Board co‐option and corporate environmental orientation: New insights from the waste management perspective

Research Question/Issue We investigate the impact of board co‐option on corporate environmental orientation from the perspective of waste management. As waste presents damaging effects on the natural environment, climate change, and human health, businesses assume an ethical responsibility to conduct their operations in a sustainable and responsible manner. Research Findings/Insights Employing firm‐level waste production data, we document a significant negative relationship between board co‐option and waste generation, suggesting that co‐opted directors help firms reduce their waste—a finding that also carries economic significance. The cross‐sectional analyses reveal that the relationship only holds when a CEO does not chair the board and has a shorter tenure. Furthermore, we find that the board co‐option–waste management relationship is stronger in environmentally sensitive industries and is mainly driven by the manufacturing firms. We perform a battery of analyses to rule out endogeneity concerns and check for the robustness of our results. The channel test reveals that CEOs of firms with higher waste management face lower performance‐induced turnover, particularly when working with co‐opted boards. Finally, we also find that co‐option‐induced waste management initiatives ultimately increase firms' economic value. Theoretical/Academic Implications We document that co‐opted boards may enhance firms' waste management practices by reducing performance‐induced CEO turnover. Thus, we make important contributions to the corporate governance and environmentalism strands of the literature by highlighting the bright side of board co‐option for waste reduction initiatives. Practitioner/Policy Implications Our study provides vital policy implications for regulators and top management teams against the background of public outcry and social pressure to mitigate the damage to the environment and calls for ethical business practices.