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: Corporate Governance and Corporate Sustainability: A Theoretical Study of Chinese Family Businesses
ABSTRACT
The purpose of the paper is to discuss the relationship among corporate governance by board structure (CEO and chair of boards of director duality, committee meetings, committee numbers, gender, education level of board members, independent directors) and the disclosure of corporate sustainability with public Chinese family business which majority share is owned by family or family members.
First this paper reviews the current and previous researches in this field. Considering the characteristics of Chinese environment and Chinese family business (CFB), some propositions are presented about the relationship among corporate governance, corporate sustainability and family control.
We expect to show that corporate governance does matter with corporate sustainability in Chinese family business. The effects of corporate governance are positively related to corporate sustainability. The family control moderates the relationship between the corporate governance and corporate sustainability. At the end of paper we also discuss the limitations and further studies in the future.
Key words: Corporate Governance, Corporate Sustainability, Chinese Family Businesses
INTRODUCTION
While our previous paper investigated the relationship between corporate governance and firm performance focusing on financial aspect in Chinese firms. This paper extended the study to investigate the relationship between corporate governance and corporate sustainability. Corporate sustainability expands the measurement of firm performances which not only include financial performance but also include social responsibility, environmental policy, ethics behaviors, employee policy, etc. Also we considering the fact that many firms in China are controlled by families and these firms have quite different motivation structure from state-owned or public-owned firms, we examine whether the effects of corporate governance on corporate sustainability vary with firm ownership structures.
Our main purpose of this paper is to find if there is any difference between the effects of the corporate governance on corporate sustainability in Chinese family businesses compared with general public firms. We also focus on how family control for example family ownership or family management can moderators this relationship. This study makes two contributions to the literature. First, though there are growing number of research has examined links between corporate governance especially the board of directors and corporate governance ADDIN EN.CITE ADDIN EN.CITE.DATA ( HYPERLINK \l "_ENREF_1" \o "Aguilera, 2006 #12" Aguilera, Williams, Conley, & Rupp, 2006; HYPERLINK \l "_ENREF_19" \o "Jamali, 2008 #54" Jamali, Safieddine, & Rabbath, 2008; HYPERLINK \l "_ENREF_25" \o "Porter, 2007 #52" Porter & Reinhardt, 2007). This type of research is very limited in emerging economies, where firms has begun to shift from their focus solely on financial performance to a board performance measurement including corporate sustainability. Second, family businesses play an important role in emerging economies such as China, good corporate governance especial good designed of board of director can enhance effective monitoring of firm agents, demonstrate more effective enforcement of the ethical standard and maintain good stakeholder relationships, all of these benefits from board of directors are predict to improve corporate sustainability. However, family control might limit the function of board of directors to improve corporate sustainability. For example, the power of founder or powerful control from family. We developed some propositions within the environment of Chinese family businesses.
In this paper we examine the role of board of directors as a corporate governance mechanism plays in the influence of corporate sustainability in Chinese family businesses. First we collected the information about the board of directors of Chinese family business. Then, we analyze the relationship between board of directors and corporate sustainability in Chinese family businesses: (1) how different characteristics of board of director influence different dimensions of corporate sustainability behaviors (2) how family ownership moderate this relationship.
We hope to find evidence to support our propositions that good corporate governance improve corporate sustainability in Chinese family businesses in general and in different dimension of corporate sustainability. Specifically, in firms with lower family ownership, corporate governance improve corporate sustainability further. In summary, corporate governance in Chinese family businesses plays a positive role in corporate sustainability especially in the firms with lower family ownership structure.
