Corporate governance and lesbian, gay, bisexual, and transgender‐supportive human resource policies from corporate social responsibility, resource‐based, and agency perspectives

• Date: 01 May 2019
• Author: Sang Mook Lee,Denise Potosky,Pornsit Jiraporn
• DOI: http://doi.org/10.1002/hrm.21954
• Published date: 01 May 2019

ORIGINAL ARTICLE

Corporate governance and lesbian, gay, bisexual, and

transgender-supportive human resource policies from

corporate social responsibility, resource-based, and agency

perspectives

Pornsit Jiraporn | Denise Potosky | Sang Mook Lee

Great Valley School of Graduate Professional

Studies, The Pennsylvania State University,

Malvern, Pennsylvania

Correspondence

Denise Potosky, Great Valley School of

Graduate Professional Studies, The

Pennsylvania State University, 30 East

Swedesford Road, Malvern, PA 19355.

Email: dxp16@psu.edu

Corporate boards are responsible for ensuring that managers enact policies that are in share-

holders' best interests, and managers are responsible for implementing strategies that are not

only profitable but also responsive to changing legal and societal demands and the resource

needs of the firm. In this paper, we use the theoretical lenses of corporate social responsibility

(CSR), the resource-based view, and agency theory to investigate the relationship between cor-

porate governance structure and the implementation of supportive lesbian, gay, bisexual, and

transgender (LGBT) policies. We analyze 10,233 firm-year observations and 1,594 unique firms,

and our results demonstrate that LGBT-supportive policies are positively associated with firm

performance. We also offer new insight into why not all firms adopt such policies. We exploit

the passage of the Sarbanes-Oxley Act as an exogenous shock that increased board indepen-

dence, and our difference-in-difference estimation shows that firms forced to raise board inde-

pendence in 2002 were less likely to invest in LGBT-supportive policies. Results suggest that

human resource management (HRM) policies can be guided by CSR and resource-based views

in the pursuit of wealth maximization, but agency conflict may also be a concern for external

majority boards. We discuss implications for HRM research practice and corporate governance

regarding LGBT policies in organizations.

KEYWORDS

agency theory, corporate governance, corporate social responsibility (CSR), firm performance,

LGBT-supportive policies, resource-based view

1|INTRODUCTION

Management research and practice has sought to understand the

motives for the adoption of corporate policies that are responsive to

shareholders but also reflect corporate social responsibility (CSR) and

human resource management (HRM) commitments to diversity,

emerging societal values, and trends in public policy. HR managers

and executives play an important role in presenting internal needs and

external demands regarding diversity, inclusion, and equality to a

firm's top management team. A firm's chief executive officer (CEO)

and top managers have operational discretion as to whether, how,

and when to enact policies that will maximize a firm's wealth and

address the firm's CSR and HRM needs and goals. Although less fre-

quently studied in HRM research, corporate boards represent a key

element of a firm's corporate governance structure or the mechanism

by which conflicts of interest resulting from the separation of owner-

ship (by shareholders) and control (of firm resources) are monitored

and controlled (Baysinger & Hoskisson, 1990; Williamson, 1985). Cor-

porate boards are ultimately responsible for ensuring that managers

enact policies that protect shareholders' interests, which include any-

thing that would affect the firm's reputation, liability, and profitability.

Specifically, under U.S. corporate law, the board of directors approves

management initiatives, reviews firm performance, and allocates

rewards and/or penalties to ensure that a firm's management team

DOI: 10.1002/hrm.21954

Hum Resour Manage. 2019;58:317–336. wileyonlinelibrary.com/journal/hrm © 2019 Wiley Periodicals, Inc. 317

acts in the best interest of shareholders (Baysinger & Hoskisson,

1990; Fama & Jensen, 1983). “Legally, the board is the highest author-

ity in the company, the ‘fountain of power’, yet top management natu-

rally tends to exercise that power. On one hand, the board bears clear

legal responsibility; yet, management has the infrastructure, the

knowledge, the time—and frequently the appetite—to shoulder this

responsibility”(Demb & Neubauer, 1992, p. 13).

In addition to monitoring management, corporate boards provide

counsel and advice, information about the external environment, and

legitimacy to a firm (Daily, Dalton, & Cannella, 2003; Hillman & Dal-

ziel, 2003; Hillman, Withers, & Collins, 2009; Pfeffer & Salancik,

1978). Lesbian, gay, bisexual, and transgender (LGBT) rights, including

issues focused on the recognition of same-sex marriage, access to

restrooms based on gender identity, and workplace discrimination,

have featured prominently in high-profile legal cases, the media, and

public discourse. Amid societal and judicial debate and without a clear

legal requirement to do so, many firms have decided to implement

LGBT-supportive HR policies, which extend protections against dis-

crimination and employment benefits (e.g., healthcare and retirement

benefits) to LGBT employees. Given a board's responsibility to a firm's

finances and its reputation, directors may be interested in manage-

ment's position on LGBT-supportive policies.

Anticipating the legal and reputational ramifications of a firm's stance

and actions regarding LGBT issues is a challenging, complex endeavor. For

example, the Corporate Equality Index (CEI) rating for Wal-Mart Stores,

Inc. was suspended by the Human Rights Campaign (HRC) Foundation in

2018 due to two U.S. Equal Employment Opportunity Commission

(EEOC) determinations regarding enforcement gaps in the company's non-

discrimination policy regarding sex and gender identity (Corporate Equality

Index 2018). Evolving and sometimes conflicting legal views on LGBT

employment discrimination make it difficult for many corporations to sat-

isfy multiple stakeholders while protecting the interests of shareholders.

Since 2012, the EEOC has defined employment discrimination based on

gender identity or sexual orientation as sex discrimination under Title VII

of the Civil Rights Act of 1964 (https://www.eeoc.gov/eeoc/newsroom/

wysk/enforcement_protections_lgbt_workers.cfm). In 2017, however, the

U.S. Justice Department filed court papers to argue that Title VII does not

protect LGBT employees from discrimination (Feuer, 2017). Currently only

19 states and the District of Columbia have enacted laws explicitly prohi-

biting employment discrimination on the basis of sexual orientation.

Hence, individual employees who experience sexual orientation discrimi-

nation may find some support within the EEOC, but no federal law and

fewer than half of all states prohibit sexual orientation discrimination in

employment.

Some firms have been forced to clarify their position and values

and/or defend the legality of their HR policies with respect to LGBT

rights, and other firms have embraced the opportunity to do so. The

CEOs in some large corporations such as Apple, BP, HSBC Bank, and

Lloyds of London have “come out”publicly as part of the LGBT com-

munity (Brinded, April 5, 2016: http://www.businessinsider.

com/outstandings-2015-leading-lgbt-executives-list-most-powerful-

executives-in-the-world-2016-4?r=UK&IR=T). In the past few years,

companies such as FedEx, the Walt Disney Co., Marvel Studios,

Salesforce.com, and HCA Healthcare have publicly voiced their oppo-

sition to state governments regarding transgender “bathroom bills,”

which the companies consider discriminatory and bad for business

(Mattise, 2017). In 2018, 230 of Fortune 500 businesses, including

corporations such as General Electric, General Motors, Ford Motor

Company, AmerisourceBergen, AT&T, Verizon Communications, and

Amazon, received a 100% rating on the CEI, which evaluates if a firm

has taken “concrete steps to ensure greater equity for LGBTQ

workers and their families in the form of comprehensive policies, ben-

efits and practices”(Corporate Equality Index 2018, p. 4).

Diversity initiatives, antidiscrimination policies, and health bene-

fits are the operational decision of managers, and corporate boards

are not responsible for establishing a firm's HR policies. Yet, amid the

social controversy and legal ambiguity surrounding LGBT rights, the

decision by a firm's management to enact LGBT-supportive policies is

not mundane or inconsequential to a firm's board of directors. Board

members have oversight on behalf of shareholders for the policies

and public actions of these companies' management teams, and pru-

dent directors will assess the impact of policies that could affect a

firm's goodwill, workforce, and standing in the community. For exam-

ple, the charter for the Corporate Governance and Policy Committee,

a standing committee of Verizon Communications' Board of Directors,

includes the charge to “periodically review the Corporation's position

and engagement on important public policy issues that may affect its

business and reputation”(CGPC Charter, Verizon Communica-

tions, 2017).

Management research on organizational support for LGBT

employees has received increasing attention (e.g., Anteby & Anderson,

2014; Day & Schoenrade, 1997, 2000; Griffith & Hebl, 2002; King &

Cortina, 2010; Trau & Härtel, 2007), and several studies have exam-

ined the potential financial benefits to firms that implement LGBT-

supportive policies (Johnston & Malina, 2008; Li & Nagar, 2013; Pich-

ler, Blazovich, Cook, Huston, & Strawser, 2018; Wang & Schwarz,

2010). No studies to date, however, have considered firms' implemen-

tation of LGBT-supportive policies from the perspective of corporate

boards of directors. Our study aims to address this gap. Given that

board members review financial, human resources, and general man-

agement reports and discuss strategies to safeguard positive firm per-

formance and growth (Hillman & Dalziel, 2003; Lowrie, 2018), it

seems likely that they would be informed of a firm's LGBT-supportive

initiatives.

Research is needed to describe the relationship between firms'

corporate governance structure, namely, board composition, and the

implementation of LGBT-supportive HR policies. The present investi-

gation addresses this gap using three theoretical lenses: CSR,

resource-based HRM, and agency theory. The CSR lens relies on

social responsibility theory (Bowen, 1953), which asserts that both

the owners and the managers of a firm must make decisions that

reflect societal objectives and values. A firm's stance regarding LGBT-

supportive policies occurs in the societal backdrop of LGBT rights and

the firm's other CSR initiatives. The resource-based view of the firm

(Barney, 1991; Wernerfelt, 1984) emphasizes the relationship

between internal characteristics of a firm, such as HR practices and

policies, and firm performance. Given the fiduciary oversight of corpo-

rate boards, it is essential that HR executives anticipate how different

board structures might view CSR and HRM initiatives. In a recent

study, for example, Pichler et al. (2018) demonstrated that LGBT-

318 JIRAPORN ET AL.