Tone at the Top: An Ethics Code for Directors?

Recent corporate scandals have focused the attention of a broad set of constituencies on reforming corporate governance. Boards of directors play a leading role in corporate governance and any significant reforms must encompass their role. To date, most reform proposals have targeted the legal, rather than the ethical obligations of directors. Legal reforms without proper attention to ethical obligations will likely prove ineffectual. The ethical role of directors is critical. Directors have overall responsibility for the ethics and compliance programs of the corporation. The tone at the top that they set by example and action is central to the overall ethical environment of their firms. This role is reinforced by their legal responsibilities to provide oversight of the financial performance of the firm. Underlying this analysis is the critical assumption that ethical behavior, especially on the part of corporate leaders, leads to the best long-term interests of the corporation. We describe key components of a framework for a code of ethics for corporate boards and individual directors. The proposed code framework is based on six universal core ethical values: (1) honesty; (2) integrity; (3) loyalty; (4) responsibility; (5) fairness; and (6) citizenship. The paper concludes by suggesting critical issues that need to be dealt with in firm-based codes of ethics for directors.     

Directors' Diversity and Board Performance: Evidence from East African Microfinance Institutions

Active board participation is one of the main challenges faced by microfinance institutions. This article sets out to explore the effect of board of directors' characteristics (age, gender, and education) on their ability to effectively perform their board roles (monitoring and resource provision). Microfinance policy makers are concerned with the role of boards in terms of the performance of the industry. This study used the agency theory and resource dependence theory to test the relationship between directors' characteristics and boards' performance. The empirical analysis is based on a survey conducted with 105 board directors representing 63 microfinance institutions from three East African countries (Kenya, Tanzania, and Uganda). The results show a positive relationship between directors' age and their ability to monitor and provide the board with resources. The study also shows that the effect of directors' level of education on boards' performance is positive, while no evidence was found with regard to the effect of female directors on boards. The findings imply that board directors need to be appointed based on their personal characteristics and their ability to perform their roles.     

Female directors,board committees,and firm performance: Time-series evidence from Turkey

We study the relationship between female representation on boards and firm value and profitability in Turkey from 2011 to 2018, relying on hand-collected data covering the vast majority of listed firms. We build several proxies of female representation on boards and find no evidence that female directors predict firm value and profitability using broad measures that are typically required or mandated by regulators. However, we find that female directors predict higher firm value when they have a more active role in board governance through board committee memberships and when they are represented in these committees in relatively large numbers. The presence of female directors, who are members of controlling families is associated with higher firm value. The presence of female independent directors is associated with higher profitability. We also study three potential channels through which female directors might influence firm outcomes and find that the presence of female directors on boards and board committees (i) facilitates the production of financial statements of higher quality; (ii) may lead to lesser incidence of violations of capital market laws and regulations, and (iii) reduces the hoarding of negative news and the related stock price crash risk. We also compare female directors to their male counterparts and find limited evidence for systematic differences.     

The corporate board and special interests: An argument against representation

Corporations are under pressure from special interest groups to place representatives of these interests on their boards of directors. While many businesses have not been as responsive to their total environment as they might be, the answer is not special interest representation on boards. Such action can divert boards from their central role of acting in the long-range interests of the corporation. There are better ways to meet the problems involved. Yet there is something to be said for a departure from excessive reliance on toplevel business experience as a qualification for board members to assure that all environmental forces are considered, and for doing more to inform the public that the corporation is indeed responsive.     

Regulatory Sanctions on Independent Directors and Their Consequences to the Director Labor Market: Evidence from China

We investigate the regulatory sanctions imposed on independent directors for their firms’ financial frauds in China. These regulatory sanctions are prima-facie evidence of significant lapses in business ethics. During the period 2003–2010, 302-person-time independent directors were penalized by the regulator (the China Securities Regulatory Commission—the CSRC), and the two stock exchanges. We find that the independent directors with accounting experiences are more likely to be penalized by the CSRC, though they do not suffer more severe penalties than do the other sanctioned independent directors. We also find that independent directors suffer less severe penalties than do the insider directors. These results are consistent with the hypothesis that the sanctions on independent directors are tied to their assumed ethical and legal responsibilities. Following a regulatory sanction, penalized independent directors experience a significant decline in the number of other board seats held. However, they can gain board seats in better quality firms. We find that interlocked firms that share penalized independent directors with the fraud firm do not suffer from a valuation decline. Overall, our results suggest that regulatory sanctions have not triggered further sanctions on the penalized directors in the labor market but they have, instead, created a disincentive for these directors to serve on the company boards of high-risk firms.     

