ESG Issues and Career Prospects of Directors: Evidence from the International Director Labor Market

Abstract

Using an international sample of firms, we investigate the career prospects of directors of firms experiencing negative ESG issues. By tracking the same director at the same firm over time, we document a significant drop in seats held at other public firms' boards following intense negative media coverage of an ESG problem occurring at a

Board interlocks, career prospects and corporate social responsibility

“…Yu et al (2018) document that independent directors' reputation leads to an improvement in CSR. Colak et al (2022) find that directors' reputation is significantly affected by negative media coverage of the firms' environmental and social issues. Therefore, we propose the following hypothesis: Hypothesis 2.…”

“…Moreover, Ferris et al (2020) show that director connection is positively priced and well-connected directors get a premium pay. Colak et al (2022) argue that attaining more board seats brings more money to directors.…”

“…As shown in the literature (e.g., Cai et al, 2022; Larcker et al, 2013), directors usually serve on boards of several firms. Attaining a board seat not only indicates the directors' reputation but also brings more prestige, power, monetary gain and valuable networks for them (Colak et al, 2022; Ferris et al, 2020; Lahlou & Navatte, 2017; Levit & Malenko, 2016). As a result, well‐connected directors tend to have more at stake as well as greater reputations to protect (Intintoli et al, 2018).…”

“…For example, Yu et al (2018) argue that independent directors' reputation is positively correlated with CSR. Also, Colak et al (2022) find that directors can lose seats at other firms when their focal firms experience negative media coverage on environmental and social issues. Similarly, Oh et al (2016) document that young CEOs tend to invest more in CSR due to their longer career horizons while older ones tend to disengage in CSR.…”

“…In line with this theory, several studies document the benefits of CSR such as enhancing a firm's competitive advantage (Flammer, 2015; Porter & Kramer, 2006), reducing risks and costs (Dhaliwal et al, 2014; Goss & Roberts, 2011; Kim et al, 2014) or increasing firm value (Lev et al, 2010; Lins et al, 2017; Margolis et al, 2007; Roberts & Dowling, 2002; Waddock & Graves, 1997). However, little is known about the use of CSR as a tool for career improvement of firms' CEOs (Oh et al 2016) and board members (Colak et al, 2022; Yu et al, 2018).…”