ABSTRACT The current study addresses the question of how co‐opted directors affect corporate social responsibility decoupling. Using a US sample, we document that the co‐opted directors, those hired after the incumbent CEO, significantly and positively impact CSR decoupling, reflecting their weak monitoring. The cross‐sectional tests reveal that the relationship persists in firms with weaker internal monitoring, such as low board compensation, poor board oversight, high CEO entrenchment, lower board gender diversity, absence of a CSR committee, and few multiple directorships. However, the presence of strong external monitoring, including analyst coverage, competition intensity, the firm's hostile takeover susceptibility, and audit quality, mitigates this effect. Moreover, the interaction between co‐opted directors and CSR decoupling reduces firm value, indicating that weak governance carries real economic costs and ultimately lowers shareholder value. The findings are robust to alternative variable definitions and endogeneity issues. This study contributes to the growing literature on corporate governance's role in CSR decoupling and offers key policy implications for promoting ethical practices.
Sarang et al. (Tue,) studied this question.