The lines that divide: Board demographic faultlines and proactive environmental strategy

Abstract

Manuscript Type:The manuscript is of an empirical nature.Research Question/Issue:The current ecological crisis requires boards of directorsto tackle environmental concerns and manage dependencies with the external envi-ronment in highly dynamic conditions. Proactive environmental strategies (PESs) seekto establish alternative and innovative processes and products that create new mar-ket opportunities. By mobilizing the notion of board demographic faultlines, weinvestigate their link with PESs and the influence of the internal board dynamics andenvironmental factors on this relationship.Research Findings/Insights:The multilevel regression analysis of a 7-year sample ofUK boards reveals that demographic faultlines hinder their information processing inadopting PESs. The results also show that the negative relationship between demo-graphic faultlines and PESs is attenuated by the social similarity of the CEO and chairin the same subgroup and by the financial materiality of the natural environment.Theoretical/Academic Implications:This study draws on faultline theory to analyzehow the structure of board diversity through the alignment of multiple directors'demographic attributes affects board dynamics by creating polarized boards thatshape sustainability decisions. This study underscores the disruptive effect of havingsocially distanced subgroups within the board and the salience of board leaders'social similarity and environmental factors in attenuating their dysfunctional effects.Practitioner/Policy Implications:Board diversity is considered key to improvingboard decision-making. By situating our empirical investigation in a country with acorporate governance model that fosters diversity in a dual leadership board struc-ture that has influenced other countries' governance models, this study providesinsights for policymakers and market participants on the unintended effects of theglobal call for board diversity on firms' proactive environmental stance. Our resultscall for establishing procedures to incentivize board socialization and facilitate direc-tors' information processing.