Do Gen X Directors Have Implement Different CSR
Performance? A Case of ESG Leader Companies in Indonesia
Rahassanti Recta Regitya1*, Yunieta Anny Nainggolan1
1 School of Business and Management, Bandung Institute of Technology, Bandung, Indonesia
*Corresponding Author: [email protected] Accepted: 15 August 2022 | Published: 1 September 2022
DOI:https://doi.org/10.55057/ajrbm.2022.4.3.9
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Abstract: In 2020, Indonesian government started to encourage all Indonesian companies to implement the ESG (Environment, Social, Governance) principles. To make such a responsible decision, companies started to take their attention on their board of directors’ compositions, one of which is the generational differences. Generation X directors have been found that they have better concentration on the ESG consciousness. However, there is no literature that analyzing the contribution of Gen X directors’ differences on the Corporate Social Responsibility (CSR) performance of an ESGL listed companies and others. In this study, the author will observe four kinds of CSR performance measurements by adopting some variables:
number of Gen X directors, company classification, board size, company’s profitability and financial leverage, director’s gender, and the CEO duality. The data used is a cross sectional data that the author took from 2021 documents. By using a multiple linear regression analysis, the author found that the contribution of Gen X directors on ESGL listed companies will have a significant effect on the company’s CSR performance in terms of their ESG ratings and their CSR standardization (ISO26000).
Keywords: Corporate governance, corporate social responsibility performance, generational differences, Generation X
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1. Introduction
Republic of Indonesia make several regulations and commitment to save its citizen rights to live in a healthy country. Based on Article 33 paragraph (4) of the UUD Negara Republik Indonesia 1945, it is necessary to give more attention to the environment within the usage of the national economy. Changes in institutional policies have reshaped the landscape for business competition and incorporated these environmental issues into corporate strategic objectives (Tricker, 2009). The company's activity that has a close relationship with this is corporate governance. Based on several previous studies, corporate governance activity has a positive and significant influence on the implementation of environmental policies (Walls, et al., 2012). In Indonesia itself, it already implements the ESG principles since 2020 as the Indonesian Stock Exchange (IDX) released their new stock indexes that are related to the ESG activities in each company. The new index is called as IDX ESG Leaders and it consist of 30 companies that have an excellent ESG performance (Saleh, 2020).
The connection between company’s governance and company’s financial performance has been the main focus of some of the previous research, because it was the main interest of company’s stakeholders (Paniagua-Dominguez, et al., 2018). However, environmental issues
and social supportability has been raised as an important case by both shareholders and partners lately (Galbreath, 2013). In addition, one of the boards of director’s duties is to align company’s attitudes towards sustainable improvement forms with all of the stakeholders’ pressures (Jo &
Harjoto, 2011), hence, the diversity of company’s board of directors’ composition plays an important role in deciding socially capable behaviours and critical decisions towards environmental issues (Cuadrado-Ballesteros, et al., 2017).
Research conducted by previous researchers has examined the relationship between the board of directors' composition and corporate performance, focusing on the individual composition of the directors, such as age, gender, outsider and insider directors, educational background, ethnicity, etc. (Ferreira, 2010). Age has been known for its ability to explains a wide range of individuals’ ethical judgment. However, based on the theory argued by Neil Howe and William Strauss, they hypothesize that “As a social category, an era or generation more likely to offers a secure premise for identity generalization than such other social categories as sex, race, locale, or age” (Howe & Strauss, 1991). ZhaoZhao, Mihail, and Viktoriya (2020) also stated that generational differences could be one of the potential drivers of a company’s directors to affect company execution. Based on their research result, they found that a Generation X director in a company can influence to increasing the value of the ESG activities because Generation X directors have a better concentration on ESG consciousness. The characteristics of Gen Xers that have high problem-solving skills and have an innovative way of thinking, could actually help them to make a successful decision in dealing with ESG problems.
In this study, the author will be focused on examining the Gen X directors, because based on several studies, Gen X directors has been proven that they give a positive impact on the CSR performance. However, none of those studies are analyzing Indonesian companies, especially the ESGL listed companies. When in fact, the implementation of ESG principles in Indonesia is very controversial because Indonesia has been known for high environmental issues and many of the companies are still lack in conducting a good ESG principles. Furthermore, Gen X directors in Indonesia today is dominating the board room. Therefore, the author of this study is interested to analyzing the influence of those Gen X directors on the corporate’s performance in terms of its Corporate Social Responsibility activities that have a direct impact on its environment surrounding the corporate’s business and to see the differences between those companies with other companies that are not included as IDX ESG Leaders companies.
