Sustainable or not sustainable? The role of the board of directors

Abstract

Environmental degradation, scarcity of resources, and societal issues have been reshaping the strategic agendas and governance mechanisms of many organizations. From a traditional perspective, the duty of the board of directors (BOD) has always been to the owners and investors of the firm. With the beginning of the 21st century, a social paradigm has emerged, reflecting broader directors' responsibilities in not only fulfilling shareholders' interests but also addressing stakeholders' needs. Both research and practice emphasize a metamorphosis of the board's task, which is not restricted to maximizing shareholder's value but also involves going out into the real world and tackling the emerging concerns regarding social and ecological practices. Following the premises of stakeholder theory, this study examines the association between the determinants of the board of directors and sustainable performance. Based on the Dow Jones Sustainability (DJSI) and Standard and Poor's Global Broad Market Indices (S&P Global BMI), with a matching sample of 478 multinational companies, the results reveal a significant and positive relationship between sustainability and the board's size, gender diversity, average age of directors and number of committees. From a cross-national perspective, the study confirms the existence of dissimilarities in the characteristics of the boards of directors of European (EU) and non-European (non-EU) firms vis-à-vis sustainable performance. The practical implications of the study can be useful for policymakers and governance systems in identifying the nature of the “green” board. In light of the managerial inference, the study delivers an explicit recommendation on the composition of the board of directors and stakeholder management to promote sustainability adoption.