Director Exposure and Transformational Leadership as Strategic Drivers of Sustainability: Evidence on the Mediating Role of Business Model Innovation

ABSTRACT This study examines the mediating role of business model innovation in the relationship between director exposure and transformational leadership on the sustainability of Village‐Owned Enterprises (VOEs) in Indonesia. Grounded in dynamic capability theory, it conceptualizes director exposure and transformational leadership as strategic micro‐foundations enabling organizations to sense, seize, and transform for sustainable value creation. Using data from 104 VOEs analyzed with Partial Least Squares Structural Equation Modeling (PLS‐SEM), the results reveal that business model innovation does not mediate the effect of director exposure on sustainability but significantly mediates the relationship between transformational leadership and sustainability. This implies that innovation is the primary channel through which transformational leaders achieve sustainable outcomes. The findings further indicate that innovation's impact on sustainability strengthens as VOEs advance in their development stages, highlighting the importance of leadership‐driven innovation for enhancing strategic adaptability and long‐term sustainability.