Reactivity and Passivity After Enforcement Actions: Better Late Than Never

We examine the dynamics between enforcement actions and the responses from both the board of directors and supervisory boards amid China’s governance reform. Rather than examining determinants of fraudulent activities, we investigate, after enforcement actions are imposed, whether the board of directors and supervisory boards react differently, and whether their different reactions play a role in preventing future occurrences of frauds. We find that both boards react to enforcement actions, but only the responses from the board of directors help us curb future enforcements under certain circumstances. The supervisory board fails to play any role in preventing future enforcements, even though it is one of the two monitoring mechanisms in the listed companies. Policy implications are discussed.     

Gender Diversity in the Boardroom and Risk Management: A Case of R&D Investment

Increasing gender diversity in the boardroom has been promoted as a way to enhance corporate governance and risk management. This study empirically examines whether boards with more female directors play a role in reducing R&D risk. We first show that female directors help to reduce the positive relationship between R&D investment and future performance volatility. We then report that firms with more gender-diverse boards exhibit a lower adverse effect of R&D on the cost of debt. These results are robust to endogeneity analysis, alternative measures of gender diversity and risky investment, and other sensitivity tests. Overall, our results suggest that female directors improve board effectiveness in risk management with respect to R&D investment.     

Commitment of independent and institutional women directors to corporate social responsibility reporting

This paper examines how independent and institutional women directors on boards affect corporate social responsibility (hereafter CSR) reporting. Most of the previous empirical evidence has shown a linear association between female directors and CSR disclosure, but to the best of our knowledge, no research has investigated the individual effect of independent and institutional female directors on CSR reporting. Therefore, the analysis of how the disclosure of CSR information is affected by independent and institutional women directors in a separate way merits our attention. Thus, we posit that there is a nonlinear association, concretely quadratic, between independent and institutional female directors on boards and CSR reporting. Our results demonstrate that, in line with the monitoring hypothesis, as the presence of independent and institutional women directors on boards increases, the CSR disclosure improves, but when their presence on boards reaches a tipping point (20.47% and 13.32%, respectively), CSR reporting decreases, which is consistent with the collusion hypothesis. This research contributes to the existing literature on the relationship between board gender diversity and CSR disclosure by suggesting that board structures formed by institutional and independent female directors have an effect on CSR reporting. Hence, female directors play a relevant role on boards since they may influence the CSR disclosure.     

CEO power and its effect on performance and governance: Evidence from Chinese banks

This study investigates whether CEO power matters in Chinese banks. We find that the effects of four power dimensions on banks' performance and board structure vary in their own unique ways. The CEOs with structural power are negatively related to performance but positively related to gender-diversified boards. Moreover, CEOs with ownership power enhance performance but are negatively associated with professionalism and diversification in the boards. Banks that have CEOs with expert power perform well and have gender-diversified boards. Meanwhile, CEOs with prestige power are likely to appoint politically connected directors to the board.     

The Ultimate Glass Ceiling Revisited: The Presence of Women on Corporate Boards

Has the diversity of corporate boards of directors improved? Should it? What role does diversity play in reducing corporate wrongdoing? Will diversity result in a more focused board of directors or more board autonomy? Examining the state of Tennessee as a case study, the authors collected data on the board composition of publicly traded corporations and compared those data to an original study conducted in 1995. Data indicate only a modest improvement in board diversity. This article discusses reasons for the scarcity of women on boards and concludes that, to enhance strategic decisions, board membership should reflect the corporation's consumer population. Thus, women are a critical but overlooked resource. Areas for future research are also considered.     

Gender diversity on boards for organizational impression management: An empirical study of Japanese firms

The literature on gender diversity on corporate boards is growing, yet firms' motivation for achieving such diversity remains underexplored. This study examines the potential objective behind appointing female directors that could be driven by organizational impression management based on the hypothesis that firms strategically propose to nominate female directors when they need to form a favorable impression to their stakeholders, especially in relation to executive compensation. This study analyzed annual shareholders meeting agendas for 3585 listed Japanese firms between 2011 and 2020 and found that firms placed female director appointments on the meeting agenda when they needed approval for the revision of executive compensation. This tendency was strengthened for firms with more outside directors. This study's approach and findings contribute to the literature on corporate board gender diversity by suggesting organizational impression management as a potential strategic motivation behind the appointment of female directors.     

Competing for large-scale infrastructure projects in the emerging Asian markets: Factors of success

This paper aims to provide some general guidance and factors of success for those interested in the burgeoning Asian infrastructure sector. What separates successful foreign contractors from those that flounder? This investigation is based on interviews with managers, directors and other executives from American construction and engineering firms that have had an established and successful presence in the region for at least 10 years. Also interviewed were representatives from government and local firms. The two groups typically play a vital role in the prosperity of the foreign contractor. Three general success themes emerged from our investigation: the growing competitive role of knowledge transfer, the use of local firm networks for managing government entities and the importance of adapting firm risk orientation to the host country's legal and cultural environment. The authors provide an overview of the challenges facing these emerging economies as well as the challenges to firms wishing to gain entry. The concept of a “triple alliance” between foreign firms, government constituencies and local entities is used as a framework for analysis.     