LITERATURE REVIEW
Corporate Governance
Jensen and Meckling ADDIN EN.CITE Jensen197623(1976)232317Jensen, Michael C.Meckling, William H.Theory of the firm: Managerial behavior, agency costs and ownership structureJournal of financial economicsJournal of financial economics305-3603419760304-405X( HYPERLINK \l "_ENREF_20" \o "Jensen, 1976 #23" 1976) argued that the purpose of corporate governance is to improve firms performance and maximize shareholders value by monitoring the actions of management when agency risks are introduced with the separation of ownership from shareholders to management. Corporate governance is the way how companies are governed and who managers are accountable to ADDIN EN.CITE Dahya199624(Dahya, Lonie, & Power, 1996)242417Dahya, J.Lonie, A. A.Power, D. M.The case for separating the roles of chairman and CEO: An analysis of stock market and accounting dataCorporate Governance: An International ReviewCorporate Governance: An International Review71-774219961467-8683( HYPERLINK \l "_ENREF_11" \o "Dahya, 1996 #24" Dahya, Lonie, & Power, 1996). In this paper we defined corporate governance as a system of procedures, practices, policies, mechanisms and institutions to direct and control the corporation ADDIN EN.CITE Xu201518(Xu & Chen, 2015)18185Xu,WeichuChen,ChaolinFrederick WherryCorporate GovernanceSAGE Reference: Encyclopedia of Economics and Society2015Thousand Oaks, CASAGE Reference( HYPERLINK \l "_ENREF_35" \o "Xu, 2015 #18" Xu & Chen, 2015). There are two different views about corporate governance: a narrow view of corporate governance and a broad view of corporate governance. The narrow view of corporate governance refers to an institutional arrangement to define and configure the rights and responsibilities between the shareholders and management to ensure the maximization of shareholders' value. The broad view of corporate governance refers to a broad set of governance structure specifies the distribution of rights and responsibilities among different stakeholders in the corporation including the board of directors, management, shareholders, creditors, auditors, regulators, suppliers, customers, communities, and other stakeholders.
There are five main principles in corporate governance: corporations should respect the rights of shareholder and have an equitable treatment of shareholders; corporations should recognize the interests of other non-shareholder stakeholders; the board of directors need to fulfill certain roles and responsibilities; Corporate officers and board members should be integrity and follow certain ethical behaviors; Corporation should disclose accurate and timely information and safeguard the integrity of the financial report.
Corporate governance consists of internal monitoring mechanisms and external monitoring mechanisms. Internal monitoring mechanism can be done by large shareholders, management or board of directors. External monitoring mechanism can be achieved by independent external participants such as auditor, creditors, regulatory bodies, market analysts, media and public activists. Internal corporate governance mechanisms include monitoring by the board of directors, monitoring by large or institutional shareholders, internal control procedures, rewarding & incentive system and financial reporting system.
There are three main corporate governance systems with different combination of internal and external corporate governance mechanisms in the world. The Anglo-American system exists in US and UK which focuses on the shareholders interest. The Continental Europe system exists in most of European countries such as Germany, Netherland and Japan with focusing on multi-stakeholders interest. The family governance system exists in some Asian countries such as China, Korea, Malaysia with focusing on familys interest.
Family governance system consists of major business owners from family members, major management from family members, centralized decision making in family, alignment of shareholders and family interest, weak external oversights, relationships with government.
Corporate sustainability
World Commission on Economic Development ADDIN EN.CITE WCED198719(WCED, 1987)191927WCED,Oxford University PressOur common future431987Oxford( HYPERLINK \l "_ENREF_33" \o "WCED, 1987 #19" WCED, 1987) defined that sustainability is to meet the present needs without compromising the needs for future generations. Ackerman (1975) was the first to recognize the need to use a new accountability not only include financial results but also a board social responsibilities. This leads to a shift towards the greater accountability of companies to other stakeholders beside shareholders. These other stakeholders have not just an interest in the activities of the firm but also a degree of influence over the shaping of those activities. Gray, Owen, & Maunders ADDIN EN.CITE Gray198726(1987)26266Gray, RobOwen, DaveMaunders, KeithCorporate social reporting: Accounting and accountability1987Prentice-Hall International0131754564( HYPERLINK \l "_ENREF_15" \o "Gray, 1987 #26" 1987) challenged the traditional role of accounting in financial statement should expand to include a wide stakeholder community. Gray, Owen, & Dams ADDIN EN.CITE Gray199625(1996)252517Gray, R.Owen, D.Dams, C.Accounting and Accountability: Changes and Challenges in Corporate Social and Environmental Reporting (Prenctice Hall Europe, Hemel Hempstead)1996( HYPERLINK \l "_ENREF_14" \o "Gray, 1996 #25" 1996) further developed of this concept led to corporate social responsibility. This led to a broad definition of sustainability which concerned with the effect about how action taken in the present can impact on the actions available in the future development ADDIN EN.CITE Crowther200227(Crowther, 2002)272717Crowther, DaviDA social critique of corporate reportingAldershot: AshgatesAldershot: Ashgates2002( HYPERLINK \l "_ENREF_10" \o "Crowther, 2002 #27" Crowther, 2002).
