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The Strategic Role of the Board
Abstract
This article reports the results of a survey of 101 UK company boards designed to obtain information on the extent of their strategic involvement, the style of strategy making, the planning process and the methods used to monitor and control the implementation of strategy. There is much prescriptive work on the need for boards to be involved in the strategy making process, but little empirical evidence has been gathered about current practices. This article makes a contribution to this debate. With Pettigrew (1993) we aim to avoid placing this research within any one research tradition, but attempt to provide descriptive results which increase our understanding of the board's role in strategy based on initial findings from an on-going study.
... evaluation of past decisions) (Fiegener, 2005). The strategic role contains, for example, estimating and formulating strategy (Fiegener, 2005); developing a vision and mission; and assessing threats, opportunities, strengths, and weaknesses (Stiles and Taylor, 1996). Although the owners are ultimately responsible for the strategic direction, the board must ensure that strategy as detailed by management is in keeping with the family owners' desires, and that the company leaders execute the strategy in a timely and complete fashion (Lane et al., 2006). ...
... Contextual factors, especially different crises, increase the board's willingness and activeness to participate in strategic decision-making (Mace, 1971). Instead, according to Stiles and Taylor (1996), the strategic role is not as sensitive for the chosen theoretical insight as, for example, the control role, but many theories (including agency theory, stewardship theory, resource dependency theory, and class hegemony theory) agree on the usefulness of boards contributing to the strategic discussion within the company. ...
Research on the board of directors has traditionally focus on studying board attributes, like composition, and the relationship of these attributes to the firm’s performance. More research observing the context and contingencies affecting the governance and board of directors is needed.
The objective of this study is to clarify: 1) how the board participates in family business governance, and 2) how the board develops along with the firm’s and family’s development. The study is implemented as qualitative research, and the longitudinal process approach has been used as it provides the opportunity to examine development in context.
Several conclusions were drawn basing on the findings. First, the family business board participates in the firm’s activities more widely than it is customary to think. Second, the
family business board is not a static part of the business, but it develops and it has to develop along the development of the family, the business and ownership. Third, ownership is not only the basis for the board’s activities or existence, but the relationship between the board and ownership is two-way. The board contributes to a large extent to the ownership decisions, and in this way to the management of ownership.
Fourth, according to the cases, the board has many unrecognized possibilities to facilitate
succession in family firms.
... We focus on three board processes that are widely adopted by both for-profit and non-profit organizations: board meetings, outside-board-meeting reviews, and utilization of information provided by management (Forbes and Milliken 1999;Huse 2005). The ways that directors handle these processes affect how much attention they devote to strategic issues, perspectives, and approaches they adopt in strategic decision-making and their manner of interacting among themselves to reach strategic decisions (Stiles and Taylor 1996). In particular, three social-psychological mechanisms that underlie board processesboard cohesiveness, cognitive conflict, and affective conflict-may strongly influence the directors' behavior (Dalton et al. 1998Forbes and Milliken 1999;Johnson et al. 1996) and their involvement in strategy. ...
... Board strategic involvement can enhance financial performance and industrial competitiveness because the directors may use their accumulated experience in particular industries to determine their organization's strategic objectives and policies (Golden and Zajac 2001;Harrison 1987;Zahra and Pearce 1989). After reviewing strategies proposed by the management, the directors may facilitate the execution of desirable strategies or oppose strategies that could undermine shareholder value (e.g., ambitious mergers and acquisitions for managerial empire-building) (Stiles and Taylor 1996;Trautwein 1990) or that could harm the stakeholders' interests (Clarke 2005). Strategic involvement also enables a board to impel strategic changes in response to changes in the external environment (Golden and Zajac 2001;Goodstein et al. 1994). ...
Although corporate governance researchers have devoted considerable attention to the role of boards of directors in monitoring management and providing resources, less attention has been paid to whether and how they affect the strategic actions of firms in response to changing environments. Taking a process-based perspective, we examine how several prevalent board processes (i.e., board meetings, outside-board-meeting reviews and information utilization) affect the involvement of boards in strategic decision-making and how such involvement shapes organizational performance. Moreover, we offer an initial attempt to compare the strategic role of boards in for-profit and non-profit organizations. An investigation of 217 for-profit and 156 non-profit organizations in Canada indicates that different processes lead boards to different levels of strategic involvement, and that such effects are contingent on the types of organizations concerned. Moreover, boards that are active in strategic decision-making enhance the performance of their organizations. Our findings have implications for board research and practice.
