement in themay
macro-factors strategy pro
lead to the institutionalization
al., 2013). of very different views of firms' role in society on
The basic premise of and
both individual this framewo
industry levels (de Graaf &
cific combinations
Stoelhorst, 2009). of monitori
modes (strategic, financial)
For example, research by Witt and Reddingand m
tives (financial, triple bottom
(2012) suggested that senior executives' views lin
with different about
leadership orienta
the purpose of the firm and the meaning of
proaches. Companies, therefore,
social responsibility vary across cultural and insti-
spectrum of different constellation
tutional contexts. These differences have signifi-
mechanisms, depending on the ex
cant implications for the choice of CSR strategies
perceived agency conflicts and th
and approaches, as they affect leaders' perceptions
tegic recognition of demands fro
of the legitimacy of stakeholder groups such as
holder constituencies (Filatotche
shareholders, consumers, employees, and the
Building on research by Jones (199
larger society. Several studies in management and
have recently suggested that if the
organization have taken a macro perspective and
take into account within its govern
interests of its stakeholders on the basis of mutual attempted to link firm-level CSR activities with
national models of corporate governance (Aguilera
cooperation and trust within a longer-term deci-
& Jackson, 2003; Husted & Allen, 2006). Cross-
sion-making horizon, it may reap rewards in terms
of reduced agency costs, transaction costs, and country differences in corporate governance ar-
costs associated with team production (Perrini, rangements are often used to explain differences in
Russo, Tencati, & Vurro, 2011). A greater commit- approaches to CSR (Aguilera et al., 2007). Further,
ment to replicate and adopt governance constella- national governance standards may affect how
tions of strategic controls that support responsible companies report on their CSR activities (Bowman
leadership and proactive CSR practices can im- & Haire, 1976; Milne & Adler, 1999; Trotman &
prove efficiency and financial performance by gain- Bradley, 1981).
ing legitimacy, access to critical external resources, More recent sociology-grounded research sug-
and stakeholder support (Ntim & Soobaroyen, gests that governance is a product not only of co-
2013). However, although this research acknowl- ordinative demands imposed by market efficiency
edges the importance of external, macro-level pres- but also of rationalized norms legitimizing the
sures affecting the interrelationship between the adoption of appropriate governance practices (Bell
firm's governance mechanism and its CSR policy, et al., 2014). Legitimacy is the "generalized percep-
the institutional mechanism in play is yet to be tion or assumption that the actions of an entity are
comprehensively analyzed. desirable, proper, or appropriate, within some so-
cially constructed system of norms, values, beliefs,
INSTITUTIONAL ANALYSIS OF GOVERNANCE
and definitions" (Suchman, 1995, p. 574). This per-
AND CSR: FROM ORGANIZATIONAL
spective focuses less on the individual efficiency
EFFICIENCY TO LEGITIMACY?
outcomes of structural governance characteristics
that are at the core of agency perspective than on
theoretical efforts to understand how governance
Given their predominant focus on internal organ-
izational aspects of corporate governance and CSR,
mechanisms affect the firm's legitimacy through

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
perceptions of external assessors, or performance

