Good for managers, bad for shareholders? The effects of lone-insider boards on excessive corporate social responsibility

Abstract

The lone-insider board, in which the chief executive officer (CEO) is the only inside director, is now a prevalent board structure in the U.S. This study assesses the effect of this board structure on excessive corporate social responsibility (CSR). Using a sample of U.S. public firms during the period from 1996 to 2018, this study shows that lone-insider boards are significantly associated with excessive CSR, which suggests that such boards might not be able to effectively monitor CEOs’ CSR decisions. Further analyses show that this effect is more pronounced (1) when CEOs hold fewer shares in the firm and are about to retire, and (2) when the board size is large. The study also finds that firms with lone-insider boards have lower CSR valuations. Taken together, these findings show that lone-insider boards allow CEOs to over-engage in CSR for their own benefit at the expense of shareholders’ interests.