... El directorio se caracteriza por representar a su empresa en la definición de sus estrategias y la búsqueda de sus objetivos para maximizar los ingresos, actuando en roles de ratificación y seguimiento (Cunha y Martins, 2015). Las bases del rol estratégico del directorio provienen de la teoría de la agencia, teoría de los costos de transacción, teoría basada en los recursos, y stewarship theory (Stiles y Taylor, 1996). ...
El objetivo de este trabajo es estudiar la evolución de los requerimientos de divulgación de información sobre el directorio para las emisoras de acciones en el mercado de capitales argentino. se plantea una metodología de investigación cualitativa, empleando el análisis documental como técnica de recolección de datos. Se realiza un estudio comparativo de las responsabilidades y funciones del órgano de administración bajo diferentes normativas del Código de Gobierno Societario. La aplicación práctica de estos requisitos se analiza con un estudio de caso. Mediante análisis de contenido cualitativo se identifican nueve categorías relevantes: rol estratégico, rol de control, administración de riesgos, evaluación del directorio y organización formal, composición, selección y sucesión, capacitación, presidente del directorio y secretaría corporativa y remuneración.
... BODs' corporation and contributions in meetings are crucial to board efficiency (Machold and Farqhar, 2013). Yet, little empirical data has been collected regarding existing corporate governance board practices (Stiles and Taylor, 1996). Pettigrew (2013) called for fresh and direct examinations of BODs' conduct, as understanding boardroom behaviour remains a mystery, and access is difficult due to confidentiality and political considerations (Kiel and Nicholson, 2003;Leblanc and Schwartz, 2007;Van Thiel, 2015;Thompson et al., 2019). ...
Purpose
This study aims to investigate measures established to ensure board of directors (BODs) in a state-owned enterprise (SOE) meets the organization for economic cooperation and development (OECD, 2015) guidelines criteria: how they perform their advising and control roles, and interactions within the boardroom using agency theory and OECD guidelines.
Design/methodology/approach
This research adopts a qualitative approach of a board within a SOE in Barbados involving several stages of data collection. A case study approach was used involving interviews of nine board members and seven key management staff, analysis of board minutes and annual reports.
Findings
BODs follow majority of the OECD (2015) guidelines for good governance. The Chairman allowed full discussion and input from BODs. The board members’ diverse qualifications and skills added value to the organization. However, appointments to the board were heavily slanted toward political considerations which at times may have skewed judgments. Boardroom interactions reflected quality contributions from the BODs. Decision-making was lengthy and tedious. Boardroom atmosphere could be territorial.
Research limitations/implications
Political interference remains an issue facing BODs in executing their roles. This study did not observe board meetings but perceived views via the lens of BODs and management.
Originality/value
This paper adds to the existing body of knowledge of SOE board governance based on OECD (2015) guidelines and how the board performs its advising and control roles. Insights are gained on how board processes contribute to boardroom interaction by using agency theory as the theoretical framework.
... First, is to satisfy the requirements of company law (Stiles and Taylor, 1996). Second, is to serve as an ally of management. ...
This paper reviews various theories of corporate governance in the attempt to explain the variation in the level of accounting quality in a setting with
the adoption of Anglo-American corporate governance system, yet many aspects of business dealings of the setting are heavily influenced by politics.
Although many prior studies examining accounting quality and corporate governance from the point of view of agency theory, the review from this
paper suggests that accounting quality may also be attributed due to the presence of political influence in corporate governance structural mechanisms
in firms which can be explained from resource dependency theory. The integration of the agency and resource dependency theories is appropriate in
understanding what contributes to the provision of resources and effective monitoring. The theoretical contribution from this paper can be extended
to future research examining quality of reporting in markets where resources allocation is highly political, particularly, in the developing countries.
... The board strategic role is directly connected to vigorous action and performance dimension. It is considered to be the chief role of corporate directors and can aid in explaining the attributes of boards and distinguish between the board and management work (Stiles & Taylor, 1996). Miller (1992) suggested that the board leading the company should formulate the framework of its plans, strategies, and objectives and also institute polices requires to manage and administer company. ...
