Board co-option and employee welfare

Abstract

Purpose The purpose of this paper is to investigate the relationship between corporate board co-option and employee welfare practices.Design/methodology/approachThe authors employ several analysis techniques including univariate analysis, OLS regressions, Poisson regressions, and propensity score matching methodology. The sample consists of US public firms for the period of 1996–2017. The variables of interest are the employee welfare index (EWI) proposed by Ghaly et al. (2015) and the co-option ratio proposed by Coles et al. (2014).FindingsThe authors find that firms with a higher fraction of co-opted directors on their boards are less committed to the firms' employee well-being. The empirical results support the argument that the interests of co-opted directors are more closely aligned with the interests of the CEO who had an influence on selecting them to the board, which compromises their monitoring role.Originality/valueThis paper contributes in several ways to the literature on corporate governance and corporate social responsibility (CSR) by linking board co-option to employee welfare. By focusing on board co-option to explain the degree of firms' involvement in employee welfare, which is one of the crucial components of CSR performance, the authors provide pinpointed and detailed findings on a timely issue of CSR.

Are co‐opted boards socially responsible?

“…This commitment, however, does not firmly stand during economic hardship. Nevertheless, Nishikawa et al (2022) put Kyaw et al's (2021) findings back into the debate by demonstrating the detrimental impact of board co-option on employee welfare in the United States. Recent studies further address the darker side of board co-option by showing that it exposes firms to higher climate change risk (Ghafoor et al, 2023), increases the likelihood of default (Baghdadi et al, 2020), and more corporate misconduct (Zaman et al, 2021).…”

“…Given that ESG is becoming an indispensable part of a business's strategy, it is beneficial to broaden our understanding of the connection between co-opted boards and ESG practice. Previously published studies generally converge on the unfavorable effect of board co-option on various corporate financial facets (e.g., Cassell et al, 2018;Lim et al, 2020;Nishikawa et al, 2022;Zaman et al, 2021). The topic of ESG and board co-option, however, is underresearched.…”

“…Second, we adopt the theoretical models by Becker (1968) and Dyck et al (2008) to explain corporate behavior under the presence of a co‐opted board. Previous empirical studies in the board co‐option literature suggest mixed findings on how board co‐option affects employee treatments (Kyaw et al, 2021; Nishikawa et al, 2022), agency problems (Withisuphakorn & Jiraporn, 2017; Zaman et al, 2021), firm climate change risk (Ghafoor et al, 2023; Gull et al, 2023). The inconsistency may be partly due to the lack of a strong theoretical foundation to explain corporate behavior under the presence of a co‐opted board.…”

Guest editorial: Historical perspectives on corporate governance debate and introduction to the special issue on corporate governance and sustainability

“…The next set of papers adds to the corporate governance strand of the finance literature. Nishikawa et al (2022) build on the corporate social responsibility literature to analyze the link between corporate board co-option and employee welfare. They show a significant negative impact of having a high percentage of co-opted directors on employee welfare, resulting in lower CSR performance and possibly adverse effects on financial performance.…”

“…The next set of papers adds to the corporate governance strand of the finance literature. Nishikawa et al. (2022) build on the corporate social responsibility literature to analyze the link between corporate board co-option and employee welfare.…”