Co‐opted board, environment, social and governance

Abstract

The ultimate goal shared by society is sustainable development, a process of addressing current needs without sacrificing resources of future generations. To achieve sustainability, companies should consider of environmental, social, and governance (ESG) in their stakeholder engagement process. Investment in ESG activities is unavoidably decided at the board, making board characteristics become crucial for sustainability. We explore the effect of co‐opted directors, appointed after the incumbent CEO assumes office, on corporate ESG performance. Our findings show that firms with co‐opted directors tend to have poorer ESG performance. Investing in ESG is a long‐run corporate policy. Consistent with the managerial myopia hypothesis, the co‐opted directors, representing weaker governance mechanisms with ineffective monitoring roles, provide managers fewer incentives to invest in the long run. We address endogeneity concerns by conducting instrumental variable analyses.

Striving for sustainable development: Green financial policy, institutional investors, and corporate ESG performance

“…Under the policy framework of GFP, companies are obligated to adhere to the policy objectives, or they may risk losing legitimacy and thus threaten their growth or even survival (Hamilton, 2006) due to institutional pressure. Given that ESG is increasingly becoming a standard for assessing corporate sustainability (Maneenop et al, 2023), companies have to improve their ESG performance to meet the legitimacy requirements of GFP. Based on this, the relationship between GFP and corporate ESG performance reflects the essence that companies respond to institutional rules of GFP by behaving in ESG-compliant ways to seek legitimacy (Meyer & Rowan, 1977).…”