In this paper, we use a board definition of sustainability includes four dimensions of sustainability which can measure the actions firms take and how these actions can impact the development in the future. There are four dimensions of sustainability which can be measured and analyzed. They are:
Financial performance, which is defined as the return ratio for the level of risk taken.
societal influence, which is defined as a measure of the impact that firms have on the society;
environmental impact, which is defined as the effect of the firms actions on environment;
organizational culture, which is defined as the relationship among the internal stakeholders within firms
These four dimensions are the main dimensions of sustainability and firms should treat them as equally important. The development of these four dimensions can help each other so that firms can improve their corporate sustainability in general.
Family businesses
When an entrepreneur founded a business, he began as the businesss sole owner and manager. When business grows, he may transfer part of the ownership or control to other peoplefamily members or/and professional managers.
Allen and Panian ADDIN EN.CITE Allen198221(1982)212117Allen, Michael PatrickPanian, Sharon K.Power, performance, and succession in the large corporationAdministrative Science QuarterlyAdministrative Science Quarterly538-54719820001-8392( HYPERLINK \l "_ENREF_2" \o "Allen, 1982 #21" 1982) discussed that family business should have a number of family members or/and their affines owned or controlled at least 5 percent of the voting stock in a corporation and were seated as the members on board of directors. Shanker and Astrachan ADDIN EN.CITE Shanker199622(1996)222217Shanker, Melissa CareyAstrachan, Joseph H.Myths and realities: Family businesses' contribution to the US economy A framework for assessing family business statisticsFamily Business ReviewFamily Business Review107-1239219960894-4865( HYPERLINK \l "_ENREF_28" \o "Shanker, 1996 #22" 1996) argued that a typical family business should be an organization controlled and usually managed by one or several family members.
Villalonga & Amit ADDIN EN.CITE Villalonga200629(2006)292917Villalonga, BelenAmit, RaphaelHow do family ownership, control and management affect firm value?Journal of financial EconomicsJournal of financial economics385-41780220060304-405X( HYPERLINK \l "_ENREF_32" \o "Villalonga, 2006 #29" 2006) examine a wide variety of definitions. They defined family firm if the founder or a member of the family is officer, director or owns 5% of the firm's equity. Beside this definition, they also found other definitions such as one or more family members are officers directors or block holders, at least one family officer and one family director, family is largest vote holder, family is largest shareholder, one or more family members from 2nd generation or later are officers, directors, or block holders, family is largest vote holder and has at least one family officer and family director, etc. Miller, Le Breton-Miller, Lester, & Cannella ADDIN EN.CITE Miller200720(2007)202017Miller, DannyLe Breton-Miller, IsabelleLester, Richard H.Cannella, Albert A.Are family firms really superior performers?Journal of Corporate FinanceJournal of Corporate Finance829-85813520070929-1199( HYPERLINK \l "_ENREF_22" \o "Miller, 2007 #20" 2007) defined that family firms are those in which multiple members of the same family own the majority of share or manage the firm during the growth process of business.
Family involvement in ownership and family involvement in management are different but they can be related to each other. There are several different family businesses with different degree of involvement in ownership and management. Some family businesses have a high percentage of ownership but a low involvement in management or vice versa. Family ownership and family management emphasize on different aspects on family control on the firm. There are different roles associated with these two aspects of family controlling.
In this paper, we will focus on two main characteristics of the control of family business: family ownership (FO) and family management (FM).
PROPOSITIONS DEVELOPMENT
Corporate governance and corporate sustainability
In this paper we focus on one of internal control mechanism of corporate governance which is the monitoring function of board of directors. The board of directors, especial independent or non-executive directors are thought to be more objective to monitor the firm's executives in order to improve the effectiveness of corporate governance. A more effective corporate governance can help to improve corporate sustainability. We analyze the impact of different aspects of board of directors such as CEO duality, frequency of board meetings, number of committees, percentage of female directors, percentage of independent directors, educational level of board of directors on corporate sustainability.