The purpose of this paper is to evaluate the board roles that make a board effective in the performance of adopting corporate social responsibility (CSR) practices. This paper examines directors' perceptions of the three main roles: monitoring, service, and strategic, which provide tools for critically understanding how the board adds the value in moving the organization towards more CSR practices. The stakeholder theory is used to distinguish the influence of the three main roles on the adoption of CSR practices. Primary data were collected for this research by conducting structured questionnaires with a sample of 461 directors from Saudi listed companies for study purpose. The results show that an appropriate mix of directors' roles and the development of sound board monitoring and service roles are the most crucial determinants of CSR adoption in Saudi listed companies. As the extant corporate governance and CSR literatures do not provide a clear perspective with contradictory outcomes about board roles in influencing CSR practices, the originality of this research is its contribution by evaluating the directors' perceptions of developing a direct relationship between the board roles and the adoption of CSR practices. Furthermore, the use of the stakeholder theory provides additional insights into identifying the most influential board role factors enhancing stakeholders' expectations of CSR practices.
... Research studies and reviews on the effect of corporate boards on firm strategy has focused on developed economies (Stiles and Taylor, 1996;McNulty and Pettigrew, 1999;Westphal and Fredrickson, 2001;Jensen and Zajac, 2004;Hendry and Kiel, 2004;Ingley and Wu, 2007;Haynes and Hillman, 2010). Kenya like other developing countries has adopted a corporate governance code drafted from a combination of codes from developed countries. ...
Purpose
– The purpose of this study is to examine the effect of boards’ demographic diversity on firms’ strategic change and the interaction effect of firm performance.
Design/methodology/approach
– This paper used secondary data derived from publicly listed firms in Kenya during 2002-2010 and analyzed the data using fixed effects regression model to test the effect of board demographic and strategic change, while moderated regression analysis was used to test the moderating effect of firm performance.
Findings
– The results partially supported board demographic diversity–strategic change hypothesis. In particular, results indicate that age diversity produces less strategic change, while functional diversity is associated with greater levels of strategic change. The moderated regression results do not support our general logic that high firm performance enhances board demographic diversity–strategic change relationship. In effect, the results reveal that at high level of firm performance, board demographic diversity produces less strategic change.
Originality/value
– Despite few studies that have examined board demographic diversity and firm performance, this paper introduces strategic change as an outcome variable. This paper also explores the moderating role of firm performance in board demographic diversity–strategic change relationship, and finally, the study uses Kenyan dataset which in itself is unique because most governance and strategy research uses data from developed countries.
... Board serves the management. Board acts as a "rubber stamp" of (i.e., rarely disagrees and endorses without careful thought) the decisions of professional managers (Hung, 1998) Boards should monitor and control management of the firm (Hendry & Kiel, 2004) Boards should be moral and philosophical guides for the firm (Hung, 1998) Boards should contribute knowledge, expertise and commitment to the firm (Hendry & Kiel, 2004;Muth & Donaldson, 1998) Boards should help firms attain, rather than use, external resources (Hendry & Kiel, 2004;Hung, 1998;Stiles & Taylor, 1996) To effectively direct a firm, its board should take into account institutional deficiencies, rules, and taken-forgranted conventions (Hung, 1998) Factors of influence Institutionalized internal pressure (Hung, 1998) Contingencies arising from the internal environment (Hung, 1998) Conflicting interests of multiple stakeholders in the internal and external environments (Freeman, 1984) Contingencies arising from the internal environment (Hung, 1998) Contingencies arising from the external environment (Hung, 1998;Zahra & Pearce, 1989) Institutionalized external pressures and institutional deficiencies (Hung, 1998;Scott & Meyer, 1994) Function of the board To be tools of management (Mace, 1971) To focus on the present (Fama & Jensen, 1983) To coordinate the multiple interests of stakeholders (Hung, 1998) To focus on the future (Donaldson, 1990) To network (Hung, 1998;Zahra & Pearce, 1989) To help the firm navigate the institutional context (Hung, 1998;Selznick, 1957) Prominence viewed as stewards of the firm (Donaldson, 1990). At the same time, the directors serving on a firm's board can be viewed as positively contributing to the stewardship. ...
Manuscript Type
Empirical
Research Question/Issue
We utilize institutional theory to examine corporate governance in microfinance institutions ( MFI s). Many MFI s operate at the bottom of the economic pyramid ( BOP ), which is usually agrarian, impoverished, and plagued with institutional voids. We investigate the link between the composition of the boards of MFI s and the ability of the MFI s to face institutional voids to ensure organizational viability.
Research Findings/Insights
We find that MFI s with boards that have more socio‐economic expertise and female representation are better able to lower the MFI's costs of operating at the BOP . However, this relationship weakens when the effectiveness of agrarian institutions at the BOP is low. When agrarian institutions are ineffective, the board of the MFI may have difficulty in helping the MFI reduce its costs of operating at the BOP . Agrarian crises arising from ineffective agrarian institutions tend to aggravate the various institutional voids present at the BOP , making it harder for the board to guide the MFI around the institutional voids.
