When governance bundles backfire: Institutional crowding in corporate sustainability
DOI:
https://doi.org/10.7433/s130.2026.07Keywords:
corporate sustainability, corporate governance, leadershipAbstract
Framing of the research: Corporate sustainability research increasingly highlights the importance of governance mechanisms in driving sustainability outcomes. While firms simultaneously adopt internal sustainability leadership structures and external sustainability affiliations, existing studies have largely examined these mechanisms separately and assumed their complementarity. This study challenges such an assumption by investigating whether governance bundles always enhance sustainability performance or whether their coexistence can generate tensions and institutional crowding that undermine their effectiveness.
Purpose of the paper: This paper investigates how different governance mechanisms, internal sustainability leadership and external sustainability affiliations, affect corporate sustainability performance. Although both approaches are increasingly adopted by firms to address sustainability challenges, their individual and joint effects remain unclear. The study aims to clarify whether these mechanisms act as complementary or substitutive forces in shaping sustainability outcomes and to uncover the dynamics that arise when they coexist.
Methodology: The research employs a longitudinal quantitative design based on panel data of European listed companies over a fourteen-year period. Drawing on upper echelons theory and resource dependence theory, the study operationalizes sustainability leadership through executive-level roles and internal governance structures, while sustainability affiliations are captured through firms’ participation in global sustainability networks such as the United Nations Global Compact (UNGC). Multivariate regression models are used to test the independent and interactive effects of these mechanisms on sustainability performance indicators.
Findings: The results show that both internal sustainability leadership and external affiliations independently enhance corporate sustainability performance. However, their combination does not always yield additive benefits. Instead, the coexistence of the two mechanisms may lead to institutional crowding, a condition in which overlapping governance practices routinize sustainability initiatives and reduce the strategic influence of sustainability leaders. This counterintuitive finding reveals that multiple governance mechanisms can interact in complex ways, producing either synergies or tensions depending on their level of integration.
Research limits: The study focuses on European listed firms, which may limit the generalizability of findings to other contexts. The quantitative design, while robust, captures associations rather than causal mechanisms, and future research could integrate qualitative insights to explore organizational processes underlying institutional crowding. Additionally, the analysis does not differentiate between types of sustainability affiliations, which may vary in influence.
Practical implications: The findings suggest that firms should carefully design their governance architectures to ensure alignment between internal leadership and external affiliations. Without such integration, overlapping mechanisms risk diluting rather than reinforcing sustainability outcomes. Boards and executives should therefore adopt a strategic approach to combining governance tools, fostering coordination between internal roles and external commitments to maximize transformative impact.
Originality of the paper: The paper contributes to the governance and sustainability literature by jointly examining internal and external mechanisms for sustainability. It introduces the concept of institutional crowding to explain why multiple governance practices may not always be complementary. By conceptualizing sustainability leadership and affiliations as part of broader governance bundles, the study advances theoretical understanding of how firms organize for sustainability and offers actionable insights for designing effective governance systems.
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