This study empirically examines the relationship between board effectiveness and corporate sustainability performance through the lens of agency and stakeholder theories to determine whether a board of directors enhances sustainable development.
The author uses best practices from Institutional Shareholders Services (2016) to develop a firm-specific board index that integrates four key attributes, including board size, board independence, board leadership structure and the presence of an audit committee. The analysis uses fixed-effects regressions on a sample of 535 listed non-financial firms in emerging Southeast Asian markets.
The findings demonstrate that an effective board can enhance corporate sustainability performance. Among the four board attributes, the author finds that an optimal board size, a majority of independent directors and the establishment of an audit committee contribute to improved corporate sustainability performance. However, there is no impact of CEO duality on sustainable development.
The author contributes to the literature by proposing a comprehensive firm-specific board index to evaluate board effectiveness, clarifying the attributes of a well-functioning corporate board. Additionally, our research emphasizes the crucial role of a well-functioning board of directors in enhancing sustainable development, particularly in emerging Southeast Asian markets.