volves not only financial the stake- benchmarks
holder "audiences" (Deephouse
but also & Suchman,
factors 2008).
associated with longer-term sus-
Research within institutional
tainabilitytheory
may be another and
governancesocial
factor con-
psychology fields differentiates among
tributing to moral various
legitimacy. Similarly, some com-
types of legitimacy judgments that include
panies introduce wider performance instru-
criteria and
mental (pragmatic), relational,
definitionsand moral
of risk in dimen-
their risk-movement systems
sions (Aguilera et al., 2007; Bell et
that use al., 2014;
nonfinancial Ntimunlike
indicators. Therefore, &
Soobarriyen, 2013; Schererstudies
& Palazzo, 2011;
in the finance, economics, andTost,
strategy
2011). More specifically, institutional theorists
fields, institutional framework considers pre-
corporate
dict that regulative, normative,
governance as an endogenous, sociallyinsti-
and cognitive embedded
tutions put pressure on firms to
mechanism thatcompete for
may be highly responsive re-
to vari-
sources on the basis of economic efficiency.
ous institutional pressures.
However, institutional pressures may also
Second, a firm's responses compel
to legitimacy pres-
firms to conform to expected social behavior and
sures may define the balance between financial and
demands of a wider body of strategic
stakeholders. Ntim systems,
controls within its governance and
Soobaroyen (2013, p. 470) andsummarized this ap-
this has direct implications for the firm's lead-
proach: "A major underlying ership
assumption within an
orientation and pursuit of CSR strategies. To
'overarching' neo-institutional
conformperspective is that
to pressures for relational/moral legiti-
the actors are not only competing for resources
macy, organizations have to develop and actively
('efficiency'), but they are also seeking ultimate le-
pursue a set of longer-term objectives geared to-
gitimacy and social acceptance ('légitimation')." In
ward sustainability as opposed to short-term finan-
other words, the ability of organizations to achieve
cial performance (Ntim & Soobaroyen, 2013). This
social acceptance will depend, in addition to effi-
tips the balance toward a heavier reliance on stra-
ciency concerns, on the ability of its leaders to
tegic controls and the associated governance mech-
demonstrate moral and relational responsibility by
anisms. As we discussed above, strategic controls
committing to stewardship management practices,
are more likely to be associated with the integrator
stakeholders' interests, and societal expectations
orientation of leaders (Pless et al., 2012) and CSR
(Aguilera et al., 2007).
policies that go beyond compliance issues. There-
Research on the "institutions/pressure/firm"
fore, the firm's choices between strategic and finan-
triplet (e.g., Eesley & Lenox, 2006) suggests that
these arguments may have cial controls may be socially constructed, and they
far-reaching implica-
translate
tions for corporate governance and institutional
its pressures into the firm's
association
choice of CSR
with responsible leadership and its CSR-relatedstrategy.
strategies. First, a firm's questThird,
for institutional
moral factors
and may explain differ-
rela-
tional legitimacy may lead to changes in its corpo- located
ences in CSR approaches among companies
rate governance practices and in different
processes.countries. TheFor
three types
exam-of legitimacy
ple, in addition to enhancing monitoring capacityjudgments - instrumental, moral, and relational -
of boards, some firms may also incorporate stake- may
are not applied universally, and their balance
holder engagement mechanisms differ depending
intoontheir the specificformal
institutional envi-
governance structures by assigning ronment in a particular country. Devinney and col-
responsibility
for sustainability to the board leagues
and (2013),forming
for example, argued that in a share-
a sepa-
rate board committee for sustainability. holder-focused corporate environment
Scherer in the U.S.
and colleagues (2013) went even and U.K., directors' and
further by managers'
suggest- obligations are
ing that corporate governance mainly to the company
structures and its shareholders,
should be
extended to the creation of whereas in stakeholder-oriented
a "corporate societies such as
senate"
that would represent diverse Germany
groups and Japan, managers have to consider
of stakehold-
ers besides shareholders and multiple
havestakeholder
significant constituencies
vot- when making
ing rights. decisions. Witt and Redding (2012) in their com-
In this regard, in Germany, the codetermination parative analysis showed that while Japanese busi-
system of corporate boards ensures that represen- ness leaders stressed the need for firms to contrib-
tatives of key stakeholders, including employees, ute more broadly to society, U.S. executives were
have a direct say in governance matters (Raelin & unanimous in assessing societal concerns as sec-
Bondy, 2013). A system of remuneration that in- ondary to shareholder interests.

