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Today, businesses release more information about themselves than ever before. In addition to traditional financial reporting, companies now detail their social, environmental and sustainability initiatives. This kind of reporting, commonly known as corporate social responsibility (CSR) serves two main purposes. The first is that it allows companies to focus on important social issues. Secondly, it protects companies from criticism for a lack of transparency.
EU Switzerland lecturer Alain Berger recently defended his DBA thesis with the Grenoble School of Management around this topic. His thesis centered on the influence of board diversity on sustainability, environmental and social disclosure. In his thesis, Berger investigated and collected various CSR reports from the major 101 companies listed on the Swiss stock exchange.
Finance inspired an interest in the non-financial
Surprisingly, what sparked Berger’s interest in board diversity was his work as a finance and accounting lecturer. Due to his understanding of business finance, he became intrigued by the other side of the coin – how non-financial factors affect a business. He was interested in the difference between obligatory financial reporting and the current voluntary nature of CSR reporting.
“I always wanted to look at something non-financial because…[I noticed] there is a trend. Companies are more and more disclosing non-financial information [with the public]…with the emergence of the internet, some deregulations, etcetera. I see that society is more aware about what’s going on. So companies… need to anticipate potential issues they could have or they could face… such as risks to their reputation.”
“I wanted to see how the diversity of a board may have some influence on the level of disclosure that the company will report.”
There are positives and negatives to everything
Berger analyzed board diversity and the results were interesting:
“I found a positive relationship between gender diversity…[and CSR disclosure], between the number of women on a board and the level of sustainability disclosure.”
In addition, he found that there was more than one way to look at diversity and its perceived effects:
“Actually, instead of looking at diversity in one dimension, I could look at it in two. One, when we increase diversity…called diversity as variety – this gives a positive relationship with sustainability disclosure. Then when I look at the other dimension, which is called diversity as separation… that considers a certain number of variables to show the differences between cultures.”
“The more diverse you are, the better. Because it brings some additional resources to the board of directors. On the other hand, if you’re too diverse, it could possibly bring some conflict or a great difference in values that might make.. [decision-making in] a group more difficult.”
Big company? You’re a target
And it definitely pays to have a CSR policy in place.
“If we look at water… if you are, for example, an activist it might be more beneficial to target the famous companies. Then your cause is much more visible….in the past, people who’ve targeted Nestlé, even if Nestlé is not using too much water for their business (read more on that here)… the big newspapers, people will be talking about this… it’s much more difficult to go [criticize] the agricultural business when you don’t have major companies there.”
CSR isn’t the same for any country or any business
This is one of the great challenges to mandatory CSR reporting.
“Sustainability disclosure is very firm specific. it depends on different factors directly related to the firm…the history…the stakeholders…customers…employees. And based on this… you can have exactly two different activities in term of CSR but they might appear with different results in different firms just because they have a different history.”
Aspects of CSR are now becoming mandatory
In spite of this, Europe has introduced some mandatory facets of CSR into law:
“In Europe about one or two years ago, there was a new regulation regarding diversity. Particularly the number of women on the board. And this is something which will need to be implemented by European companies or non-European companies which have a certain level of business in Europe. Which means that all the big Swiss companies are de facto also involved in such regulations.”
Berger would like to leave aspiring PhD candidates with a word of advice:
“If you want to do a doctorate, do it just for yourself.”