2.1. Resource Dependence Theory and Board-Related Hypotheses
Pfeffer and Salancik
) put forward that managers bring four benefits to organizations: provision of specific resources, such as knowledge and advice from people with expertise in various areas, access to information channels between external organizations and the organization itself, preferential access to resources and legitimacy.
Furthermore, they enable the provision of critical resources or the securing of these resources through the links established with the external environment (Hillman et al. 2000
; Pfeffer and Salancik 1978
). Resource dependency theory proponents view boards of directors as a means to manage external dependencies and integrate external organizations (Pfeffer and Salancik 1978
). These boards will enable the reduction of environmental uncertainty (Pfeffer 1972
) and transaction costs associated with environmental interdependence.
Managers bring a range of resources to boards, such as experience, different perspectives, links with other organizations, access to key constituents (e.g., suppliers, buyers, public policymakers, community), information, competencies, skills and legitimacy (Hillman et al. 2000
). In other words, through their experiences and personal characteristics, they provide the organization with links to the external environment, as well as knowledge and information. Such connections make it possible to reduce uncertainty, interdependence and transaction costs (Hillman et al. 2000
To be effective, a board of directors must provide resources to the organization, including legitimacy, advice, and connection with other organizations (Bear et al. 2010
). In this way, the board’s resources, which are based on the collective experience and expertise of its members, can assist the organization in managing business challenges and enable it to deal effectively with external organizations (Bear et al. 2010
; Pfeffer 1972
). A diversity of resources enables the organization to increase innovation through the development of alternative solutions (Bear et al. 2010
), and to increase external linkages. Establishing these connections can assist the organization in understanding and responding to its environment, providing advice, knowledge and links, thus promoting collaboration and cooperation with key stakeholders (Bear et al. 2010
). As such, this diversity of board resources encourages the adoption of socially responsible practices and addressing the business environment as it enables access to knowledge and advice from external organizations and enhances understanding and problem-solving (Bear et al. 2010
According to the resource dependence theory, the experience and connections established by boards facilitate access to external and critical resources that, consequently, drive the organization to join CSR initiatives (Haque and Jones 2020
). In other words, the resources obtained by boards enable better management of social responsibility issues as they help to understand and respond to their environment (Bear et al. 2010
The board of directors has as its main functions the approval and supervision of the implementation of the strategic objectives, the management system and the promotion of the culture of a bank (Birindelli et al. 2018
). A recent literature review of the impacts of ESG performance on aspects such as the cost of capital, financial performance and risk, suggests that “there have been and will be positive impacts from CSR and environmental management” (Saeed and Sroufe 2021, p. 15
). To explain this relationship, it is suggested that an entity that adopts more developed ESG practices has a competitive advantage in the long run, and these practices are defined by the board of directors. As such, for a board to be successful and competitive, it must then take into consideration ethical business issues and socially responsible activities (Birindelli et al. 2018
Due to the above, it can be considered that the size and composition of the board of directors, namely, the gender diversity and degree of independence, influence ESG performance, as it plays a key role in strategic decision-making, socially responsible behaviors (Bektur and Arzova 2022
) and the inclusion in strategies and business models of these ESG issues (Birindelli et al. 2018
According to resource dependency theory, a diverse and gender-balanced board consists of members with different knowledge, professional experiences, perceptions, and opinions that help banks address environmental challenges (Adams et al. 2015
; Shakil et al. 2020
) and increase a bank’s overall performance (Shakil et al. 2020
). A diversified board is more likely to improve ESG performance and disclose information about it (Lu and Wang 2021
). In addition, this theory considers that the integration of women on boards is something essential, as it enables banks to legitimately achieve ESG performance (García-Sánchez et al. 2018
; Shakil et al. 2020
Shakil et al.
) uphold that ESG performance is influenced by gender diversity. These researchers state that women’s interpersonal and intellectual characteristics lead to banks undertaking more CSR activities. Women are more aware of social and environmental issues and, therefore, encourage banks to adopt socially responsible activities (Birindelli et al. 2018
; Shakil et al. 2020
), making them more ethical and responsible (Birindelli et al. 2018
) due to their personal and professional traits. Women’s educational and professional background may influence them to be more involved in ESG issues than men (Bear et al. 2010
; Williams 2003
), and their psychological characteristics, such as concern for others and well-being, sensitivity, compassion, helpfulness and empathy, can lead them to adopt more socially responsible behaviors (Birindelli et al. 2018
; Zhang et al. 2013
The type of behavior adopted also differs between women and men. Generally, the female gender is characterized by facilitative and friendly behaviors, which are more oriented toward people and their well-being in social environments (Arayssi et al. 2020
; Manita et al. 2018
). In turn, males adopt assertive, independent, and problem-solving behaviors, being more likely to act in task-oriented environments (Arayssi et al. 2020
; Manita et al. 2018
Women and men present differences between each other in terms of values, beliefs, experiences, perspectives and ways of working, with women being more oriented toward ESG practices (Birindelli et al. 2018
; García-Sánchez et al. 2018
), as mentioned above. Thus, it is believed that female members are more likely to perform legitimate actions, which consequently increases banks’ environmental and social activities. Banks that have gender diversity in their boards are more prudent in dealing with socially responsible activities and adopt more legitimate ESG practices, which are in line with the sustainability goals they set (Shakil et al. 2020
Additionally, some studies show that the presence of women on the board of directors influences companies to be more innovative and creative in their decision-making processes, which impacts their business strategy (Torchia et al. 2011
). Consequently, female board participation makes companies more oriented towards ESG issues and finding innovative solutions that effectively address them (Bear et al. 2010
The proportion of women on the board is positively related to ESG performance.
