Water‐Conscious Governance: The Role of Co‐Opted Members in Water Withdrawal

ABSTRACT This study investigates the impact of co‐opted board directors on water withdrawal. Based on a U.S. sample of 4194 firm‐year observations between 2008 and 2022, we find that the presence, independence and tenure of co‐opted directors reduce firm water withdrawals. Co‐opted directors can play a constructive role in improving corporate water management by aligning with the CEO environmental initiatives, responding to legitimacy pressures, and supporting strategies that balance profit with stakeholder concerns. Additional analyses reveal that this relationship is stronger when the CEO and board chair roles are separated and in firms with strong corporate governance and environmental performance, as well as in firms that link executive compensation to CSR performance. Also, we show that the effect is prevalent in firms with CSR and nomination committees. Our findings offer new insights for regulators and managers seeking to address water management issues and encourage firms to improve their board structure by increasing board co‐option to better align board decisions with CEO water management policies.