2. Literature Review
The term Corporate Governance has become a topic of discussion in the business world. The phenomenon of the development of issues related to corporate governance has also attracted the attention of many researchers to know and analyze it better (Solomon, 2013). The definition of corporate governance is a system that runs inside of the company and it incorporates processes, arrangements, and individuals that serve the necessities of shareholders and other stakeholders by coordinating and managing the company’s activities with a great business objectivity and judgment (O’Donovan, 2003). In addition, corporate governance has a very important role for the sustainability of a company's business, because by implementing good corporate governance, the image and performance of the company will be good too.
Today’s market situation that has been globalized, makes many companies face complex and diverse challenges caused by this globalization and also because of stakeholder interactions that come together. This causes corporate social responsibility to be very important to face the various challenges of globalization (O¨ berseder, et al., 2011). According to the father of
Corporate Social Responsibility, which is Howard Bowen, stated that the meaning of CSR is a commitment made by a business owner to seek after those rules and policies, to form a decision, or take after those collection of activities which are aligned with the business goals and the value of the society around the business (Bowen, 1953). CSR is one of the company's activities, policies or rules, that relates to their welfare of stakeholder parties, such as employees, community, and even the environment. It is essential for a company to conduct a good CSR activity. Therefore, a company not only focusing on gaining profit, but also responsible for its surrounding or stakeholders.
The role of a board of directors in the company has a very large influence on the company's activities in order to further develop the company's performance and its economy (Roman &
Persida, 2012). The differences that exist in a company's board of directors can bring some interesting and useful differences, such as differences in obtaining information, differences in social categories, different values, or a combination of these differences (Jehn, et al., 1999). A literature has conducted research on the topic of the impact of the board's structure on CSR performance in China, from these results it can be seen that there is a positive relationship between CSR performance and the composition of the company's board of directors, and the researchers also found that the more diverse a board of director is, it will result in higher CSR performance (Lau, et al., 2016).
Currently, there are various generations that exist, including Baby Boomers, Gen X, Gen Y or Millennials, and Gen Z. Each generation has its own characteristics consisting of personality, values or norms, and also beliefs (Beverly, 2021). Based on one of the research results, the idea of the word generation shows the identity of a group that has similar experiences and with the formation of these experiences can have an impact on the social conditions and activities of the group (Mannheim, 1952). ZhaoZhao, Mihail, and Viktoriya (2020), they have found that the presence of Gen Xers on a company's board of directors has a positive and significant relationship with corporate performance. Characteristics of Gen X who have a high level of problem-solving skills, innovative thinking, and have a survivalist personality (Howe &
Strauss, 2007), could be the reason why Gen Xers can have a positive impact on the performance of companies, especially through their commitment to CSR (ZhaoZhao, et al., 2020). In addition, based on the argument stated by previous researcher, they found that a company with an excellent ESG reporting and rating, tends to lead to a better CSR performance and increase the company’s reputation. It is because most of the stakeholders and shareholders of the company are more likely to be engaged and interested in a company that actually present an excellent sustainable strategy (Clarkson, et al., 2008). Based on those arguments, this study hypothesized that:
H1: There is a significant relationship between Gen X directors’ contribution and Corporate Social Responsibility performance of Indonesian ESGL listed companies.
3. Methodology
The population for this study will consist of 30 ESGL listed firms and 30 non-ESGL listed firms that are included in the IDX (Indonesia Stock Exchange), with the total sample for this research study is 60 companies. The 30 non-ESGL companies that will be analyzed are the companies that have the same industry sector or age of the company or the company’s size with the 30 ESGL listed companies, therefore it will be compared head-to-head.
To analyze this research, the author will use CSR performance as the dependent variable, the total Gen X directors and company classification as independent variables, and board size, company’s profitability, financial leverage, director’s gender, and the CEO duality as the control variables. The measurements for the dependent variable, the author will use four kinds of measurements that consists of ESG ratings (Giovanni & Mauro, 2018), GRI measurement (Frank, et al., 2018), CSR standardization (ISO26000) (Widjaja, 2014), and CSR expense disclosures (CSR Economic, Social, and Environment) (Nainggolan, et al., 2017). Specifically for the CSR expenses disclosure, in this research the measurement for CSR expenses will be divided into two, which are the completeness check of the CSR expenses disclosure and the total number of CSR expenses that the company disclosed. This research will be using a cross- sectional data that obtained from the corporate’s documents in 2021, such as the company’s annual report and sustainability report. But for the ESG ratings, it will be obtained from a website that provide ESG ratings. Those data will be analyzed by using a multiple linear regression analysis through SPSS. To test the relationship between Generation X directors on CSR performance with multiple linear regression analysis, it should be tested with a regression model to ease the analysis calculation. The following model is similar with one of the research projects (Trihermanto & Nainggolan, 2019) and used to run the regression analysis of Generation X directors on overall CSR performance.
