Financial performance and social performance: Does the board-level sustainability function matter?

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Abstract
This study examines the relationship between corporate financial performance (CFP) and corporate social performance (CSP), exploring any inherent non-linearities (Jahmane & Gaies, 2020). Further, it investigates whether a formal ethics function on the board moderates this relationship. Literature suggests sustainability committees encourage investment in corporate social responsibility (CSR) (Velte, 2023; Velte & Stawinoga, 2020). Thus, the CSP should be higher and sustained for firms with such structures on the board. Using data from 239 companies across the largest stock markets in West, East, and Southern Africa (2014–2018), the study applies generalized linear regression models that are fitted to the data with CSP score as the outcome variable, and return on assets (ROA) and return on equity (ROE) as independent variables. Polynomial terms are introduced to capture non-linearity, and the ethics function on the board is introduced as an interaction term. Findings reveal a non-linear relationship between CFP and CSP, where CSP increases with CFP but declines after a threshold. Furthermore, firms with a board-level ethics function demonstrate stronger CSP engagement, suggesting that ethical oversight influences corporate decision-making on social initiatives. The study underscores the vital role of sustainability committees in maintaining CSP as a strategic priority.

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