Board independence ensures more effective board monitoring and enables the policies set by companies to meet stakeholders’ interests and expectations (Ortas et al. 2017
). Boards consisting of independent members are more aware of environmental issues and stakeholder interests than other members, so they encourage a greater practice of socially responsible activities (Harjoto and Jo 2011
There are differences between independent and non-independent boards. Dependent members focus and care more about economic aspects. More independent boards pay more attention to ESG factors (Ibrahim and Angelidis 1995
; Ibrahim et al. 2003
), they pay more attention to the social goals set by the company and therefore adopt and comply with socially responsible behavior (Ibrahim and Angelidis 1995
). This greater attention to ESG aspects can be explained by the fact that their reputation is put at stake (García-Meca et al. 2018
García-Sánchez et al.
) suggest that independent board members not only take into consideration the profit maximization objectives but also ESG objectives. These authors found evidence that there is a positive influence of these bodies on issues related to society, suggesting that they are more concerned about the environment and the interests of stakeholders. This allows banks’ actions to be legitimate, and there is a minimization of conflicts of interest. Due to such findings, the researchers concluded that board independence leads banks to adopt and define socially responsible activities.
Some theories explain the influence that board independence may have on ESG performance. Agency theory’s proponents view independent bodies as enabling a more effective oversight of board practices since they are not as involved in the company’s operations and are not as influenced by the Chief Executive Officer (CEO) and are then able to be more objective in their opinions about management performance and the activities adopted by the company (Jizi 2017
). In addition, this theory states that boards with a higher degree of independence perform their monitoring function better (Ahmed et al. 2006
; Cheng and Courtenay 2006
) and are more oriented towards socially responsible activities (Jizi et al. 2014
According to stakeholder theory, greater independence minimizes conflicts of interest and encourages the maximization of the company’s market value and greater transparency (Ahmed et al. 2006
; Cheng and Courtenay 2006
). In other words, boards that are composed of more independent members have a higher level of disclosure and facilitate socially responsible investments (Cheng and Courtenay 2006
Proponents of resource dependency theory encourage boards to consist of independent members, as they can contribute with their professional experience and possibly external links (Maxfield et al. 2018
). Jizi et al.
) note the associations between board independence, better stock returns, better operational performance, and a higher level of transparency.
Birindelli et al.
) and Lu and Wang
) showed that there is a negative relationship between board independence and ESG performance. However, there are also studies that have presented an opposite conclusion, i.e., they showed a positive relationship. Haque and Ntim
) found evidence of an increase in environmental performance when there is greater board independence. This is because independent members adopt offsetting policies related to ESG factors and due to their extensive knowledge and experience, which consequently influences the minimization of conflicts of interest among stakeholders and encourages managers to engage in environmental activities. In the same vein, Cucari et al.
) provide evidence that companies with a higher proportion of independent members influence ESG disclosure and performance, leading managers and investors to take CSR issues into consideration in their decision-making processes. For all the reasons presented, the following hypothesis is developed:
The percentage of independent board members is positively related to ESG performance.
The functions of the board of directors are executive oversight and risk monitoring, which may be influenced by the level of responsibility and workload assigned to them, and by their personal and professional skills. The effectiveness and efficiency of these functions are dependent on the size of the board of directors.