Democracy across Gender Diversity and Ethnicity of Middle Eastern SMEs: How Does Performance Differ?

This paper examines the relationship between boards of directors' demographic diversity and firms' financial performance. In particular, we highlight how women and ethnic minorities can affect Middle Eastern SMEs' financial performance. Using an unbalanced panel of 1,855 firm‐year observations of 371 boards of directors from nine Middle Eastern countries, our results support the positive impact of women and ethnic minority group members on Middle Eastern firms' performance. However, our evidence implies that when Western ethnic minority members increase, firms' performances tend to decrease, because these board members are appointed for regional and international board reputation legitimacy, personal business agendas, and links to the external corporate environment.     

The ethics of corporate governance

The failure of the critics of corporate governance to agree on what should be done to improve the governance process can, in most cases, be traced to a different understanding of the role of corporate directors in that process. This article analyzes and contrasts the obligations of directors under two legal theories, the fictional person theory and the organic theory, of the corporation. A comparison of the director's obligations under each theory indicates that the organic theory provides a better basis for assessing the performance of directors and initiating reform.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. And they couldn't, even if they wanted to.E. Eugene Arthur, S.J., is Associate Professor of Management and Economics at Rockhurst College. He is a Visiting Fellow at Trinity Center for Ethics and Corporate Policy.     

Directors' attributes and corporate governance effectiveness in Hong Kong

The purpose of this study is to examine the perceptions of Hong Kong (HK) legal practitioners on how the major attributes of knowledge, continuous education, and qualification among directors in HK relate to their board of directors' corporate governance effectiveness. The results revealed that the respondents perceived directors' attributes in HK to be not good enough for discharging their legal obligations to their companies. The results also suggested that a company was more effectively governed if its directors were more qualified for their jobs and more familiar with company law and/or corporate governance.     

The increasing risks and responsibilities of the bank director's role

Important changes in the competitive and regulatory environment have made the bank director's job more complex and uncertain. Nervous directors can learn from the difficulties of their peers, however, and protect themselves and their institutions from legal action and from financial failure.     

Professors on the Board: Do They Contribute to Society Outside the Classroom?

According to our data, 38.5 % of S&P 1500 firms have at least one professor on their boards. Given the lack of research examining the roles and effects of academic faculty as members of boards of directors (professor–directors) on corporate outcomes, this study investigates whether firms with professor–directors are more likely to exhibit higher corporate social responsibility (CSR) performance ratings. Results indicate that firms with professor–directors do exhibit higher CSR performance ratings than those without. However, the influence of professor–directors on firm CSR performance ratings depends on their academic background—the positive association between the presence of professor–directors and firm CSR performance ratings is significant only when their academic background is specialized (e.g., science, engineering, and medicine). Finally, this positive association weakens when professor–directors hold an administrative position at their universities.     

Female Presence on Corporate Boards: A Multi-Country Study of Environmental Context

A growing body of ethics research investigates gender diversity and governance on corporate boards, at individual and firm levels, in single country studies. In this study, we explore the environmental context of female representation on corporate boards of directors, using data from 43 countries. We suggest that women’s representation on corporate boards may be shaped by the larger environment, including the social, political and economic structures of individual countries. We use logit regression to conduct our analysis. Our results indicate that countries with higher representation of women on boards are more likely to have women in senior management and more equal ratios of male to female pay. However, we find that countries with a longer tradition of women’s political representation are less likely to have high levels of female board representation.     

Women and corporate boards of directors: The promise of increased, and substantive, participation in the post Sarbanes-Oxley era

Few aspects of corporate board diversity have generated the focused attention that the participation, position, and promise of women's service on the board has generated, especially in recent years. Of particular note is the extent to which women serve on large firm boards of directors (e.g., Fortune 500 firms). Increases in levels of participation have been described as glacial. While critics decry the level of participation of women on large-scale corporate boards, careful scrutiny suggests substantial progress. Concurrent with steady increases in the overall participation of women on corporate boards are increases in their presence on key board committees. Importantly, women's leadership of key board committees and their service as lead directors has improved in parallel with increases in their board memberships. These increases are particularly noteworthy in the post Sarbanes-Oxley (SOX) period. Such trends suggest the continued progress of women in assuming prominent positions in the corporate governance landscape, and provide evidence that the increasingly challenging environment in the post-SOX era has not attenuated the gains noted in the pre-SOX period.     

Board Members in the Service Industry: An Empirical Examination of the Relationship Between Corporate Social Responsibility Orientation and Directorial Type

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 constituents 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 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 suggestions that the board of directors could play a unique role in this area. The expectation on the part of practitioners, researchers, and governmental regulators 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 discretionary 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.