Internationalisation and ESG controversies: do foreign directors on corporate boards matter?

This study examines the relationship between internationalisation and environmental, social, and governance (ESG) controversies, focusing on whether foreign directors on corporate boards influence this relationship. Drawing on resource dependence theory, we argue that internationalisation increases ESG controversies due to the complexity of managing diverse regulatory environments and stakeholder expectations. While foreign directors may contribute valuable global expertise and networks, they can either mitigate or exacerbate these controversies depending on their advising and monitoring capabilities. Using a sample of 5,834 firm-year observations from U.S. companies, we find a positive association between internationalisation and ESG controversies. Additionally, foreign directors significantly exacerbate the effect of internationalisation on ESG controversies. Our results, which underscore the adverse impact of internationalisation and culturally diverse boards on ESG controversies, remain consistent after a battery of sensitivity tests and the addressing of potential endogeneity concerns. Our results are also robust to external shocks, such as the global financial crisis and the COVID-19 pandemic. This research advances the literature on corporate governance and sustainability, offering practical insights for policymakers and firms on the importance of strategic board composition and effective governance structures for managing ESG risks across global operations.