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
Thelegitimacy through various governance codes and principles

perspective sugges
tant of good practice
of extensions
our (Frederick, 1991).
current unde
Second, the opposite trend
possible links among can be seen in coun-
corporate g
tries where national and
sponsible leadership, governance mechanisms
CSR. are Firs
tention has weak or have failed,
recently been and where the rule of law is to
paid th
institutions such as the United Nations Global absent and there is a lack of democratic control
Compact and the institutionalization process(Matten of & Crane, 2005). As Scherer and colleagues
codes of conduct for global businesses and their (2013) have pointed out, under these conditions a
value chains (Ioannou & Serafeim, 2012; Kostova & "democratic deficit" may emerge (e.g., when pow-
Zaheer, 1999). This exposes companies to what erful multinational corporations influence the po-
Bell and colleagues (2014) called "multiple institu- litical system and lobby for their economic inter-
tional logics," and it is unclear how this exposure ests). This deficit may lead to a decline in the social
affects the legitimation process and its implications acceptance of the multinational corporation and its
for governance and CSR. As corporations face a corporate political activities and, thus, to a loss of
heightened level of institutional complexity result- corporate legitimacy. In this context, research on
ing from heterogeneity and fragmentation of formal the institutional dynamics of political CSR pro-
and informal rules, intergovernmental organizations poses responsible leadership as a precondition for
are increasingly recognizing the importance of CSR as securing the moral legitimacy of an organization
a matter of public policy, which has led to a plethora (Scherer et al., 2013; Voegtlin et al., 2012). As
of international and regional agreements that, in Scherer and Palazzo (2011, p. 906) wrote: "It is
turn, have encouraged governments to introduce necessary to acknowledge a new political role of
national legislation (Petkoski & Twose, 2003). business that goes beyond mere compliance with
legal standards and conformity with moral rules."
The resulting laws and regulations concerning
Van Oosterhout (2010) argued, however, that this
environmental, social, and governance issues have
presents a new challenge for the firm's governance
formalized what were once corporate voluntary ac-
mechanism, which has been traditionally focused
tions. Thus, areas that were once covered by volun-
on achieving efficiency in addressing market needs
tary industry or business standards - namely envi-
rather than providing global public goods. These
ronment, labor, corporate governance, money
ideas are particularly relevant to our discussion of
laundering, bribery and corruption, human rights,
how governance mechanisms may affect the firm's
and corporate reporting - are now regulated through
legitimacy through perceptions of external asses-
a complex web of national legislation (Cragg & sors, or the stakeholder "audiences," in the context
McKague, 2003). Equally, it has been observed that
of global governance centered on a recognition of
legislation influences the substance, implementa- not only economic but also social and political
tion, and communication of CSR, and that current
needs of wider stakeholder constituencies (Scherer
normative CSR may constitute "pre-formal law" et al., 2013; Scherer & Palazzo, 2011).
(Buhmann, 2004). Furthermore, in many instances,
law may impose sanctions, regardless of culpabil-
DISCUSSION
ity, when breached (e.g., environmental protec-
tion). It is also the case that many of the legislative We contribute to the relatively recent but fa
developments have extra-territorial application, growing literature on the role of corporate gove
whereby one country's law may have jurisdiction nance as an important antecedent of a firm's s
over individuals and corporations outside of the tegic decisions related to CSR. We provide
country. overview and extension of this research by sugg
Therefore, in the context of multiple institutional ing that the firm's choice of a specific CSR a
logics the firms and their leaders face heteroge- proach is not random, and it may depend o
neous and often ambiguous institutional pressures, particular constellation of corporate governa
and previously accepted standards of behavior, factors, such as control and incentive syst
such as legal rules and self-regulation principles, within the firm's governance mechanism. Mo
have become fragmented or outright ineffective. specifically, we show that, when firms deploy
This may explain the growing heterogeneity of erarchical monitoring and managerial incenti
firm-level approaches to corporate governance and systems focused on financial performance, t
CSR despite a growing trend for harmonization firm's ability to deploy CSR strategies will be lim

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
ited, and the main focusoverall

will be on
constellation dealing
of legitimacy with
judgments re-
noncompliance. lated to a specific industry or country may be crit-
On the other hand, a combination
ical not only in terms ofof strategic
designing the firm's gov-
controls with management's ernance mechanism
incentives but also developing
linked and to
the triple bottom line may provide
promoting internally its a CSRfoundation,
approach.
other things being equal, forHow should
enhanced new researchsocial
begin to further
orien- de-
velop a more
tation of the firm's leadership and holistic
itsand institutionally
more proac- embedded
tive approach to CSR. Within a broader
governance framework to analyze institu-
organizational
antecedents
tional context, both corporate and outcomes of responsible
governance and CSR leader-
are affected by external ship
pressures for legitimacy.
and its CSR practices? Here we highlight sev-
Unlike studies in finance, eraleconomics,
key ideas. and strategy
fields, institutional framework
A growing literature
considers is focused on links
corporate
between
governance as an endogenous,
corporate socialsocially embedded
and financial performance mea-
mechanism, and its impact surements
on(see thePerrinifirm's
and colleagues, 2011, and
choice of
CSR policies may be highly Waddockresponsive
and Graves, 1997, for a review),
to but this
various
institutional pressures. Soresearch
far,does not take into CSR
both account the role of
studies
and governance researchcorporate
have governance
failed factors.to identify
Is corporate gover-
these important links, and nance an antecedent
our paper factor,
takesor does anit moderate
im- this
relationship? Agency-grounded
portant step to close this theoretical gap. Our research
argu- considers
governance
ments indicate that researchers needas a moderator
to move that does
away not allow
managers
from considering a universal CSRto usetemplate
CSR as a defensetoward against share-
a more contextualized theory of CSR.
holders because doing so may lead to a reduction in
Our discussion also has relevant practical
financial performance, impli-
as exemplified by research
cations. Companies need to on Korean
appreciatechaebols by the Choi etimpor-
al. (2013). Neo-
tance of CSR for survival, institutional
profitability, theorists, however,
and growth. consider gover-
CSR activities are among critical organizational
nance to be an fac-
antecedent of responsible leadership
tors that make challenges associated
and, ultimately, CSR, with increas-
and "better-governed corpo-
ing economic globalization rations possible (Devinney,
are also more likely to pursue a more so-
2009). However, simply changing cially responsibleleaders
agenda" (Ntim and/or
& Soobaroyen,
their management style to2013, p. 469). Moreover, de
accommodate Graaf and Stoelhorst
challenges
of doing business responsibly (2009) havemight not suffice.
provided evidence as to how changes
Instead, companies need toinrevamp and restructure
CSR policies prompted governance adjustments
their governance mechanisms in Dutch banks.
andFuture research, therefore, should
decision-making
processes in ways that connect them
untangle these to different
complex causality problems by sug-
stakeholder communitiesgesting anddynamic
create CSR models
contingency capabili-
linking gov-
ties. Therefore, careful recruitment of outside di- ernance factors, CSR policies, and performance.
rectors with appropriate mindsets and skills is Given the undercontextualized nature of corpo-
essential. rate governance research (Aguilera et al., 2008), a
Our analysis indicates that incentive systems challenge remains in terms of developing a more
play an important role in terms of adopting a pro- explicit understanding of how the interrelationship
active CSR approach. A system of remuneration between CSR and different corporate governance
that involves not only financial performance mechanisms varies across different organizational
benchmarks but also factors associated with longer- contingencies. Our analysis suggests that some sort
term sustainability may help to motivate managers of contingency model is needed to better under-
to search for ways of adopting appropriate CSR stand the conditions under which specific combi-
strategy and, therefore, enhance local stakeholder nations of monitoring and control modes lead to
support. In doing so, corporate governance partici- high/low social performance. A key research ques-
pants (e.g., managers, board members, and inves- tion therefore is this: What are the most important
tors) must be able to recognize the extent and sa- contingencies that may affect the firm's emphasis
lience of different institutional pressures to gain on strategic as opposed to financial controls (or a
legitimacy among the firm's "audiences." A clear combination of both)?
understanding of the relative importance of instru- For example, in a recent study of possible effects
mental legitimacy (economic efficiency) within an of governance factors such as board independence,