CEO duality
First we will discuss the impact of CEO duality on corporate sustainability. CEO duality is defined as CEO of a company also holds the position of chair of board of directors. Fama & Jensen ADDIN EN.CITE Fama198331(1983)313117Fama, Eugene F.Jensen, Michael C.Separation of ownership and controlJournal of law and economicsJournal of law and economics301-32519830022-2186( HYPERLINK \l "_ENREF_13" \o "Fama, 1983 #31" 1983) discussed that CEO duality indicates the absence of separation between decision making, implementation, control and supervision. This is not a good signal for the effective corporate governance. Roberts, McNulty, & Stiles ADDIN EN.CITE Roberts200530(2005)303017Roberts, JohnMcNulty, TerryStiles, PhilipBeyond agency conceptions of the work of the non-executive director: Creating accountability in the boardroomBritish Journal of ManagementBritish Journal of ManagementS5-S2616s120051467-8551( HYPERLINK \l "_ENREF_27" \o "Roberts, 2005 #30" 2005) argued that the combination the role of CEO and chairman compromises the internal checks and balances system will cause the conflict of interests, so CEO duality lowering firms accountability. They further pointed out that the separation of two roles can let both persons have more time and bring more diversified perspectives into firms. CEO duality will lead to less members in the board and makes it difficult to discuss important issues such as corporate sustainability when the CEO and chair are the same person. Gul & Leung ADDIN EN.CITE Gul200433(2004)333317Gul, Ferdinand A.Leung, SidneyBoard leadership, outside directors's expertise and voluntary corporate disclosuresJournal of Accounting and public PolicyJournal of Accounting and public Policy351-37923520040278-4254( HYPERLINK \l "_ENREF_16" \o "Gul, 2004 #33" 2004) found that CEO duality is negatively associated with the extent of voluntary disclosure of corporate sustainability. So we propose that CEO duality lowers the effectiveness of board of directors. CEO duality will reduce the level of good corporate governance and make firms less effective in dealing with performance and corporate sustainability.
Based on the above arguments, we have the following proposition:
Proposition 1: In Chinese family businesses, CEO duality is negatively associated with corporate sustainability.
Frequency of board meetings
Secondly, we will focus on the activities among committees which will affect the directors involvement in the actions of the company. When a firm calls the meeting in different committee, the members of board of directors can discuss a variety of issues related to management and strategy. If board of directors can active oversee and design a better programs and procedures so that firms can have a better management related to stakeholder engagement and lead to a better performance ADDIN EN.CITE Millstein199835(Millstein & MacAvoy, 1998)353517Millstein, Ira M.MacAvoy, Paul W.The active board of directors and performance of the large publicly traded corporationColumbia Law ReviewColumbia Law Review1283-132219980010-1958( HYPERLINK \l "_ENREF_23" \o "Millstein, 1998 #35" Millstein & MacAvoy, 1998). The better performance can help to improve corporate social responsibility and corporate sustainability. For instance, if a firm has more frequent board meeting, member of board of directors can have more chance to discuss the issues related sustainability. Ullman ADDIN EN.CITE Ullmann198534(1985)343417Ullmann, Arieh A.Data in search of a theory: A critical examination of the relationships among social performance, social disclosure, and economic performance of US firmsAcademy of management reviewAcademy of management review540-55710319850363-7425( HYPERLINK \l "_ENREF_30" \o "Ullmann, 1985 #34" 1985) found that more frequent board activities such as board meetings can be a good indicator to show board of directors play an active role in management to protect the interest of various stakeholders. Since the functions of board activities can help to ensure the quality of the stakeholder engagement thus will improve the firms sustainability. The active board of directors involvement in management can be treated as an effective monitoring device in improving the level of corporate sustainability.
Based on the above arguments, we have the following proposition::
Proposition 2: In Chinese family businesses, the frequency of board meetings is positively associated with corporate sustainability.
