Board structure and sustainability performance

Abstract

This study examines the effect of board structure (BS) on the three dimensions (Triple Bottom Line) of sustainability performance (SP) on listed companies globally. The study has one main objective and one subsidiary objective. The main objective is to examine the impact of BS (board size, board independence, sustainability committee, board expertise, CEO duality and board gender diversity) on SP (financial, social, and environmental) based on stakeholder-agency theory and complementing with resource dependency, resource-based view, legitimacy, and stewardship theories. The subsidiary objective is to determine whether the impact of BS on SP differs among financial and nonfinancial firms. The study sample consists of 7,024 listed companies from 70 countries (both developed and developing) between 2015 and 2020. The Generalised Method of Moment (GMM) dynamic panel regression model is employed to run the regression analysis. The study also performed additional tests for a possible difference between financial and non-financial firms in the board structure and sustainability performance relationship. The findings for the main objective indicate that the sustainability committee and the presence of CEO duality positively impact financial, social, and environmental performance. Also, board size has an inverse relationship with financial and environmental performance but a positive relationship with social performance. Board expertise improves the financial and environmental dimensions of sustainability performance, but it has a negative effect on social performance. However, board independence and board gender diversity have an insignificant effect on financial and environmental performance and a positive significant effect on social performance. On the second objective, the GMM regression results confirm that most board structure variables’ impact on sustainability performance differs among financial and non-financial firms. Coefficient tests’ finding also indicate differences between financial and non-financial firms. Differences between financial and non-financial firms were found in the effect of board size, board independence, board expertise, CSR committee, CEO duality, and board gender diversity on the various dimensions comprising financial, social, and environmental performance. The finding that a sustainability committee enhances all three dimensions of sustainability performance supports the theoretical assertions by the stakeholder-agency theory and the resource dependency theory that the board of directors can serve as the firm’s valuable resources to provide advisory and monitoring services to control management activities in favour of the extended stakeholders. However, the finding that CEO duality promotes financial, social, and environmental performance confirms the stewardship theory’s assertion that the unity of command, reduced chain of command and quick decision-making on important issues by CEOs who double as board chairs can increase corporate sustainability performance. In addition, the findings for the subsidiary objective contribute to the theoretical assertion that the operations of financial firms, the strict regulations of regulatory agencies and the extensive oversights of the government on financial firms are strong enough to create differences between financial and non-financial firms in the board structure-sustainability performance nexus. The most important implication for practitioners lies in supporting the differences between the two industries as it contributes to improving standards for board structure and corporate governance, which is essential for sustainable development.

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Identifiers

ORCID for Nana Dwomoh Osei Bempah: orcid.org/0000-0002-7070-077X

ORCID for Venancio Tauringana: orcid.org/0000-0002-1433-324X

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