Making the boardroom green

Companies keen to improve their environmental performance should take a look at the characteristics of their board of directors.

New research by University of Canterbury academic Professor Chris van Staden (Accounting and Information Systems), working with Dr Charl de Villiers and Associate Professor Vic Naiker from the University of Auckland, has found that corporate boards play an important role in promoting strong environmental performance.

The research findings will be published in the Journal of Management in a paper titled “The effect of board characteristics on firm environmental performance”.

Using information from two commercial databases, Professor van Staden said the researchers found that the governance structure of a company is linked to the impact it has on the environment. For example, companies that had greater board independence and a lower concentration of directors appointed after the CEO performed better environmentally.

“Directors appointed by the CEO are more likely to be influenced by him or her, compromising the independence of the board.”

The research also found that companies that have larger boards, CEOs of other companies sitting on the board and directors with legal expertise had better environmental performance.

“A bigger board will give a better performance because, collectively, it will have more knowledge and richness of expertise and diversity. A larger board will also be more independent, particularly if it’s not involved in the management of the company or if members are not financially involved in the company,” he said.

“Lawyers have an understanding of the risks involved if a company’s activities contravene regulations. Not everyone understands these regulations so having a lawyer or someone with legal expertise on board is an advantage.”

Professor van Staden said the natural environment had become an important avenue for companies to gain competitive advantage.

“Consumers are becoming more and more aware of environmental issues and want products that are environmentally friendly and have not been produced in a way that pollutes. This means the market opportunities for companies that take the environmental impact of their activities into consideration can be substantial and the risks of not doing so can be huge. Look at what happened to BP after the Gulf of Mexico oil spill,” he said.

“Hopefully this research will go some way towards helping companies that want to improve their environmental performance by telling them what kind of board they need to achieve this.”