Number of committees
If a firm have several different committee such as audit committee, remuneration committee, nomination committee, corporate social responsibility committee and strategy committee, it indicates that this firm has a good corporate governance. Especially if a firm establishes a special committee such as a CSR committee in charge of social responsibility issues. Ullman ADDIN EN.CITE Ullmann198534(1985)343417Ullmann, Arieh A.Data in search of a theory: A critical examination of the relationships among social performance, social disclosure, and economic performance of US firmsAcademy of management reviewAcademy of management review540-55710319850363-7425( HYPERLINK \l "_ENREF_30" \o "Ullmann, 1985 #34" 1985) found that more board activities such as more different board committees can be a good indicator to show more members of board of directors play an active role in management to protect the interest of various stakeholders. The presence of a CSR committee at the board level shows that firm takes an active attitude in dealing with stakeholders issues related to sustainability. Post, Preston, & Sachs ADDIN EN.CITE Post200236(2002)36366Post, James E.Preston, Lee E.Sachs, SybilleRedefining the corporation: Stakeholder management and organizational wealth2002Stanford University Press080474310X( HYPERLINK \l "_ENREF_26" \o "Post, 2002 #36" 2002) showed that a CSR committee can help to formulate and report social ,environmental and sustainability information of firms action. Because a CSR committee focuses on the quality of the stakeholder engagement and of the sustainability reporting policies of the company, it can be seems as a good signal that firm is pay attention to and spend resources on corporate sustainability. The existence of several committees including a CSR committee can help to improve corporate sustainability.
Based on the above arguments, we have the following proposition:
Proposition 3: In Chinese family businesses, the number of committees especially the establishment of CSR committee is positively associated with corporate sustainability.
Percentage of female directors
There are many researchers found that greater gender diversity on boards or more female directors on boards can improve the corporate governance and increase firm performance. Arfken, Bellar, & Helms ADDIN EN.CITE Arfken200437(2004)373717Arfken, Deborah E.Bellar, Stephanie L.Helms, Marilyn M.The ultimate glass ceiling revisited: The presence of women on corporate boardsJournal of Business ethicsJournal of Business Ethics177-18650220040167-4544( HYPERLINK \l "_ENREF_4" \o "Arfken, 2004 #37" 2004) found that female directors can help to increase accountability and transparency. Konrad, Kramer, & Erkut ADDIN EN.CITE Konrad200838(2008)383817Konrad, Alison M.Kramer, VickiErkut, SumruCritical Mass:: The Impact of Three or More Women on Corporate BoardsOrganizational dynamicsOrganizational dynamics145-16437220080090-2616( HYPERLINK \l "_ENREF_21" \o "Konrad, 2008 #38" 2008) suggested that female directors can raise the confidence of investors because of increasing accountability and moral duty of board. Brown, Brown, & Anastasopoulos ADDIN EN.CITE Brown200239(2002)393910Brown, David A. H.Brown, Debra L.Anastasopoulos, VanessaWomen on boards: Not just the right thing... but the" bright" thingConference Board of Canada2002Conference Board of Canada0887635458( HYPERLINK \l "_ENREF_6" \o "Brown, 2002 #39" 2002) found that 86 percent of boards with the present of female directors ensure that their firms have enforced codes of ethical conduct in place compared with 66 percent of all-male boards. Board with higher percentage of female directors can improve corporate governance which can reduce the behaviors of misappropriation of shareholder funds and unethical conduct. This can lead to a higher economic growth and performance. Carter, Simkins, & Simpson ADDIN EN.CITE Carter200340(2003)404017Carter, David A.Simkins, Betty J.Simpson, W. GaryCorporate governance, board diversity, and firm valueFinancial reviewFinancial review33-5338120031540-6288( HYPERLINK \l "_ENREF_7" \o "Carter, 2003 #40" 2003) further proved that the fraction of women or minorities on the board is significant positively related to firm value. ADDIN EN.CITE Williams200342(Williams, 2003)424217Williams, Robert J.Women on corporate boards of directors and their influence on corporate philanthropyJournal of Business EthicsJournal of Business Ethics1-1042120030167-4544( HYPERLINK \l "_ENREF_34" \o "Williams, 2003 #42" Williams, 2003) found the results with strong support that firms having a higher proportion of female directors on boards do engage in more charitable giving than firms having a lower proportion of female on their boards. Here we argued that female directors are more readily ensure that codes of ethics than male directors so with female director on boards can reduce the misuse of shareholder funds and promote of underlying ethical behavior, therefore improve firm performance and corporate sustainability.
