The dark side of co-opted boards: evidence from corporate greenwashing in US firms

Purpose Corporate greenwashing has become a topic of discussion among various stakeholders due to the increasing trend of greenwashing practices. This paper aims to investigate the effect of co-opted boards on corporate greenwashing within US firms. Design/methodology/approach Drawing on a sample of 570 firms from 2013 to 2022, this study uses an unbalanced panel of 5,585 firm-year observations. The data are analyzed applying ordinary least squares (OLS) and industry-fixed effect models. To address potential endogeneity concerns, the authors use entropy balancing and propensity score matching (PSM) techniques. Findings The authors find that firms with a higher proportion of co-opted directors exhibit increased greenwashing practices, supporting the “dark side” hypothesis of co-opted boards. Furthermore, they demonstrate that the impact of board co-option on greenwashing is more pronounced in profitable firms and those facing higher environmental, social and governance (ESG) controversies and less significant in firms with strong governance. Practical implications The findings have important managerial and theoretical implications. Firms should scrutinize the appointment of co-opted directors to reduce corporate greenwashing. In addition, firms can attempt to improve internal governance to mitigate these adverse effects. Social implications The findings of this research have important social implications. Greenwashing facilitated by co-opted boards is likely to erode public trust and create widespread suspicion about the credibility of environmental social and governance (ESG) reporting. This undermines genuine efforts toward corporate sustainability, making it difficult for stakeholders to distinguish between authentic environmental commitment and mere symbolic gestures. Originality/value To the best of the authors’ knowledge, this study is the first to examine the effect of board co-option on corporate greenwashing, thereby contributing to the broader literature on business ethics. Moreover, their analysis identifies firm-specific characteristics that aggravate the negative effect of co-opted boards on greenwashing as well as how to mitigate the effect.