Co-opted directors and corporate climate risk disclosure

Purpose: This study aims to examine whether and how the presence of co-opted directors (directors appointed after the incumbent CEO) influences corporate climate risk disclosure. Design/methodology/approach: This study comprehensively analyses 2,975 firm-year observations of US-listed companies, using ordinary least squares with industry and year-fixed effects. To confirm the reliability of the study results, the authors used several techniques, including propensity score matching, to address potential issues with functional form misspecification, analysed a subset of companies where co-option persisted over two consecutive years to mitigate concerns regarding reverse causality and difference-in-differences estimation, using the cheif executive officer’s (CEO’s) sudden death as an exogenous shock to board co-option to mitigate endogeneity concerns. Findings: The findings indicate that the presence of a large number of co-opted directors negatively influences corporate climate risk disclosure. Mediation analysis suggests that managerial risk-taking partially mediates this negative association. Moderation analyses show that the negative impact of co-opted directors on climate risk disclosure is more pronounced in firms with greater linguistic obfuscation, limited external monitoring and in environmentally sensitive industries. Moreover, co-opted directors intentionally withhold or obscure the disclosure of transition climate risks more than physical climate risks. Practical implications: This research has important implications for policymakers, regulators and corporate governance practitioners in designing board structures by highlighting the adverse impact of co-opted directors in contexts with lax regulatory enforcement and managerial discretion. The authors caution against relying on such directors for providing climate-related risk disclosures, especially in companies with poor external monitors and based in environmental sensitivities, as their placement can significantly undermine transparency and accountability. Originality/value: This study adds to the existing body of knowledge by highlighting the previously unexplored phenomenon of intentional obscurity in disclosing climate risks by co-opted directors. This research provides novel insights into the interplay between board composition, managerial risk-taking behaviour and climate risk disclosure. The findings of this study have significant implications for policymakers, regulators and corporate governance experts, and may prompt a re-evaluation of strategies for improving climate risk disclosure practices.