Based on the above arguments, we have the following proposition:
Proposition 4: In Chinese family businesses, the percentage of female directors as board directors is positively associated with corporate sustainability
Percentage of Independent directors
Erhardt, Werbel, & Shrader ADDIN EN.CITE Erhardt200344(2003)444417Erhardt, Niclas L.Werbel, James D.Shrader, Charles B.Board of director diversity and firm financial performanceCorporate governance: An international reviewCorporate Governance: An International Review102-11111220031467-8683( HYPERLINK \l "_ENREF_12" \o "Erhardt, 2003 #44" 2003) found that independent directors can help firm to improve its financial performance. Reeb, Upadhyay, & Zhao (2011) also proved that the firms performance can be enhanced by the involvement of the independent directors to provide a more object and no bias advice to the board. Certo, Covin, Daily, & Dalton ADDIN EN.CITE Certo200145(2001)454517Certo, S. TrevisCovin, Jeffrey G.Daily, Cathrine M.Dalton, Dan R.Wealth and the effects of founder management among IPO-stage new venturesStrategic management journalStrategic management journal641226/720010143-2095( HYPERLINK \l "_ENREF_8" \o "Certo, 2001 #45" 2001) showed evidence to support the notion that independent board members can increase the credibility and reputation of the company they serve. Independent directors can serve as a device to ensure the firms to pursue the interests of all stakeholders. Zahra & Pearce ADDIN EN.CITE Zahra198946(1989)464617Zahra, Shaker A.Pearce, John A.Boards of directors and corporate financial performance: A review and integrative modelJournal of managementJournal of management291-33415219890149-2063( HYPERLINK \l "_ENREF_36" \o "Zahra, 1989 #46" 1989) suggested that independent directors are generally more interested in developing and maintaining the corporate social responsibility of the firm because their interests are less aligned with managements interest. So independent directors are more likely to ask firms to disclose information to all stakeholders. This action can help to improve corporate social responsibility and corporate sustainability. Haniffa & Cooke ADDIN EN.CITE Haniffa200547(2005)474717Haniffa, Roszaini M.Cooke, Thomas E.The impact of culture and governance on corporate social reportingJournal of accounting and public policyJournal of Accounting and public Policy391-43024520050278-4254( HYPERLINK \l "_ENREF_17" \o "Haniffa, 2005 #47" 2005) (2005) argued that independent directors can be treated as a public presentation involve in firms activities and pressure on firms to engage the actions in order that firms can promote sustainability to ensure organizational decisions and actions to follow societal values and corporate objectives. We argued that in general the presence of independent directors on the board ensure higher board independence from management, increase the boards objectivity, improve its ability to represent more diversified perspectives on the actions of firms took related to its environment, and the impact on its sustainability.
Based on the above arguments, we have the following proposition:
Proposition 5: In Chinese family businesses, the percentage of independent board members is positively associated with corporate sustainability.
Educational level of board of directors
Van den Berghe & Levrau ADDIN EN.CITE Van den Berghe200441(2004)414117Van den Berghe, Lutgart A. A.Levrau, AbigailEvaluating Boards of Directors: what constitutes a good corporate board?Corporate Governance: an international reviewCorporate Governance: An International Review461-47812420041467-8683( HYPERLINK \l "_ENREF_31" \o "Van den Berghe, 2004 #41" 2004) argued that higher educational level of members on board of directors can help to improve the board effectiveness and other three different areas to improve. Anderson, Reeb, Upadhyay, & Zhao ADDIN EN.CITE Anderson201143(2011)434317Anderson, Ronald C.Reeb, David M.Upadhyay, ArunZhao, WanliThe economics of director heterogeneityFinancial ManagementFinancial Management5-3840120111755-053X( HYPERLINK \l "_ENREF_3" \o "Anderson, 2011 #43" 2011) found that the firms performance can be improved by the education heterogeneity based on both the depth and breadth of director education such as the educational levels and types of degrees the directors own. We argued that the higher level of education board members received can help firm to have a better understand the importance role of sustainability playing in the long term performance of firms. This understanding can lead to better corporate governance so that firms can take more actions to improve corporate sustainability.
