Busy boards and environmental, social and governance performance: a gender perspective on NASDAQ-100 firms

Corporate boards are responsible for implementing principal decisions about corporate strategy and ensuring effective corporate governance. The survival of companies is highly dependent on the quality of their decisions. Corporate boards are the primary instrument for corporate governance. The impact of corporate board composition on firm performance and board governance has been widely researched, with a particular focus on the effect of board members accumulating multiple board seats across different companies (Ferris et al. 2003; Fich and Shivdasani 2006). Boards are considered busy when at least 50% of their board members serve three or more corporate boards simultaneously (Ferris et al. 2003). Multiple directorships bring experience and knowledge to corporate boards, as well as wider networks, which have an impact on board governance and firm performance. Whether those contributions of busy directors are beneficial or harmful to corporate governance has been widely investigated by previous research, resulting in two completely opposing arguments. According to the ‘reputation hypothesis’, this knowledge and connections are valuable resources for a board’s advisory function and decision-making, which positively impacts board performance (Ferris et al. 2018; Kim 2022; Liu and Paul 2015). However, according to the ‘busyness hypothesis’, the more extensive capabilities of board members holding multiple board seats can be reduced by dividing their limited time and effort among a greater number of corporate boards, negatively affecting the board monitoring function and firm performance (Ferris et al. 2003; Fich and Shivdasani 2006; Jiraporn et al. 2008).

This debate has been extended to the influence of multiple directorships on environmental, social and governance (ESG) performance (Cooper and Uzun 2022; Romano et al. 2020). The United Nations’ publication of the Principles of Responsible Investment (PRI) in 2006 marked the first steps towards considering ESG criteria in investment decisions. Since then, investors, regulators, proxy advisors and numerous organisations have demanded that firms include ESG issues in their strategic decisions. ESG performance can also be influenced by board busyness (Kim 2022). On the one hand, according to the ‘busyness hypothesis’, multiple directorships may significantly reduce their commitment to the board monitoring function and increase other no business responsibilities, negatively affecting sustainability performance (de Villiers et al. 2011; Harjoto and Wang 2020). On the other hand, serving on other corporate boards provides board members with more networks, experience, knowledge, and expertise, which improves the board advisory function and, under the premises of the ‘reputation hypothesis’, may have a positive effect on ESG strategies (Harjoto and Wang 2020; Mallin and Michelon 2011; Nandy et al. 2020). However, few studies have examined the impact of busy boards on ESG scores, considering three ESG factors at the same time, and even fewer have considered the gender of board members and their experience serving the same corporate board.

As a result, the aim of this paper is to investigate the influence of busy boards and board tenure on ESG performance in companies listed on the NASDAQ-100 Index, focusing on the role of female directors. Unlike previous studies, this paper analyses knowledge, experience and networks jointly from two perspectives: outside acquisition via board members serving on multiple corporate boards and inside acquisition via board members holding a board seat in the same company for years. Therefore, the multiple cognitive skills of board members are considered to enhance the ESG performance of companies (Behlau et al. 2023). Using data from 2018 to 2022 and applying an OLS model, this research assesses the effect of corporate board composition on Bloomberg and S&P Global ESG scores. Important governance variables, including experience-related factors such as board busyness (busy board and the number of directorships held by independent directors) and tenure (years on the board, in the current role and within the company of directors), along with board composition (female directors and insider directors), are analysed as drivers of ESG scores in the 100 most innovative and high-growth companies recognised for their pivotal role in driving global economic progress. This paper highlights the crucial role of corporate boards by providing a deeper understanding of how board members’ networks, experience and knowledge can positively influence ESG performance, particularly in companies that are leading or driving innovation in the global economy. In this context, the study extends the previous literature on the importance of board composition in influencing corporate performance by demonstrating that having busy boards and long-tenure directors can be crucial for creating sustainable value in innovative companies. Additionally, this research emphasises the significant contribution of women on corporate boards in promoting sustainability in corporate governance. Overall, this research advances the understanding of the principal governance attributes that contribute to responsible corporate performance.

Previous literature research has demonstrated the influence of accumulating board seats on firm performance and corporate governance. Following prior studies, a busy board is defined as a board on which at least half its members serve on the boards of three or more companies (Benson et al. 2015; Fich and Shivdasani 2006; Field et al. 2013). This is a widespread corporate governance practice, as most corporate boards worldwide have some board members with multiple directorships (Ferris et al. 2020). Previous studies have presented two opposing perspectives regarding the influence of board busyness on firm performance: the ‘busyness hypothesis’ and the ‘reputation hypothesis’, according to which the presence of board members with multiple directorships may harm or improve firm performance, respectively.

When board members serve on multiple corporate boards, they must logically distribute their limited time and effort among more corporate boards. Although it would seem that the most reputable and talented board members are those who accumulate more board seats (Adams et al. 2010), the lack of sufficient time to serve all corporate boards can negatively affect their superior qualities (Falato et al. 2014) and their attendance at board meetings (Jiraporn et al. 2009; Latif et al. 2024). On the basis of these arguments, the ‘busyness hypothesis’ is established. Boards that are too busy may not fulfil their role of control, becoming less cautious and reducing the effectiveness of the board monitoring function (Ferris et al. 2003; Liu et al. 2023). This weakness in corporate governance may increase the probability of managers manipulating firm earnings (Kim 2022), diminish the quality of firm financial reporting (Ferris and Liao 2019) and reduce firm value (Cashman et al. 2012; Ferris et al. 2020; Fich and Shivdasani 2006; Jiraporn et al. 2008). Similarly, boards that are too busy may also be unable to devote sufficient effort and attention to managing complexity and long-term investment in innovation (Bolton and Zhao 2022). However, other authors have demonstrated that multiple directorships do not necessarily imply less control and commitment on the part of board members (Kiel and Nicholson 2006; Latif et al. 2024) or an increase in the cases of security fraud (Ferris et al. 2003; Field et al. 2013). The theoretical basis of the ‘busyness hypothesis’ seems to be related to agency theory, with a principal focus on the board monitoring function and controlling and supervising management performance (Fama and Jensen 1983). Regulatory authorities seem to adopt this perspective (Ferris et al. 2018; Keys and Li 2005). Their reforms and regulations have attempted to limit the number of board seats that directors may hold in an effort to preserve firm value (Perry and Peyer 2005).

Although busy boards may reduce monitoring effectiveness, some firms prefer to take advantage of the advice and networking benefits that multiple directorships may provide to business strategies (Bazrafshan and Hesarzadeh 2022; Kim 2022). The ‘reputation hypothesis’ premises are based on improving the quality of the board advisory function provided by busy boards. On the one hand, multiple networks with other corporate boards and firms increase the skills, experience, expertise, and knowledge of board members in terms of corporate governance, management styles, and business strategies, thus improving the advising board function and decision-making (Carpenter and Westphal 2001; Ferris et al. 2018; Liu and Paul 2015). On the other hand, holding multiple board seats increases the visibility and reputation of directors, which can encourage their commitment to board functions (Brullebaut et al. 2022; James et al. 2018). As a result, having multiple directorships improves financial performance and market value (Ferris et al. 2003; Mbanyele 2020; Perry and Peyer 2005). This human capital accumulated by corporate boards may be especially relevant in mergers and acquisitions (Benson et al. 2015; Kim 2022) and initial public offerings (Field et al. 2013; Tham 2024), which are not typical transactions in that the prior expertise and experience of board members can provide greater advising benefits. Ferris et al. (2020) have gone further with those strategic events, demonstrating the value of busy boards in young firms that are unfamiliar with the business world and where the knowledge of board members may be truly valuable. Similarly, multiple connections among the members of busy boards may be crucial for improving the quality of advice in strategic decisions on innovation (Kim 2022) and asset management (James et al. 2018). However, Andres et al. (2013) noted that connections with other firms may also imply other indirect social and informal commitments outside the board that saturate board members’ agendas and reduce their time dedicated to corporate boards. The ‘reputation hypothesis’ seems to be supported by resource dependence theory (Pfeffer and Salancik 1978), as human capital and social networks are valuable resources that contribute to corporate governance.

In conclusion, previous research results are inconclusive regarding the two perspectives outlined above. Some authors have argued that the mixed results are simply due to the study samples chosen for research (Cashman et al. 2012). However, other authors have suggested that the inconclusive results may imply that the impact of a busy board on firm performance is dependent on the principal board function required by firms: a positive effect will result in firms where managers primarily require advice yet it is ineffective in firms with a high need for supervision and control of management activities (Kim 2022).

Beyond the role of busy boards and the traditional objective of maximising shareholders’ value, strong demands from multiple stakeholders, international organisations, and society at large have resulted in ESG issues dominating boardroom discussions (Cooper and Uzun 2022). ESG refers to the environmental, social and governance dimensions of corporate performance. The environmental dimension refers to a firm’s practices and policies to protect the environment and manage its impact on it (for example, greenhouse gas emission footprints, waste management and pollution, climate change, environmentally friendly products, etc.); social issues are related to the firm’s relationship with its stakeholders (for example, considering workplace health and safety, human rights, community impacts, and supply chain management); and the governance dimension refers to how a company is led and managed (for example, board diversity and structure, executive pay, transparency and disclosure practices, and shareholder rights). These ESG issues are not a closed list that remains constant over time (Escrig-Olmedo et al. 2019), and all of them are used by investors as decisive criteria in their investment decisions (Birindelli et al. 2018; Lopez-Cabarcos et al. 2019). This increasing popularity among investors has resulted in establishing multiple ESG rating providers (Escrig-Olmedo et al. 2019) despite the lack of consensus in the methodology used, the ESG attributes measured and the weight of each ESG factor (Berg et al. 2022; Billio et al. 2021; Chatterji et al. 2016).

Since we use panel data, some variables have limited variability over the period, leading to their omission during the analysis. We selected OLS as the starting point in our analysis, but the Breush–Pagan Lagrangian test for random effects indicated that OLS may be more appropriate for our analysis. Therefore, in Table 3, we report the OLS results. The ratio of directorships held by independent directors has a positive effect on all Bloomberg and S&P global indicators, except for Bloomberg Social, which does not support the negative links found by Birrindelli et al. (2018). These findings are also corroborated by Fama and Jensen (1983), who claimed that outside directors have a strong incentive to perform and do not neglect monitoring duties. As claimed by Wang et al. (2023), the dummy variable of busy boards has a positive effect on Bloomberg ESG and Bloomberg Environmental and a negative effect on Bloomberg Governance, which is the sole indicator for which busy and unfocused directors are associated with poor company management. In most cases, we do not find clear support for our Hypothesis H_1a, and busy directors contribute to better overall ESG rankings, which could be explained by their ability to effectively apply their vast experience and knowledge acquired across multiple firms. These findings are consistent with previous studies on the ‘reputation hypothesis’, which is based on the positive effects of networks, experience and expertise by board members with multiple directorships (Carpenter and Westphal 2001; Ferris et al. 2018; Liu and Paul 2015). According to prior studies, board busyness contributes positively to ESG performance (de Villiers et al. 2011; Harjoto and Wang 2020; Nandy et al. 2020). The results suggest that board members who accumulate more board seats can adequately distribute their time and efforts and help with board advising functions (Latif et al. 2024). This positive effect is reinforced by outside directors (Ferris and Liao 2019; Fich and Shivdasani 2006; James et al. 2018) with multiple external connections and independence from management on behalf of the demands of stakeholders (Cooper and Uzun 2022; Hussain et al. 2018; Mallin and Michelon 2011).

As expected, insiders on boards are associated with negative rankings, but the presence of women is marked by strongly positive coefficient estimates, indicating that more women could lead to higher rankings across all the measurements applied in our study. These findings are in line with previous research that demonstrated that the positive contribution of female directors to ESG performance (Cooper and Uzun 2022; Garcia Martin and Herrero 2020; Kassinis et al. 2016; Nicolo et al. 2022; Provasi and Harasheh 2020; Romano et al. 2020) is an important moderating variable (Pucheta-Martinez et al. 2021). However, this differs from those of Cambrea et al. (2023) and Birindelli et al. (2018), who demonstrated the positive effect of insiders owing to their greater understanding of the firm. In summary, the results suggest that multiple external connections (rather than internal knowledge) and the strong commitment of female directors to stakeholders contribute positively to ESG performance.

The length of relevant experience acquired by being on boards positively impacts rankings, thereby confirming our Hypothesis H_2a. In contrast, the same has not been the case for years in the organisation, because statistically significant negative coefficients prevail, but only for S&P rankings. However, for years in the current role, which is by definition the shortest of all three categories, the impact is negative for almost all Bloomberg measurements. It is possible to conclude that overall board experience is more relevant than employment history or comparatively recent role changes. These results are consistent with the ‘expertise hypothesis’ (Vafeas 2003) and other previous research that demonstrated that the more years directors remain on a board, the greater their knowledge and expertise (Bonini et al. 2022; Field et al. 2013) and commitment to long-term strategies (Patro et al. 2018), which positively impact ESG issues (Harjoto et al. 2015; Melo 2012; Paolone et al. 2023).

Finally, we find some interesting results when testing Hypothesis H_3a by examining the womenperboard interaction term and respective standalone coefficient estimates. For the ratio of independent directorships, including the ratio of female directors as an interaction term in the analysis renders the combined coefficient estimate smaller. For the age variables, the ratio of female directors on boards mainly reduces the yearsonboard coefficient estimate, and for larger ratios, it is negative, but it provides strong support for the claim that years in the organisation and years in the current role are relevant and positive for ranking when female directors are included in the analysis. We claim that women on boards positively impact rankings, which supports Hypothesis H_3a and is consistent with previous research that demonstrated that women on boards has a positive effect on ESG performance (Beji et al. 2020; De Masi et al. 2021; Garcia Martin and Herrero 2020; Hafsi and Turgut 2013; Kassinis et al. 2016).

The results obtained may have relevant theoretical contributions to the composition of corporate boards and their influence on ESG performance. This research contributes to the theoretical approaches related to the ‘reputation hypothesis’, which refers to the beneficial contributions of busy boards to corporate governance, and the ‘expertise hypothesis’, which is based on the positive effects of the accumulation of knowledge and experience derived from serving on the same board for a long period of time. Drawing on both perspectives, the innovative approach of this research contributes to a better understanding of the governance factors that can influence firm performance, particularly sustainable business practices. Researchers should consider the results obtained in this research to analyse how the knowledge, experience and expertise of board members (both external and internal) can become valuable resources when making strategic decisions on corporate innovation and how they can influence performance results.

From a practical perspective, this research suggests that directors serving on multiple corporate boards do not necessarily harm governance and firm performance. In fact, the findings show that directors with diverse experiences and networks can provide valuable insights that enhance ESG performance. Regulators and proxy advisors should carefully consider these findings, challenging the assumption that the number of busy directors on corporate boards should be limited. Instead, this research supports encouraging diverse types of expertise on boards rather than imposing restrictions that may inadvertently exclude valuable knowledge. Furthermore, companies and investors should recognise the potential of busy directors to drive long-term corporate value by promoting responsible and sustainable business practices. The involvement of experienced directors should be viewed as a key factor in addressing complex ESG challenges, improving corporate performance and contributing to a more sustainable society.

Companies and governments should also consider the effect of gender diversity on boards on ESG performance. While companies should consider how the presence of women on boards can lead to effective decisions to include sustainable practices in their core strategies, governments should use these results to design policies aimed at promoting board gender diversity and sustainable development. In general, the results of corporate governance studies involving gender differences are rarely considered robust and are not subject to further evaluation. While the inclusion of more female directors may contribute to creating a new board culture, the effectiveness may be affected by the lack of specialised knowledge or experience caused by the legally required quotas or societal expectations that must be met hastily and without sufficient time for appropriate selection processes. In this study, gender does seem to be a decisive factor that urges companies and governments to pay attention when designing corporate boards.

In summary, the findings of this research provide a better understanding of the best practices in corporate governance by establishing guidelines for board composition focused on linking innovation objectives and sustainability challenges.

The purpose of this research is to investigate the influence of busy boards and the tenure of board members on ESG performance in the most innovative companies listed on the NASDAQ-100 index, with a particular focus on female directors. The results indicate that board experience is associated with higher rankings, but this is reversed by including the female director’s ratio. Years in the organisation and the current role become more relevant when female directors are included in the analysis. Curiously, the expected negative sign for busy independent directors was not confirmed, but the coefficient estimates became less positive and ultimately negative with the inclusion of female directors in the analysis. A busy board dummy variable is linked to positive effects on Bloomberg ESG and Bloomberg E but to a rather negative influence on Bloomberg G. It is rather difficult to confirm that this is a self-fulfilling prophecy where busier boards are downgraded owing to assumed poor governance, because the result for S&P G was statistically insignificant. The 100 largest and most innovative companies listed on the NASDAQ-100 Index seem to consider multiple directorships as valuable sources of experience, expertise and connections for board members without preventing them from adequately distributing their limited time and energy to board functions. Their presence seems to favour the advisory role of the corporate board while not undermining the board monitoring function. Similarly, the service of board members in a given company reinforces their beneficial contribution. In summary, the results seem to point to the importance of knowledge and networks for ESG performance for companies at the forefront of innovation. However, this positive effect does not seem gender neutral. The still scarce presence of women on corporate boards as well as widespread gender stereotypes that prevent them from reaching their potential on corporate boards limit their contributions to ESG performance.

This paper provides valuable insights for companies aiming to strengthen their governance structures to improve their ESG performance. This highlights the importance of including diverse perspectives and experienced directors to obtain high ESG scores. Beyond simply improving ranking positions, this research underscores the need for corporate governance structures to adapt to contemporary challenges, providing a framework for integrating diverse perspectives into strategic decision-making processes. By demonstrating the positive influence of busy boards and gender diversity on ESG outcomes, this research sheds light on the strategic role of board composition. The results reinforce the value of directors with diverse experiences while emphasising the transformative potential of female representation on boards. This is particularly significant, as including women may change traditional board dynamics. Additionally, by focusing on the most innovative companies, which are often considered international benchmarks, this research may have broader implications in helping other companies align their governance practices with ESG strategies and, ultimately, promote more sustainable and responsible corporate governance.

The panel study faces limitations in the lack of variation for some variables that barely changed over the period. This contributed to the a priori exclusion of fixed effects analysis, which omitted certain crucial indicators. Another limitation is the period that covers the prepandemic and pandemic periods, which could have affected our results. Future research could be supported by longer periods to provide a deeper understanding of whether the benefits of multiple directorships on ESG performance are sustained over time. Comparisons across countries and capital markets could also provide relevant insights. Exploring the effects of tenure and the number of corporate boards held by directors in middle and small-cap companies to analyse their influence on ESG performance would also be valuable. Potential effects on different outcomes related to innovation (R&D investments, patents, new products and services, etc.) could also be considered. Investigating how board members’ experience and knowledge of technology and digital transformation could influence ESG performance and contribute to innovative and sustainable challenges would be valuable. Future studies should also explore how the effectiveness of board composition on ESG performance could contribute to achieving of sustainable goals.