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
institutional land, 2004; Vanhamme & Grobben,

ownership, and2009), in an mana
on a firm's CSRattempt policy, Arora
to rebuild organizational legitimacy and a
(2013) discoveredpublic trust. Our analysis
that these shows that this use of
effects
better-performing
CSR may also becompanies
prompted by changes in corporate and
substantial organizational "slack."
governance in response to a crisis scenario, and
more research is needed
context, this suggests thaton how governance
firms and w
zational resources may have more
CSR strategies may develop in crisis situations, as
itizing longer-term strategic
firms try to respond object
to changes in the environment
to focusing on the short-term finan
and address the legitimate claims and expectations
in declining organizations
of both local and global stakeholders. and/or
ing industries. Therefore, slack
The vast majority of corporate governance studies o
sources may shift the governanc
have treated monitoring and incentives as orthogonal
strategic controls that,
variables, arguing that bothin turn,
may contribute differ- en
ble leadership with
ently to the stronger CSR o
firm's choice of CSR approach. Future
More generally, research Filatotchev
should determine if these two variables and
argued that there are
are indeed multiple
independent stag
and if their contributions
zational life cycle
to CSR(OLC)
performance vary that involv
over the course of the
ernance modes. Researchers have discussed the
OLC. For example, Bell and colleagues (2014) chal-
major changes in the organizational structure and the agency framework's assumption of the
lenged
control mechanisms that occur along the various
linear additi vity of governance practices (e.g.,
phases of the OLC. Thus, companies might experi-
"more governance is better") by suggesting a scope
ence strategic "thresholds" as they move from one
for equifinality associated with different bundles of
phase of their OLC to the next. Each of these transi-
governance practices. In our research context it
tions has important implications for corporate gover-
means that equivalent levels of CSR may be
nance, including boards and incentive systems.
achieved by different combinations of governance
For example, in early-stage ventures and entre-
practices when the firm has reached a certain level
preneurial firms, the main focus of corporate gov-
of the first-order regulatory legitimacy.
ernance is on wealth generation rather than redis-
Future empirical analyses would allow us to bet-
tribution, and this is more consistent with a system
ter appreciate the complementarities and/or substi-
of strategic controls. However, when an organiza-
tutions that might exist between monitoring and
tion is a target of acquisition or buyout by private
control in the context of CSR. Likewise, different
equity firms, the emphasis may shift toward finan-
combinations of governance practices related to
cial efficiency underpinned by a system of finan-
cial controls (Filatotchev, Toms, & Wright, strategic
2006). and financial controls are not mutually
exclusive.
In the context of an initial public offering, the firm Building on the "configurational" per-
has to balance both wealth-creating and wealth- spective suggested by Bell and colleagues, one may
protecting roles of corporate governance (Bell argue that firms may rely on a combination of stra-
et al.,
2014) and, as a result, may deploy a combination ofand financial controls, when, for example,
tegic
the two governance modes. Our discussion introducing
indi- the notion of triple bottom line as a
cates that these organizational contingencies canbasis of managerial performance evaluation. Again,
also influence the intensity and nature of CSR ac-the specific balance between the two governance
approaches
tivities as well as firms' ability to create value from may depend on various organizational
them. Further research should examine the poten- contingencies, such as resource slack, industry
conditions
tial interactions between managerial accountability (e.g., growth versus decline), exposure
to the market for corporate control, and the stage in
and incentives at different thresholds of firms' evo-
lution and how these interactions might influence the firm's OLC, among other factors.
CSR performance. Our arguments have benefited from using and
Related to the previous point, CSR strategies and integrating corporate governance and institutional
approaches may change dramatically in the context theoretical perspectives. Though these diverse lit-
of crisis associated with internal and external chal- eratures have enriched our arguments, future re-
lenges. For example, it has been observed that com-searchers would benefit greatly from studying how
panies have invested in CSR in response to public the systems described herein (i.e., monitoring and
reaction to large-scale corporate scandals (Graaf- incentives) and the operations and processes that un-