Based on the above arguments, we have the following proposition:
Proposition 6: In Chinese family businesses, the level of education of board directors is positively associated with corporate sustainability.
The moderated function of family business
There are very few paper that investigate how the degree of family involvement in family ownership and family involvement in management can have impact on the relationship between corporate governance and corporate sustainability. In this paper we argued that a firm will have a higher level of corporate governance when a firm has a lower level of family involvement. There are several different family businesses with different degree of involvement in ownership and management at the same time. The higher family involvement mean firms have higher family ownership or higher family management or combination of higher family ownership with higher family management. When a family business has a high percentage of ownership or/and a high involvement in management, this family business will have the lowest level of corporate governance. This family business with lower level of corporate governance will lead to lower corporate sustainability. In this paper, we will discuss about the effects of family ownership or/and family management on the relationship between corporate governance and corporate sustainability.
Based on the above arguments, we have the following propositions:
Proposition 7: In Chinese firms businesses, family ownership moderates the relationship between corporate governance and corporate sustainability. It means in the lower family ownership, firm has a stronger relationship between corporate governance and corporate sustainability than in higher family ownership.
Proposition 8: In Chinese firms businesses, family management involvement moderates the relationship between corporate governance and corporate sustainability. It means in the lower family management, firm has a stronger relationship between corporate governance and corporate sustainability than in higher family management.
Proposition 9: In Chinese firms businesses, family control including family ownership and family management involvement moderates the relationship between corporate governance and corporate sustainability. It means in the lower family ownership and lower family management, firm has a strongest relationship between corporate governance and corporate sustainability than in higher family ownership and higher family management involvement.
The relationships among the different propositions are as shown in figure 1.
[Insert figure 1 here]
DISCUSSIONS AND LIMITATIONS
There are numerous researches on how corporate governance impact on corporate sustainability. We follow this research vein to investigate the relationship in Chinese family businesses but more important we examine the moderate function of the family control impact on this relationship. We expanded the study from general firms to family business especial for family business in emerging economics. We hope to find if there is any difference about the effect of the relationship between corporate governance and corporate sustainability in developed countries and emerging economies. Also we consider how the family control factor include family ownership and family management can moderate this relationship.
By examining the different factors related to corporate governance, we focused on how board of directors as a mechanism of corporate governance impact on corporate sustainability. Our propositions are developed on how the structure, characteristics and composition of board of directors can influence the level of corporate sustainability. We also presented several propositions about the different moderating effects of family control on the relationship between corporate governance and corporate sustainability. The proposition is interesting not only for its potential to extend current study to include firm in emerging economies, but also for its implications to family businesses.
There are several concerns need to address when we begin to collect the data to test these propositions. One is the lack of studies on emerging economies such as China. There are some papers which examines this relationship based on the experience from the developed economies because corporate sustainability has played a more and more important role in developed economies ADDIN EN.CITE Aguilera200612(Aguilera, et al., 2006; Sharma & Henriques, 2005)121217Aguilera, Ruth VWilliams, Cynthia AConley, John MRupp, DeborahCorporate governance and social responsibility: A comparative analysis of the UK and the USCorporate Governance: An International ReviewCorporate Governance: An International Review147-1581432006Sharma200555555517Sharma, SanjayHenriques, IreneStakeholder influences on sustainability practices in the Canadian forest products industryStrategic Management JournalStrategic management journal159-18026220051097-0266( HYPERLINK \l "_ENREF_1" \o "Aguilera, 2006 #12" Aguilera, et al., 2006; HYPERLINK \l "_ENREF_29" \o "Sharma, 2005 #55" Sharma & Henriques, 2005). So how to extend the study to emerging economics with the consideration of characteristics of emerging economies is an urgent topic.
The second concern is to understand how family control as a moderating factors can interact with the relationship between corporate governance and corporate sustainability. As the family businesses play a very important role in Chinese economics, most successful firms are owned by individual or family. The role of family control is regarded as a negative factor to improve corporate sustainability because family businesses only focus on family interests not societys interests. We hope to find the solutions to help mitigate the negative impact of family control on corporate sustainability.
