Pathways to sustainable business model transformation: corporate governance, strategic leadership and business strategy

Abstract

In today’s rapidly evolving business environment, firms face increasing pressure to adopt sustainable practices, with the circular economy (CE) model emerging as a transformative pathway toward environmental and economic resilience. This study aims to investigate the role of governance mechanisms, particularly board and chief executive officer (CEO) dynamics, in enhancing CE performance among manufacturing firms in the Middle East and North Africa (MENA) region. In addition, it examines the moderating role of business strategy in the relationship between governance mechanisms and CE performance, with a focus on innovation, resource efficiency and operational sustainability. The analysis uses panel data from 6,929 firm-year observations and applies dynamic panel estimation techniques, including the system generalized method of moments, to assess the effects of governance, leadership and strategy on CE performance. To strengthen causal inference and ensure robustness, this study incorporates lagged variables, two-stage least squares, propensity score matching and generalized least squares. The results show that board interlock, independence, expertise, CEO foreign experience and external roles significantly enhance CE performance, while concentrated ownership and long CEO tenure constrain it. Business strategy acts as both a direct driver of CE adoption and a moderator that amplifies governance and leadership effects. Heterogeneity across industries reveals that governance plays a stronger role in resource-intensive sectors such as energy and chemicals, while consumer-driven sectors such as food and beverages are shaped more by market pressures and regulatory demands. This study extends agency theory by showing that governance mechanisms can act as both enablers and barriers to CE adoption and refines the resource-based view by demonstrating that leadership attributes are valuable resources only when contextually relevant and practically applied. By situating these dynamics within the institutional realities of the MENA region, this study reveals how governance and leadership can substitute for weak institutions, while business strategy serves as a catalyst that translates governance potential into sustainability outcomes. The findings advance theoretical understanding of the governance–sustainability nexus and provide actionable insights for managers, policymakers and stakeholders aiming to accelerate CE adoption and support sustainability transitions in emerging markets.