13.234.89.89 on Tue, 23 Apr 2024 11:13:14 +00:00
derpin them are institutionalized (orCONCLUSIONS

deinstitutional-
ized). In addition, we emphasized the importance of
As companies become global, their success a
various legitimacy judgments (instrumental, moral,
rests on fostering responsible leadership and
and relational) when discussing institutional pres-
taining CSR activities, which, in turn, requires i
sures the firm and its governance mechanism
creased managerial are
accountability and new inc
exposed to. However, the three types
tives that enable of
executives judgments
to learn new skills and
are not mutually exclusive, and
develop the firm
new capabilities. Various may be
CSR approaches
viewed as legitimate on all provide
three grounds,
opportunities or
or barriers for it may
companies to
gain legitimacy from the instrumental point of view
convert their resources and knowledge into prod-
but not on moral grounds. As Tost
ucts, goods, (2011,
and services that create p. 691)
wealth not
argued, researchers should "consider
only for the
their investors but circum-
also for local commu-
stances under which one or nities and wider stakeholders.
another basis of This paper shows
legiti-
macy will have greater or thatlesser
governance influence on systems
factors, such as control the
overall legitimacy judgment,and managerial
and, incentives, can work in concert to
consequently,
influence CSR. Further empirical research, based
the largest impact on behavior."
These arguments translate on into
our multilevel analysis of the complex
an important the- interre-
lationships
oretical question: Can a firm among institutions,
compensate for the its
firm'slack
gover-
of financial efficiency by nance, and CSR, can in
engaging add richness
more to the literature.
proac-
tive CSR strategies to achieve the same level of
legitimacy? Arora and Dharwadkar (2013) argued,
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at Vienna
Wong, E. M., Ormiston, M. E., University of Economics
& Tetlock, P. E. and Business. His
(2011). The
effects of top managementprincipal
team research interests are corporate
integrative governance,
complex-
ity and decentralized decision making
strategic management, on corporate
and business ethics. He is an as-
social performance. Academy of Management
sociate editor Jour-
of Journal of Management Studies.
nal , 54, 1207-1228.
Chizu Nakajima (c.nakajima@londonmet.ac.uk) is a pro-
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fessor of corporate law and governance onfinance:
the Faculty
Recent developments. Managerial and
of Business and Law Decision
at London MetropolitanEco-
Univer-
nomics, 34 , 439-450.
sity. She also serves as a director of the International
Symposium on Economic Crime at the University of
Cambridge, and is a senior associate research fellow at
the Institute of Advanced Legal Studies at the Univer-
Igor Filatotchev (igor.filatotchev@city.ac.uk) is a profes- sity of London.
sor of corporate governance and strategy at Cass Business
School, City University London, and a visiting professor

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CORPORATE GOVERNANCE, RESPONSIBLE MANAGERIAL BEHAVIOR, AND CORPORATE

SOCIAL RESPONSIBILITY: ORGANIZATIONAL EFFICIENCY VERSUS ORGANIZATIONAL

Stable URL: https://www.jstor.org/stable/43822069

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CORPORATE GOVERNANCE, RESPONSIBLE MANAGERIAL

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panies whose boards and audit

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and Palazzo (2011)

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al., 2013; Waldman & Siegel, captures 2008). However,

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concerned predominantly level corporate governance factors with with leadership

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Ownership structure • Dispersed ownership • Large-block shareholdings

Accountability and reporting Centralized systems of accountability • Non-hierarchical systems of

Managerial incentives • Executive share options • Incentives include, alongside financial

Relationships with external "Shareholder supremacy" Formal consideration of stakeholders'

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& Stahl, 2005), previous

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perceptions of external assessors, or performance

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Thelegitimacy through various governance codes and principles

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ited, and the main focusoverall

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institutional land, 2004; Vanhamme & Grobben,

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derpin them are institutionalized (orCONCLUSIONS

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Bear, S., Rahman, ership

Choi, B. B., Lee, D., & Park, Y. (2013). Corporate social

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Eesley, C., & Lenox, M. (2006). Firm responses

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Nakajima, C. talent management.

O'Fallon, M. J., & Butterfield, K. D. (2005). ATost, L. P. (2011).

ping the responsibility orientations of leaders. Acad-

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