The third concern regarding the future empirical test of propositions is the problem about how to collect or access to reliable and new data about sustainability. To conduct questionnaire surveys in emerging economies and get the true answers are the challenges to researchers. The problems of getting high quality data from emerging economies for empirical analysis are well-known ADDIN EN.CITE ADDIN EN.CITE.DATA ( HYPERLINK \l "_ENREF_18" \o "Hoskisson, 2000 #49" Hoskisson, Eden, Lau, & Wright, 2000; HYPERLINK \l "_ENREF_24" \o "Peng, 2000 #27" Peng, 2000). How to overcome these problems to access reliable, updated data to do research is a big challenge to many researchers. There are several good solutions can be used to resolve this issue: using archival data in conjunction with other data sources ADDIN EN.CITE Child200150(Child & Tse, 2001)505017Child, JohnTse, David K.China's transition and its implications for international businessJournal of international business studiesJournal of international business studies5-2132120010047-2506( HYPERLINK \l "_ENREF_9" \o "Child, 2001 #50" Child & Tse, 2001).
The last concern is this paper only focus on one country, which will harm the generalizability of results. So extra evidence from other countries is needed to strengthen our propositions. Further research could use the data from other countries to validate our arguments. How to design a good measurement of corporate sustainability is a critical issue in future study.
CONCLUSIONS
Corporate sustainability has been an important topic for more and more organizations especial for businesses ADDIN EN.CITE Bansal200551(Bansal, 2005)515117Bansal, PratimaEvolving sustainably: a longitudinal study of corporate sustainable developmentStrategic management journalStrategic management journal19726320050143-2095( HYPERLINK \l "_ENREF_5" \o "Bansal, 2005 #51" Bansal, 2005). The ability to integrate sustainability into the relationships with stakeholders will define which organizations will succeed or which will fail in the twenty-first century. It is clear that to understand how firms improve their corporate sustainability is an important areas demanding answers.
Recently research has been particularly focused on understanding how firms can improve their corporate sustainability. Some studies found that stakeholders such as major customers, environmental groups, employees, international experience, media pressure, and organizational size are positively related to corporate sustainability ADDIN EN.CITE Sharma200555(Bansal, 2005; Sharma & Henriques, 2005)555517Sharma, SanjayHenriques, IreneStakeholder influences on sustainability practices in the Canadian forest products industryStrategic Management JournalStrategic management journal159-18026220051097-0266Bansal200551515117Bansal, PratimaEvolving sustainably: a longitudinal study of corporate sustainable developmentStrategic management journalStrategic management journal19726320050143-2095( HYPERLINK \l "_ENREF_5" \o "Bansal, 2005 #51" Bansal, 2005; HYPERLINK \l "_ENREF_29" \o "Sharma, 2005 #55" Sharma & Henriques, 2005). This paper continued on this research stream by focusing on board of directors and family control.
Whether family control has an impact on this relationship, however, has attracted little attention of scholars or practitioners for a long time. Most studies are focus on public firms and showed the positive relationship between corporate governance and corporate sustainability. In firms with powerful family presentation, how the functions of board of directors on sustainability changes will be a very interesting question.
Based on previous studies on the relationship between corporate governance and corporate sustainability, we proposed several proposition for Chinese family businesses among the relationship among corporate governance, corporate sustainability and family control. We expect to find several significant results. First, good corporate governance especially good design of board of directors can help to improve corporate sustainability. Second, by reducing the family control either by lower family ownership or lower family management involvement, firm can improve corporate sustainability.
In conclusion, our paper provides a direction for the further empirical study. The expected results not only can provide theoretical implications by extending the study from developed economies to emerging economies but also have important practical implications by helping family businesses design better board of director to improve their corporate governance. In family businesses, it is important to keep balance between family control and respecting to the opinion of board of directors. How to design better process or procedure to give more freedom to board of director is an important issue for family businesses.
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Figure 1 The Conceptual Model of the relationship of different variables
SHAPE \* MERGEFORMAT
Corporate Governance:
CEO duality (P1)
Committee meetings (P2)
Committee numbers (P3) Independent directors (P4)
Female directors (P5)
Educational level (P6)
Committee meetings (P5)
Corporate Sustainability:
Actions or behaviors related to sustainability such as disclosure in report
Moderated Variable:
Family ownership (P7)
Family Management (P8)
Ownership X management (P9) management (P8)
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