The Director: Gain from the Green Game; Boards Wanting to Lift Their Environmental Performance Should Think about Appointing Independent, More Experienced and Perhaps Legally Competent Directors. NZ Management Reports on Some Compelling Research Findings
Boards of directors, it seems, sometimes stymie their company's environmental agenda. According to some new research by University of Canterbury academic professor Chris van Staden working with University of Auckland's Dr Charl de Villiers and associate professor Vic Naiker, corporate boards play a key role in promoting, or otherwise, strong environmental performance.
A company's governance structure is, therefore, linked to the impact the business has on the environment. Boards with more independent directors, and less directors appointed with chief executive involvement, perform better environmentally.
"Directors appointed by the CEO are more likely to be influenced by him or her, compromising the board's independence," says van Staden. And companies with larger boards including CEOs from other enterprises and directors with legal expertise, are also more likely to act green.
Bigger boards give better performance because, collectively, they are more knowledgeable, diverse and richer in expertise and experience. "Larger boards are more independent, particularly if members are not involved in the company's management or financially involved in the business," he says. "And lawyers understand the risks involved if a company's activities contravene regulations."
The natural environment can, says van Staden, provide companies with a useful competitive advantage. "Consumers are becoming more aware of environmental issues and want products that are environmentally friendly and not produced in ways that pollute." Companies can enhance their market opportunities by taking environmental impacts into account. The risks of not doing so can, on the other hand, be huge. "Look at what happened to BP after the Gulf of Mexico oil spill.
"Hopefully our 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," says van Staden.
The researchers believe companies with a strong environmental performance reduce operating costs, improve access to resources and reduce employee turnover. A 2008 study by global accounting firm PricewaterhouseCoopers showed that more than 40 percent of executives think the "green movement" creates significant market opportunities liabilities.
The link between environmental performance and investor interest is becoming increasingly apparent. Research consistently shows a positive relationship between financial returns and environmental performance indexes. Other studies prove that firms which adopt stringent environmental standards have higher market valuations than those that don't. …