Independent directors and environmental innovations: How the visibility of public and private shareholders' environmental activism moderates the influence of board independence

Abstract

While independent directors focus on preserving the shareholders' interests, their individual preferences may differ with regard to how environmental innovations have to be considered. A growing importance of shareholders' environmental activism has sought to influence firms' environmental practices through public proposals and private negotiations with executives. Using a sample of 7111 firms listed in the S&P 1500 index between 2006 and 2019, we examine how the visibility of shareholders' environmental proposals moderates the relationship between board independence and environmental innovations. Our findings show that public and private shareholder activism related to community issues and external reporting reinforces the positive influence of independent directors on firms' environmental innovations. However, private dialogues between executives and environmental activists focused on emissions from company operations diminish the influence of independent directors. Our study sheds light on how the external visibility of the topics involved in the activists' environmental proposals reinforces the interest of independent directors in advancing environmental innovations.