Board and corporate social responsibility disclosure of multinational corporations

This paper aims to investigate the effects of board model and board independence on corporate social responsibility (CSR) disclosure of multinational corporations (MNCs).

The authors developed an empirical model in which CSR disclosure is the dependent variable and board model (two-tier vs one-tier), board independence (a proportion of independent directors on a board) and the interaction variable of board model and board independence together with several variables conventionally used as control variables are independent variables. The authors collated the panel dataset of 244 Fortune World’s Most Admired (FWMA) corporations from 2005 to 2011 of which 117 MNCs use the one-tier board model, and 127 MNCs use the two-tier board model from 20 countries. They used the random-effect regression method to estimate the empirical models with the data they collated and also ran regressions on the alternative models for robustness check.

The authors found a significantly positive effect of a board model on CSR disclosure by MNCs. Two-tier MNCs tend to reveal more CSR information than one-tier MNCs. The results also confirm the significant moderating impact of board model on the effect of board independence on CSR disclosure. The effect of board independence on CSR disclosure in the two-tier board MNCs tends to be higher than that in the one-tier board MNCs. The results do not support the effect of board independence on CSR disclosure in general for all types of firms (one-tier and two-tier board). The impact of board independence on CSR disclosure is only significant in two-tier board MNCs and insignificant in one-tier board MNCs.

The authors advise the MNCs who wish to improve CSR reporting and transparency to consider the usage of two-tier board model and use a higher number of outside directors on board. They note that once a firm uses one-tier model, number of IDs on a board does not matter to the level of CSR disclosure. They advise regulators to enforce an application of two-tier board model to improve CSR reporting and transparency in MNCs. The authors also recommend regulators to continue mandating publicly traded companies to include more external members on their boards, especially for the two-tier board MNCs.

This paper is the first that investigates the role of board model on CSR disclosure of MNCs.