The impact of busy independent directors on ESG performance in China: the busyness hypothesis outlook

Purpose In academia, there is controversy regarding the effectiveness of busy independent directors. Given the unique institutional setting in China, this paper aims to explore the effects of busy independent directors on companies’ environmental, social and governance (ESG) performance in the country. Design/methodology/approach Using samples of listed companies on the Shanghai Stock Exchange and the Shenzhen Stock Exchange from 2012 to 2022, the authors used a fixed-effect model to examine the effects of busy independent directors on companies’ ESG performance. The system generalised method of moments (GMM) model and the Heckman selection model were used for the robustness check. Findings The results support the notion that busy independent directors negatively affect companies’ ESG performance. Hence, the busyness hypothesis regarding the ineffectiveness of busy independent directors in overseeing companies’ ESG strategy implementation is supported. Despite contradicting the findings of studies in the USA, the results have been proven reliable by a robustness check. Additional analysis proves the negative effects of busy boards on ESG performance. The negative effect is significant in small companies, companies without foreign auditors and non-polluting companies. The mechanism analysis suggests that not attending board meetings causes busy independent directors to be ineffective in overseeing the ESG practices of companies. Originality/value This study enriches the discussion on the efficiency of busy independent directors in China. To enhance the board’s oversight role, regulators should address the issue of busy independent directors missing board meetings. Companies and credit rating agencies should consider directors’ outside commitments when assessing governance qualities.