Corporate governance practices that address climate change: an exploratory study

Abstract

This exploratory study sought to investigate how well 98 firms in three industries, across 10 countries, are addressing climate change through five specific governance practices. The findings suggest that non‐US firms demonstrate higher performance on the governance dimensions than their US counterparts. Further, by separating firms into low versus high performers on the governance dimensions, some board structure variables, such as number of directors and an independent board chair, were associated with higher performing firms. The study contributes both to institutional and agency theory. For example, coercive isomorphisms in regions of the world, such as Europe, might be driving firms to demonstrate that they are addressing climate change at the governance level in order to gain legitimacy. As for agency theory, this study offers both confirmatory and contradictory results regarding board independence. For example, firms who separated the CEO–board chair role achieved better governance on climate change, while at the same time firms who demonstrated lack of independence with respect to the inside versus outside director ratio also achieved better governance on climate change. This paves the way for additional research in understanding how board structure influences organizational phenomena. Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment.