1.1 Governing Sustainability
In the last decade, the statements of the CEOs of the leading American and European firms have often cited sustainability as a topic of growing importance for corporate strategy (Beauchamp and O’Connor 2012).
However, these statements have not always resulted in a tangible commitment towards social and environmental issues (Barkemeyer et al. 2014), raising a question about which elements could really foster the integration of sustainability into a firm’s strategy.
Considering the governance of a firm, the board of directors is recognized as one of the principal actors of good corporate governance (Hillman and Dalziel 2003), as it can oversee management and support the decision-making process (Hendry et al. 2010). The monitoring and supporting roles of the board of directors are relevant also for what concerns sustainability (Elkington 2006), as the directors can drive organizational change for desired sustainability-related outcomes (Galbreath 2016).
Recently, the creation of ad hoc board committees has been defined as one of the most appropriate decisions that top corporate governance bodies may take (Gennari and Salvioni 2018). Setting up a board committee with responsibility for guiding and monitoring the development of a sustainability strategy and its implementation is interpreted as a way to better monitor management in terms of its sustainability performance and as a tool to provide advice to management when dealing with social and environmental issues (Burke et al. 2019).
The presence of board committees dealing with sustainability has grown significantly in the last few years, often under the pressures of international institutions (Vurro and Perrini 2011), but there are still specific country-level or regional characteristics that may imply a diverse effect on corporate governance mechanisms (Ortiz-de-Mandojana et al. 2016).
With regard to board committees, extant research has focused on the mandatory or self-regulatory requirements regarding the overall quality of corporate governance, such as the presence of independent directors (Liao et al. 2015) or the adoption of global reporting standards (Vigneau et al. 2015). Nevertheless, the research on country-level external conditions that could affect the diffusion of board committees responsible for social and environmental issues has been limited (Gennari and Salvioni 2018).
This research gap may be even more relevant taking into consideration that in the last years the legal and regulatory framework regarding sustainability has changed significantly, becoming really demanding for firms (OECD 2018).
1.2 A New Legal and Regulatory Framework
The European Union has been one of the most committed institutions towards sustainability, in particular for what concerns the involvement of the private sector. In particular, in 2014 the European Union’s Non-Financial Reporting Directive (Directive 2014/95/EU) laid down the rules on disclosure of non-financial and diversity information by large firms in Europe, implying the obligation for most listed and/or large firms to include non-financial statements in their annual reports from 2018 onwards. The directive established the requirement for certain large firms to publish reports on the policies they implement in relation to environmental protection, social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery, and diversity on company boards (in terms of age, gender, educational and professional background; Quinn and Connolly 2017).
After this directive entered into force, European countries had a short time to frame their own national regulations. In December 2016, the UK government published the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations to implement the European “Non-Financial Reporting Directive.” The regulation, which applied for financial years beginning on or after January 1, 2017, amended the Companies Act 2006 requirements for the annual reports, and included diversity requirements in the Disclosure and Transparency Rules (DTR), but did not provide any other rule for board structure (Helfaya and Moussa 2017).
As far as Italy is concerned, in contrast, one of the first reactions was the revision of the Code of Corporate Governance of firms listed on the Italian Stock Exchange. The new version of the code highlighted the opportunity for listed firms to create a specific committee responsible for sustainability issues by the end of 2016. At the same time, the legal accountability of the top management towards social and environmental issues was extended (Legislative Decree 231/01), increasing significantly the pressures on Italian listed firms. Finally, at the end of 2016 the Italian government approved Legislative Decree No. 254/2016, implementing the same European Union Directive 2014/95/EU. The enforcement of this law was expected to exert a stronger influence on Italian firms, as it indicated that the management of eligible firms was responsible for drafting the non-financial statement, but also considered the board of directors responsible for compliance with the law (Venturelli et al. 2017).
Recent years have been characterized, indeed, by significant changes in the legal and regulatory framework concerning the governance of sustainability, but it is necessary to underline that these changes were not always homogeneous. Previous studies (La Porta et al. 1998) made evident that the enforcement of laws and regulations may vary according to the legal tradition of the country (e.g., civil law, common law), especially for what concerns sustainability issues (Hörisch et al. 2017). In particular, previous research has demonstrated that in civil law contexts there is a higher consideration for a broader category of stakeholders, whereas in common law countries the main focus is on shareholders (Collison et al. 2012).
Thus, the research gap in the role of external pressures on the integration of sustainability within corporate governance, and the significant changes in the legal and regulatory framework that occurred in Europe, motivated this research project on the role of legal tradition in determining the implementation of sustainability within corporate governance through board committees.
1.3 The Research Project
This research project started in 2013, by the recognition that sustainability issues may play a more significant role in firms’ strategy when integrated in corporate governance mechanisms. Since its beginning, the aim of this research was filling the gap regarding the role of legal tradition in determining the implementation of sustainability-related corporate governance mechanisms; that is, the creation of board committees devoted to social and environmental issues. In particular, the scope was to verify if the higher concern for stakeholders in civil law contexts affects also the governance of sustainability. Furthermore, as academic research was as yet unable to describe properly how governance structures related to sustainability evolved over time (Spitzeck 2009), this research project was intended to investigate also if and how a potential increase in the presence of sustainability board committees due to the legal context is also able to predict a higher concern for social and environmental issues, and to influence firms’ pathway towards sustainability through time.
Thus, the project was designed as a longitudinal study, with multiple waves of data collection and analysis, focused on Italy and the UK, two countries representative, respectively, of the civil law and of the common law tradition (La Porta et al. 1998).
The research project was developed around two distinct activities: an initial stream of investigation was carried out through multiple questionnaires addressed periodically from 2013 onwards to the firms listed on the FTSE-MIB index of the Italian Stock Exchange, which includes the most important firms in the country.
In addition, to strengthen the results of the empirical investigations, a second stream of research was conducted by carrying out a longitudinal desk analysis of the main corporate documents that the same firms published from 2013 onwards. The desk analysis was carried out in parallel also with regard to the UK, by taking into consideration the firms belonging to the FTSE 100, the benchmark index of the London Stock Exchange.
1.4 Book Structure
The book is divided in six chapters, aimed at providing a complete overview on the issue of the governance of sustainability.
The introduction summarizes why corporate governance is becoming increasingly relevant to fully integrate sustainability within firms, starting from the discussion of recent academic debate and regulatory evolution. The summary of the contents of the chapters follows.
Chapter 2 is about the theoretical background of the research project. The chapter starts by providing an overview of the most significant contributions, both academic and practitioner, related to corporate governance, and in particular to the board of directors. Then it covers the role of legislation in determining the configuration of corporate governance, looking at the two main legal traditions, and focusing specifically on the legal and regulatory framework in Italy and in the UK. The chapter ends by analyzing ho...