A selection of interesting research and articles we found recently on corporate governance & CSR/environmental disclosure.

Motivations for initiating disclosure of environmental liability information
Jennifer Chen, Charles Cho and Dennis Patten examined potential motivations for late adopting US companies to begin disclosing environmental liability amounts in their financial statements. After reviewing 10-K reports filed from 1998 through to 2012, they identified 55 firms initiating environmental liability disclosure over the period, with all but three doing so by 2006. Focusing on the disclosers up through 2006, they argued that the companies may have used the disclosure as a tool for impression management to avoid potential stakeholder mis-estimation of previously undisclosed liability exposures.

They computed tests to identify firms that may have begun the disclosure due to (1) materiality and (2) concerns of having proprietary costs imposed upon them due to changes in their environmental media coverage and environmental performance, and found very few cases where these explanations might hold. For the remaining companies, comparisons of their newly disclosed liability amount, on average, with the mean level of environmental liability being disclosed by other firms in the year prior to the sample companies’ initiation, showed that it is significantly smaller, thus supporting the impression management argument. Finally, the overall level of environmental liability amounts consistently decreased over the time frame examined, suggesting that earlier adoption would have made more sense. However, it may also explain why almost no new firms began disclosing after the mid-2000s.

For further details, see: Jennifer C. Chen, Charles H. Cho and Dennis M. Patten. 2014. Initiating Disclosure of Environmental Liability Information: An Empirical Analysis of Firm Choice.
Journal of Business Ethics, 125(4), 681-692.


Voluntary adoption of corporate governance mechanisms improves environmental risk disclosures
Prior research suggests that voluntary environmental governance mechanisms serve to enhance a firm’s environmental legitimacy as opposed to being a driver of proactive environmental performance activities. Gary Peters and Andrea Romi  sought to understand how these mechanisms contribute to a firm’s environmental legitimacy by investigating whether environmental corporate governance characteristics are associated with voluntary environmental disclosure. They examined the disclosure of greenhouse gas (GHG) information, using it to represent proprietary non-financial information about the firm’s exposure to environmental concerns, and because it is related to the firm’s operations and future profitability. They expected that governance participants would view such information as a potentially important strategic device for informing stakeholders about environmental risks.

They found that the presence of an environmental committee and a Chief Sustainability Officer (CSO) was positively associated with the likelihood of GHG disclosure and that CSOs were associated with disclosure transparency. Further analysis revealed that the likelihood of disclosure is associated with committee size, number of committee meetings, expertise of committee members and CSO, and overlap between the environmental committee and audit committee. Only expertise of the environmental committee members and the CSO were associated with GHG disclosure transparency, while larger committees tended to be associated with lower transparency. These results are particularly important to those with interests in evaluating the potential role that corporate governance mechanisms play in responding to stakeholder concerns about environmental risks. Directors and officers who are considering appointment to similar governance positions, may wish to consider which attributes would make such governance positions more influential.

Gary Peters and Andrea Romi. 2014. Does the Voluntary Adoption of Corporate Governance Mechanisms Improve Environmental Risk Disclosures? Evidence from Greenhouse Gas Emission Accounting.
Journal of Business Ethics, 125(4), 637-666.


Boards of directors and CSR disclosure in US banks
Mohammad Issam Jizi, Aly Salama, Robert Dixon and Rebecca Stratling addressed the lack of research into the relationship between corporate governance and corporate social responsibility (CSR) in the banking sector. They examined the impact of corporate governance, with particular reference to the role of board of directors, on the quality of CSR disclosure in US listed banks’ annual reports after the US sub-prime mortgage crisis. Using a sample of large US commercial banks for the period 2009–2011 and controlling for audit committee characteristics, board meeting frequency, and banks’ profitability, size and risk, they found that board independence and board size, the two board characteristics usually associated with the protection of shareholder interests, are positively related to CSR disclosure.

This indicates that, with regard to CSR disclosure, more independent and larger boards are the internal corporate governance mechanisms that promote the interests of both shareholders and other stakeholders. Unexpectedly, CEO duality also impacted positively on CSR disclosure.

Read more details at: Mohammad Issam Jizi, Aly Salama, Robert Dixon and Rebecca Stratling. 2014. Corporate Governance and Corporate Social Responsibility Disclosure: Evidence from the US Banking Sector.
Journal of Business Ethics, 125(4), 601-615.


Increasing commitment to social responsibilities in Canadian firms
Due to the prevalent influence of legal trends in driving ethical homogenization and persistent decoupling between ethical substance and symbolism in today’s organizations, scholars are calling for a renewed interest in the structural makeup of ethical codes. This article explores the disclosure trends and examines the contents of codes of ethics in the context of Canadian publicly listed acquirers. Relying on the analysis of codes’ public availability, structure, purpose, and promoted values, four clusters of behavior are identified. Although many firms avoid public disclosure of their codes, the results indicate that code of ethics’ patterns in sample firms are not driven merely by regulatory forces, but are increasingly shaped by aspirations for building a sustainable values-based corporation.

The reported differences across clusters demonstrate that many companies in Canada overcome isomorphic pressures by displaying some originality in the writing of their codes. While symbolism in codes of ethics’ design and adoption prevails in publicly listed acquiring firms, the study provides evidence of an emerging trend of substantial commitment to social responsibilities.

Find out more by reading: Virginia Bodolica and Martin Spraggon. 2015. An Examination into the Disclosure, Structure, and Contents of Ethical Codes in Publicly Listed Acquiring Firms.
Journal of Business Ethics, 126(3), 459-472.