Entrenchment vs long-term benefits: classified boards and CSR

Abstract

PurposeAlthough most corporate directors face reelection by shareholders each year, directors of companies with classified boards are elected for multiple-year terms. Classified boards may engender managerial entrenchment, which may make directors less responsive to shareholders’ interest in corporate social responsibility (CSR). Alternatively, classified boards may engender a longer-term focus, which could make the board more willing to engage in projects with longer-term benefits, such as CSR. This study aims to assess whether larger boards, with potentially more diverse voices, may be positively related to CSR, and a larger board may change the classified boards/CSR relationship.Design/method/approachThe authors examine the relationship between board type (companies with and without classified boards), board size and CSR for 4,489 firm-years (1,540 with classified boards and 2,949 without classified boards) from 2013 through 2015.FindingsThe authors find no difference in CSR strengths between companies with and without classified boards, but the authors do find that companies with classified boards have more CSR concerns than companies without classified boards. For all types of boards, a larger board size is associated with more CSR strengths and reduces the negative impact of having a classified board on CSR concerns.Practical implicationsClassified boards may be less responsive to shareholders’ preference for reduced company CSR concerns, but an increase in board size can mitigate this effect.Social implicationsClassified boards may weaken a company’s CSR performance.Originality/valueThis is the first paper to consider the relationship between classified board and CSR.