- CSRP1 = α + β1 x TDirX + β2 x BodSize + β3 x ProF + β4 x FinLev +β5 x D-Gender + β6 x D-CEODuo + ε
- CSRP2 = α + β1 x TDirX + β2 x BodSize + β3 x ProF + β4 x FinLev +β5 x D-Gender + β6 x D-CEODuo + ε
- CSRP3 = α + β1 x TDirX + β2 x BodSize + β3 x ProF + β4 x FinLev +β5 x D-Gender + β6 x D-CEODuo + ε
- CSRP4a = α + β1 x TDirX + β2 x BodSize + β3 x ProF + β4 x FinLev +β5 x D- Gender + β6 x D-CEODuo + ε
- CSRP4b = α + β1 x TDirX + β2 x BodSize + β3 x ProF + β4 x FinLev +β5 x D- Gender + β6 x D-CEODuo + ε
Where,
α = Intercept or Constanta
β1 – β6 = Coefficient associated with independent variable
CSRP1 = Corporate Social Responsibility Performance 1 (ESG Ratings) CSRP2 = Corporate Social Responsibility Performance 2 (GRI Measurement) CSRP3 = Corporate Social Responsibility Performance 3 (CSR Standardization) CSRP4a = Corporate Social Responsibility Performance 4a (D-CSR Expenses Completeness)
CSRP4b = Corporate Social Responsibility Performance 4b (T-CSR Expenses Total Disclosure)
TDirX = Total Gen X directors BodSize = Board of director’s size
ProF = Profitability = ROA (Net Income / Total Asset)
FinLev = Financial Leverage = DAR (Total Debt / Total Asset) D-Gender = Dummy gender, 1 = female, 0 = male
D-CEODuo = Dummy CEO Duality, 1 = CEO is chairman of the board, 0 = CEO is not chairman of the board
ε= Error term
4. Research Findings and Analysis
Table 1 represent the Multiple Linear Regression (MLR) analysis result. From that table, it can be seen the coefficient of each independent and control variables of all CSR performance measurements along with its significancy score. There is also the F-stat and the R-square score of each independent and control variable.
Table 1: MLR Analysis Result
ESG Rating GRI Measurement
CSR
Standardization D-CSR Expense T-CSR Expense
CSRP1 CSRP2 CSRP3 CSRP4a CSRP4b
Coeff. Sig. Coeff. Sig. Coeff. Sig. Coeff. Sig. Coeff. Sig.
T-Dir-X 4,702 0,14 1,217 0,043 0,076 0,083 0,001 0,977 -0,016 0,886 D-ESGL 9,681 0,47 6,309 0,053 0,058 0,806 -0,262 0,3 -0,315 0,601 T-Dir-
X*D-
ESGL -2,822 0,375 -1.376 0,41 0,019 0,697 0,085 0,104 0,074 0,549 BodSize 1,185 0,395 -0,396 0,372 0,005 0,876 -0,015 0,671 0,062 0,454 ProF 14,574 0,726 13,962 0,15 -0,379 0,591 -0,396 0,6 0,517 0,774 FinLev 33,627 0,03 3,107 0,447 -0,158 0,598 0,063 0,843 0,246 0,748 D-Gender 2,735 0,707 -0,249 0,893 -0,218 0,112 -0,067 0,645 0,144 0,678 D-
CEODuo 12,678 0,198 -1,633 0,615 0,246 0,305 -0,291 0,255 -0,879 0,153 Intercept 9,335 0,464 12,347 <0,001 0,047 0,815 0,318 0,147 1,15 0,03
No. Obs 39 39 60 60 60 60 60 60 60 60
F-stat 5,132 <0,001 1,022 0,432 2,047 0,059 1,006 0,443 1,029 0,427
R-sqr 0,578 0,138 0,243 0,136 0,139
4.1. CSR Performance 1 (ESG Ratings)
Based on Table 1, it shows that the F-stat for CSRP1 is below 0,05. It means that if the independent and control variables are working simultaneously not partially, then it will significantly affect the CSRP1 and the author can accept H1. As for the positive or negative effect of the relationship, it will have a positive relationship if the T-Dir-X and D-ESGL works separately and if they interact then the result will be negative. Therefore, the author can conclude that total amount of Gen X directors in ESGL listed companies will give a negative relationship output. However, the total amount of the Gen X directors itself will contribute positively but insignificant on CSRP1 (ESG Ratings). Therefore, the author can conclude that the regression data give a significant effect on the CSRP1 if all of the variables are working simultaneously. It also can be seen that the R Square is 0.578, meaning that the significant effects of the total amount of Gen X directors on ESGL listed companies on the CSRP1 (ESG ratings) is as much as 57.8%.
