Social network centrality and the corporate environment: The case of sexual diversity policies

Abstract

We study the external influence of social capital, measured by Facebook's (now Meta) Social Connectedness Index, on a firm's decision to adopt policies that promote a more diverse corporate environment. Recent studies find corporate policies that embrace sexual diversity are beneficial to firms and their stakeholders, thereby contributing to their corporate social responsibility (CSR) and business sustainability. We find that firms with a high social network centrality are more likely to adopt policies and business strategies that support sexual diversity. Moreover, firms that adopt good CSR practices are more likely to implement more inclusive policies such as sexual diversity policies. This provides for a more comfortable work environment for the LGBT+ community. However, we also find that firms reduce their adoption of inclusive policies during times of economic uncertainty, supporting the pessimistic view that firms decrease window dressing activities during economic downturns when governance is tightened, and resources are scarce. We attribute this phenomenon to the exploitation of agency benefits by managers.