Building Long-Term Sustainability: The Influence of Corporate Governance on Future Customer Satisfaction

Prior research suggests that a firm’s capacity to both sustain itself and contribute to societal sustainability is fundamentally dependent on the continuity of its customer base. Adopting an agency theory perspective, this study investigates how external corporate governance (takeover protection) and internal corporate governance (board independence) influence future customer satisfaction. We hypothesize that by reducing the disciplinary role of the market for corporate control, takeover protection fosters managerial entrenchment and resource misallocation with a consequent negative impact on future customer satisfaction. In contrast, we predict that board independence, by emphasizing long-term sustainability control systems, is positively associated with future customer satisfaction. Utilizing a sample of 736 observations from 111 US firms over the period 1994 to 2006 and employing takeover protection data made available in 2022, we find support for both theoretical predictions. We also predict and show that board independence acts as a vital countervailing force: independent boards not only positively influence satisfaction but also significantly moderate the negative impact of takeover protection. These findings suggest that strong internal oversight is essential to preserving long-term customer satisfaction in environments characterized by strong takeover protection. Our work offers unique insights for practitioners and academics concerned with sustainability, the design of a firm’s corporate governance architecture, strategic performance measurement systems, and the related integration of sustainability-driven metrics.