4.2. CSR Performance 2 (GRI Measurement)
Based on Table 1, it shows that the F-stat for CSRP2 is above 0.05. It means that if the independent and control variables are working simultaneously not partially, then it will not significantly affect the CSRP2 and the author can reject H1. As for the positive or negative effect of the relationship, it will have a positive relationship if the T-Dir-X and D-ESGL works separately and if they interact then the result will be negative. Therefore, the author can conclude that total amount of Gen X directors in ESGL listed companies will give a negative relationship output. However, the total amount of the Gen X directors (T-Dir-X) and the company’s classification (D-ESGL) partially will contribute positively and significantly on CSRP2 (GRI Measurement). It also can be seen that the R Square is 0.138,
meaning that the significant effects of the total amount of Gen X directors on ESGL listed companies on the CSRP2 (GRI measurement) is as much as 13.8%.
4.3. CSR Performance 3 (CSR Standardization)
Based on Table 1, it shows that the F-stat for CSRP3 is slightly above 0.05, which is 0.059.
Because the significancy score of the F-stat is close to 0.05, then it will be considered as significant. Therefore, when the independent and control variables are working simultaneously not partially, then it will significantly affect the CSRP3 and the author can accept H1. As for the positive or negative effect of the relationship, it will have a positive relationship if the T-Dir-X and D-ESGL works interactively and also partially. Therefore, the author can conclude that total amount of Gen X directors in ESGL listed companies will give a positive relationship output on CSRP3. However, there is no independent and control variables that has significant impact on CSRP3, including the total amount of Gen X directors and the company’s classification. It also can be seen that the R Square is 0.243, meaning that the significant effects of the total amount of Gen X directors on ESGL listed companies on the CSRP3 (CSR standardization) is as much as 24.3%.
4.4. CSR Performance 4 (CSR Expenses) 4.4.1. CSR Expenses 1 (CSRP4a)
Based on Table 1, it shows that the F-stat for CSRP4a is above 0.05. It means that if the independent and control variables are working simultaneously not partially, then it will not significantly affect the CSRP4a and the author can reject H1. As for the positive or negative effect of the relationship, it will have a positive relationship if the T-Dir-X and D-ESGL works interactively. However, the company’s classification (D- ESGL) itself will contribute negatively on CSRP4a and there are no independent and control variables that has significant impact on CSRP4a, including the total amount of Gen X directors and the company’s classification. It also can be seen that the R Square is 0.136, meaning that the significant effects of the total amount of Gen X directors on ESGL listed companies on the CSRP4a is as much as 13.6%.
4.4.2. CSR Expenses 2 (CSRP4b)
Based on Table 1, it shows that the F-stat for CSRP4b is above 0.05. It means that if the independent and control variables are working simultaneously not partially, then it will not significantly affect the CSRP4b and the author can reject H1. As for the positive or negative effect of the relationship, it will have a positive relationship if the T-Dir-X and D-ESGL works interactively. However, if those two variables are being separated or they work separately, it will contribute negatively on CSRP4b and there are no independent and control variables that has significant impact on CSRP4b, including the total amount of Gen X directors and the company’s classification. It also can be seen that the R Square is 0.139, meaning that the significant effects of the total amount of Gen X directors on ESGL listed companies on the CSRP4b is as much as 13.9%.
5. Conclusion
Based on the data analysis result of 5 different CSR performance measurements, the author can conclude that there are only two CSR performance measurements that actually can significantly affected by the total amount of Gen X directors in the company. Those measurements are coming from the ESG ratings with 39 samples and the CSR standardization (ISO26000) with 60 samples. As for the CSR standardization result, there will be a significant relationship if the
analysis is using the total amount of Gen X directors (T-Dir-X). As for the positive or negative relationship of all CSR performance measurements, the author can conclude that when the Gen X directors are working in an ESGL listed companies, they can actually affect some of the CSR performance. Those CSR performance are based on the CSR standardization (ISO26000) and CSR expenses disclosures. But, overall, the Gen X directors’ contribution (partially) is positively affecting almost all of the CSR performance. This result is aligned with the previous study that mentioned about the generational diversity is positively and significantly affects the ESG or CSR performance of a company, although they did not specifically mention which generation have the highest contribution (Ferrero-Ferrero, et al., 2013).
Therefore, the author can conclude that the contribution of Gen X directors in this case will significantly affects CSR performance, but not every CSR performance aspect could be affected by Gen X directors’ contributions. This result is aligned with previous study that found the number of Generation X directors is positively and significantly affects the firm performance and they can enhance the CSR investments (ZhaoZhao, et al., 2020). The characteristics of Gen X directors that have been known as an innovative thinker and an independent person also supporting the fact that they can actually affect CSR performance.
However, because of their independency that makes them impatient and have a bad communication skill (Mecca, 2010) could be the reason why Gen X directors unable to affects CSR performance in every aspect.
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