Impact of Board of Directors Composition, Activity, and Compensation on the ESG Performance in an International Context

Abstract

A growing body of research suggests that the Board of Directors Composition, Activity, and Compensation can influence its environmental, social, and governance (ESG). This chapter seeks to fill this gap in the literature by testing the impact of board size, board meetings, women on the board, executive compensation, and ESG controversies on ESG performance. Using one of the largest datasets to date, consisting of an unbalanced panel dataset consisting of 31040 firm-year observations from 5500 listed firms, covering a period of 16 years (2002–2017) from 60 countries around the world, these findings are fivefold. First, these results suggest that board size is positively associated with ESG performance. Second, the authors show that the number of meeting of the board per year is positively related to the environmental, social and governance score. Third, the main empirical evidence shows that the relationship between women on the board of directors and a firm's ESG performance is a strongly significant. Fourth, these results reveal that executive compensation has a positive effect only for some geographic areas. Fifth, there is a negative link between ESG performance and ESG controversies.