A firm’s environmental performance rises with board member expertise and strong governance. Prof. Steven Salterio, Smith School of Business, Queen’s University, explores if having expertise in sustainability on the Board actually means that good performance and a greener firm result.

Green-Savvy Board Members Make Their Mark by Jordan Whitehouse. Originally posted on Smith Business Insight. With kind acknowledgements to Amber Wallace.

Board members hold the fate of their organizations in their hands. So if organizations need to clean up their act and boost their environmental credibility, it seems to make sense for at least some board members to have expertise in environmental matters.

But hold your intuition — there’s plenty of debate on whether green-savvy directors are necessary. Some researchers have found that environmental experience on a board is associated with lower greenhouse gas emissions. Others, though, show that there is no relation between board members with environmental expertise and a firm’s environmental performance.

Green-savvy Board Members: So what explains the disagreement and which side is right?

These questions are at the heart of a paper co-authored by Steven Salterio, Stephen J.R. Smith Chair of Accounting and Auditing at Smith School of Business, Daehyun Kim (University of Toronto), Michael Marin (University of Toronto), Gordon Richardson (University of Toronto) and Albert Tsang (Southern University of Science and Technology).

Their hunch was that something was off about how previous researchers measured environmental expertise. “A lot of them tried to find this magic bullet, this one trait that shows you someone has this expertise,” says Salterio. But, as his corporate governance research over the past 25 years has shown, there is no magic bullet. “It’s actually the combination of things that allows boards to be more effective,” he says.

So, Salterio and his co-authors combed the research literature and other datasets to come up with new and comprehensive measures of board environmental expertise and engagement with society.

What these new measures found is that firms do a lot better on the environmental front when their board members have related expertise along with the motivation to improve society. A firm’s environmental performance also grows when boards have strong governance, when directors form corporate social responsibility (CSR) committees and when managers hire chief sustainability officers (CSO) to drive the environmental agenda.

Weighing expertise

It took some time for the research team to decide on the traits to focus on, but in the end they designed a four-item board environmental expertise measure (BEE) and a nine-item board social engagement measure (BSE).

The BEE measure included the average number of CSR committees that directors sat on, the average number of years directors sat on those committees, the average number of boards of environmentally sensitive firms that directors served on, and the proportion of directors with service on the boards of environmentally sensitive firms.

The BSE measure included the average number of government and university affiliations per director and the proportion of directors with non-profit experience, among other factors.

Why were two measures necessary? Salterio knew from his psychology background that when considering expertise and performance, a person’s willingness to use their expertise must be in the mix. “You not only need the environmental expertise, but you have to have the willingness to use it to better environmental performance,” he says. “We thought BSE would account for that.”

The researchers were also curious to see whether strong board governance leads to better firm environmental performance (prior research has suggested that it does). So they developed what they called a GOV measure that included four of the six items shown to correlate with strong governance: board independence, board size, the presence of a female director and majority voting standards. 

Useful links:

• Link up with Steven Salterio on LinkedIn
• Read more articles from Smith School of Business on Smith Business Insight
• Read a related article: How Boards can fix Corporate Social (ir)Responsibility
• Discover Smith School of Business, Queen’s University, Canada
• Apply for the Smith MBA.

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