On the one hand, smaller boards are more efficient and effective in terms of monitoring and controlling executives (Ahmed et al. 2006
), commit to a higher level of accountability, and have more power to mitigate possible opportunistic behavior by managers (Birindelli et al. 2018
). These types of boards are more easily able to reach a consensus with stakeholders and, thus, protect their interests (Tapver 2019
). However, when they are entrusted with a greater workload and more responsibilities, they may not have the necessary skills to oversee all this work, i.e., the quality of oversight can be negatively affected (Jizi et al. 2014
), and they could exercise their oversight role less effectively (Beiner et al. 2004
). This may be because members belonging to these types of boards are poorly diversified in terms of education, professional experience and stakeholder representation (Birindelli et al. 2018
On the other hand, a larger board is more bureaucratic and has slower decision-making processes (Batae et al. 2021
). These boards are characterized by a greater variety in terms of stakeholder representation, so unlike smaller boards, they are more efficient when they have a higher workload and more responsibilities (Birindelli et al. 2018
). Larger boards are, thus, considered to consist of members with different skills, knowledge and views who have a strong orientation towards a culture of sustainability and engage in socially responsible activities that improve their ESG performance (Cheng and Courtenay 2006
; Jizi et al. 2014
; Tapver 2019
). Moreover, they perform their oversight and monitoring roles more effectively, stimulate comparison of strategic objectives, and influence managers to support and disclose non-financial performance (Birindelli et al. 2018
; Tapver 2019
Board size is positively related to ESG performance.
2.2. Social Trust and Country-Level Hypothesis
Chen and Wan
) argue that CSR behavior and the decisions managers make in firms are influenced by social trust, and that there are two approaches that explain this relationship: the social norms approach and the social networks approach. Both suggest that social trust can prevent managers from engaging in non-socially responsible activities and encourage them to adopt socially responsible behaviors.
According to the social norms approach, social trust is represented as a set of values, norms or beliefs that are shared within a society and that promotes cooperative actions among its members (Rousseau et al. 1998
). This perspective considers that there is a greater acceptance of local norms by individuals and firms (Chen and Wan 2020
). In countries with a higher level of social trust, the community has more respect for the values of honesty and reliability; consequently, this has an impact on the decisions made by managers, as they will incorporate these values into their personal characteristics (Guiso et al. 2006
). In turn, this honesty and trustworthiness lead managers to take into greater consideration the stakeholders’ interests and to give more importance to the relationship they establish with them, thus allowing companies to adopt and comply with socially responsible activities, such as investing in ventures that promote public welfare and environmental protection (Chen and Wan 2020
). Therefore, managers belonging to these types of countries commit more to ESG factors and adopt socially responsible behaviors because they are pressured to incorporate these social standards into their personal codes of conduct and to avoid possible social sanctions (Chen and Wan 2020
; Kanagaretnam et al. 2019
). In addition, these managers tend to repay the trust that society has placed in them and to be more sensitive to issues related to fairness and maintaining social connections (Kanagaretnam et al. 2018b
The higher social trust impacts the expectations that stakeholders have about the companies; that is, stakeholders believe that a higher level of social trust encourages companies to be socially responsible (Chen and Wan 2020
). Social trust also allows disciplining managers, i.e., influences them to adopt more ethical and responsible behaviors, ensuring that the company has legitimacy and can survive in society (Chen and Wan 2020
). Social responsibility also encompasses the social expectations of moral behavior (Carroll 2000
; Hill et al. 2007
), which influences companies to engage in activities that make the world better. Thus, more expectations are created for companies to be socially and morally responsible when they are located in countries with high levels of social trust. Therefore, it is possible to state that companies act in a socially responsible way when pressured and confronted by these social norms, which allows them to obtain a better ESG performance (Chen et al. 2021
The social network approach suggests that social trust corresponds to the set of social networks through which individuals are able to obtain benefits (Payne et al. 2011
). In countries with high levels of social trust, social networks are built in which stakeholders have the incentive to interact and cooperate with each other since, in this way, they can achieve win–win outcomes (Chen and Wan 2020
). Social responsibility enables companies to improve their strategic position and achieve strategic resources such as reputation and better financial performance (Chen and Wan 2020
). Therefore, companies located in countries with a higher level of social trust (i.e., where there are greater social networks) adopt socially responsible and thus achieve higher returns, which drives them to commit to more social responsibilities (Chen and Wan 2020
). On the other hand, in countries with low levels of social trust where there are not so many social networks established, the returns obtained are lower, consequently encouraging these companies not to engage in socially responsible activities (Chen and Wan 2020
Companies are able to establish closer relationships with their stakeholders when located in countries with high levels of social trust (Hosmer 1995
). Thus, companies that behave in a socially responsible way can obtain greater returns from stakeholders, such as lower capital costs, a higher reputation, greater customer loyalty and greater commitment from their employees, which has the effect of increasing their future benefits (Chen et al. 2021
Chen and Wan
) and Chen et al.
) argue that social trust has a positive and significant influence on ESG performance. This idea complements what was previously mentioned, i.e., social trust allows managers to protect stakeholders’ interests and encourages both managers and stakeholders to carry out socially responsible activities. Thus, companies located in countries with a higher level of social trust are considered to have better ESG performance (Chen and Wan 2020
; Kanagaretnam et al. 2019
The discussion above leads us to put forward the following hypothesis is formulated:
Country-level social trust is positively related to ESG performance.