Companies with well-connected directors and strong board networks score better than companies with weak board networks on Environmental, Social and Governance (ESG) issues, according to a new report.
The Board Matrix: The (ESG) Value of Well-Connected Donors by Temi Olyeniyi and Zack Yang of the S&P Global Market Intelligence’s Quantamental Research examines the relationship between companies connected through shared board members and ESG performance. The 16-page report explains that companies with directors who serve on more than one corporate board or are well connected have better ESG outcomes than firms with weak board networks.
Well-connected directors can use their network for information on emerging ESG trends/best practices and share this knowledge with their companies. Given their roles on multiple boards, well-connected directors are also better informed about the needs of different stakeholders -- such as communities, governments, and ESG activists -- than directors with little or no network. This awareness of stakeholder management translates to better ESG performance for companies with well-connected directors, according to the report, released in September 2021.
With the growing importance of ESG issues to stakeholders, an emerging focus for corporate boards is shaping ESG policies for their organizations.
Companies with strong board networks have access to information that may not be available to firms with weak board networks. Well-connected directors can transfer strategies or ideas that were successful in improving ESG outcomes from one board to another, boosting ESG scores of those companies with well-connected directors.
Companies with strong board members:
- Are more proactive about addressing gender diversity issues at both the C-Suite and board level; and,
- Score better than companies with weak board networks on issues such as codes of business conduct, operational eco-efficiency /environmental waste and labor practices.
Firms with strong board networks are twice as likely to have female CEOs compared to firms with weak board networks. According to the report, 16% of directors on companies with strong board networks are women compared to 12% for firms with weak board networks. Companies with well-connected directors have fewer incidents of bribery or corruption cases, generate less environmental waste, and have greater gender diversity in senior management than companies with less connected directors.