Section 5.5: BoD and TMT characteristics for sustainability

My own research has focused on understanding the roles of board directors and top managers in environmental sustainability. I don’t expect you to read my academic articles, and instead provide a summary of my research below.

Boards with dedicated sub-committees for sustainability can be a signal of both “good” and “bad” environmental performance

Boards with dedicated sub-committees to address environmental and social issues tend to have better environmental performance. However, there is a caveat here, as companies with the worst environmental performance are also likely to have such committees. My research suggests, that such committees may be set up by ‘bad’ environmental performers as a response to pressure companies face from stakeholders to do more about their environmental sustainability. On the flip side, companies with strong environmental performance are similarly more likely to have dedicated CSR committees which suggest that proactive companies dedicate expert resources to the issue of sustainability. What remains unknown is whether setting up a CSR committee at poorly performing companies has a snowballing effect. It may be that once a dedicated board committee is set up, attention is brought to the issue of sustainability and agendas are developed, allowing companies to begin a process of improvement.

Knowledgeable board directors and insider directors contribute to sustainability strategies

Board members who have relevant experience are important drivers of corporate sustainability. Their expertise can be based on past job roles, past membership on dedicated corporate CSR board committees, or exposure to sustainability through participation in non-profit and other community organizations. Companies with more environmentally experienced boards are able to engage in sustainability well above-and-beyond that of their peers, particularly if their companies operate on the fringes of the overall corporate network, which allows them to be more shielded from other pressures place on the firm such as improving financial performance.

Insider directors, in other words those directors that are also executives at the company itself including the CEO and often the finance director and others, benefit sustainability strategies. It is likely that these board directors may have a better understanding of how the company can benefit from sustainability practices because they are involved in the day-to-day management of the firm. Other, outsider directors, may be less well suited to assess the benefits (as well as the risks).

The implications of this last finding are very important, because in the U.S. for example, regulation and other forces are pushing firms to have fewer insider directors based on the argument that this allows for better independent oversight of companies. But my research suggests that having fewer insiders could be harmful to corporate sustainability outcomes.

CEOs with MBAs and more personal power tend to do more on sustainability

When CEOs have a strong educational foundation in spotting business opportunities, in the form of an MBA, they are more likely to be open about environmental disclosure than CEOs with other educational backgrounds such as law degrees.

In addition, in a more recent article I show that CEOs with more personal power over others in the company (such as, for example, charisma, as opposed to hierarchal power such as having more titles or seniority) do better in driving their companies towards sustainable outcomes. This is particularly the case if the source of that personal power comes from the CEO having knowledge of or expertise in sustainability.

As an aside, research by my colleague and friend, Professor Pascual Berrone, shows that companies with better environmental performance pay their CEOs more.

Negative emotions appear to be an important driver for CEOs and other top executives

In an ongoing study that uses facial expressions to identify unconscious emotions that executive express while talking about their sustainability programs, I find that negative emotions including anger, disgust, and shame play an important role in driving sustainability management. Executives often show disgust and sometimes shame at past operational practices that were ‘dirty’ or otherwise environmentally damaging, and anger when discussing issues of social injustice. In companies where executives show more disgust or shame, environmental performance is better than peers in subsequent years. This suggests that moral emotions (and perhaps underlying values) of top managers play an important role in corporate greening.

Firms managed and owned by families engage more in sustainability

Also based on Pascual Berrone’s research, companies that are managed and owned by families do better in terms of environmental performance. This is true even when the CEO is not a family member him or herself, or if the CEO has a lot of formal/hierarchical power. It seems that family owners care more about issues like sustainability and are more willing to bear the upfront costs of expensive strategies such as sustainability that have long-term benefits.

Supplementary Resources

Walls and Berrone (2015) “How Corporate Governance Affects Corporate Sustainability and Why It Matters”

Walls (2018) “The Power of One: Leadership and Corporate Sustainability”

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