BOARD DIVERSITY AND ENVIRONMENTAL PERFORMANCE OF OIL AND GAS COMPANIES IN NIGERIA

Background to the Study

The environment has become a crucial concern in today’s ecological, social and economic set up and environmental accounting/reporting has emerged during the last two decades in response to these issues. Industrial activity has a large impact on the environment and this has led to stakeholder interest in corporate environmental activities and its impact (Anderson, 1989).

Response to this increase in interest has varied across corporations and countries. The past four decades have witnessed an increasing global concern for the environment. This concern emerges mainly from the threat caused by the harmful effects and environmental problems. In this regard, the role of environmental performance activities such as environmental and social accounting/reporting has emerged as a result of a concern for the relationship between the organization and the natural environment. The need for environmental performance activities such as environmental and social accounting/reporting has become the concern and focus of nations and responsible corporate managements. The growing public concern over the natural environment substantially increased awareness of corporate environmental responsibility. Companies are increasingly facing intensifying challenges to disseminate information about their environmental activities. Studies on corporate environmental reporting have proliferated. Stakeholders are increasingly concerned with the way in which companies are responding to environmental issues.

Conventional accounting systems failed to promote efforts that balance the different needs of various stakeholders. In other words, they failed to address economic growth against social and environmental needs (Saravanamuthu, 2004). Conventional accounting systems tend to prioritize economic goals and jeopardize any attempt to promote socio-environmental goals. Such systems tend to ignore environmental issues unless they have a financial impact of sufficient materiality to warrant recognition according to international accounting standards frameworks. Accordingly, there is an overall dissatisfaction with the mechanism of conventional accounting and its practices, the application of which results in unfavourable broader social and environmental consequences (Bebbington, 1997). Calls for change as to the current nature and purpose of accounting (Gray and Collison, 2002) are motivated by the fact that corporate activity is no longer confined to the pursuit of profit maximization or economic growth (Bebbington and Gray 2001). In this regard, the ability of information to induce a change in the behaviour of companies in addressing environmental issues should be emphasized. By providing information, companies tend to improve their performance in such areas that they publicly disclose. Consequently, the established consensus now is that there is an urgent need to expand the business reporting model especially with environmental reporting issues in perspective.

One crucial element in the management of the organisation to achieve performance is the Board of directors. Prior research has suggested multiple ways in which boards may contribute to organizational effectiveness (Forbes and Milliken, 1999) and environmental performance using the resource dependence perspective (Sundaramurthy and Lewis, 2003) and from an agency/control perspective (Golden &Zajac, 2001).An important Board variable that have been linked with the firm ability to ensure environmental performance is the board diversity. Board diversity is a concept that deals with the heterogeneity of board members, including executive vs. outside directors, gender and race characteristics, educational and functional backgrounds, industry experience and tenure within the company, social connectedness and reputation (Ferreira, 2010). Theoretically, there are a number of arguments in favour of diversity of board members. For example, Carter, Simkins and Simpson (2003) identify positive arguments for board diversity in a principal agent framework. They opine that a more diverse board is able to make decisions based on the evaluation of more alternatives compared to a more homogenous board. A diverse board is seen to have a better understanding of the market place of the firm, which increases innovation and creativity. Board diversity may also improve the image of the firm if the positive image has positive effects on customer’s behaviour. Robinson and Dechant (1997) also believed that diversity brings advantages to the entity, such as broader perspectives in decision making, higher creativity and innovation.