Theoretical/Academic Implications
We extend institutional theory to understand how boards direct and control firms operating at the BOP to face institutional voids. In some cases, a firm can fill an institutional void. However, because other institutional voids exist, the board must also help the firm develop workarounds to ensure organizational viability. We extend existing literature on board composition to highlight how human capital and gender diversity of boards can help improve the viability of firms operating at the BOP .
Practitioner/Policy Implications
MFI s with high operating costs may benefit from electing a board with socio‐economic expertise and female representatives. Governments and policy makers can work toward building effective social, economic, and political institutions to help create contexts that are favorable to firms (such as MFI s) that often find it difficult to operate at the BOP .
... Building upon earlier contributions by Forbes and Milliken (1999), McNulty and Pettigrew (1999) and Rindova (1999), research on boards and strategy is also characterized by the emergence of behavioral and cognitive approaches also. Studies in this tradition aim to understand how boards participate in strategic decision-making as an active part of it (Stiles & Taylor, 1996). Based on this approach, Jensen and Zajac (2004) and Useem and Zelleke (2006) highlight that boards participate in these processes through continuously interacting with managers and/or other stakeholders. ...
The globalization and liberalization of national economies have contributed to an increasing diffusion of Anglo-American corporate governance practices worldwide. In this dissertation, we examine the spread of two types of corporate governance beliefs: the emerging focus on board independence and a shareholder value orientation. Through a series of five studies, utilizing multiple theoretical lenses, levels of analysis and methods, we analyze developments in the formal independence of supervisory boards and a greater focus on shareholder value in the Netherlands, and examine the antecedents and consequences of these phenomena.
In doing so, we contribute to the enrichment of theories on diffusion processes as well as to the understanding of key changes in the Dutch corporate governance landscape. We show that (i) substantive change has taken place in the governance of listed corporations, (ii) the technical, political and cultural contexts in which firms operate explain companies’ (non)response to prevailing corporate governance beliefs, (iii) changing corporate governance beliefs may be associated with unintended consequences and negative performance implications, and (iv) macro contextual factors have a significant impact on the aforementioned processes. Thereby, our findings highlight important avenues for further research. Furthermore, we provide directors, regulators, shareholders and other stakeholders with new insights in key corporate governance developments, in particular in the Netherlands.
... exampleHoskisson and Hitt (1988) found reliance on formal financial controls and incentives is negatively associated with the extent of research and development intensity. While outsider dominated boards may be appropriate in larger, diversified corporations, it is possible more insider based boards are appropriate for small R & D intensive firms.Stiles and Taylor (2008) examine further the board's role in strategic decision-making.The board's role is not to formulate strategy, but to set the context for strategic thinking,and to review management's strategic proposals, changing these if necessary. This central role attributed to the board in the strategic process is contrary to the managerialist view o ...
... Forbes and Milliken (1999), McNulty and Pettigrew (1999) and Rindova (1999), research on boards and strategy is also characterized by the emergence of behavioral and cognitive approaches also. Studies in this tradition aim to understand how boards participate in strategic decision-making as an active part of it (Stiles and Taylor, 1996). Based on this approach, Jensen and Zajac (2004) and Useem and Zelleke (2006) highlight that boards participate in these processes through continuously interacting with managers and/or other stakeholders. ...
Manuscript Type: Literature review. Research Question/Issue: Over the last four decades, research on the relationship between boards of directors and strategy has proliferated. Yet to date there is little theoretical and empirical agreement regarding the question of how boards of directors contribute to strategy. This review assesses the extant literature by highlighting emerging trends and identifying several avenues for future research. Research Findings/Insights: Using a content-analysis of 150 articles published in 23 manage-ment journals until 2007, we describe and analyze how research on boards of directors and strategy has evolved over time. We illustrate how topics, theories, settings and sources of data interact and influence insights about board-strategy relationships during three specific periods. Theoretical/Academic Implications: Our study illustrates that research on boards of directors and strategy evolved from normative and structural approaches to behavioral and cognitive approaches. Our results encourage future studies (i) to examine the impact of institutional and context-specific factors on the (expected) contribution of boards to strategy, and (ii) to apply alternative methods to fully capture the impact of board processes and dynamics on strategy-making. Practical/Policy Implications: The increasing interest in boards of directors’ contribution to strategy echoes a movement towards more strategic involvement of boards of directors. However, best governance practices and the emphasis on board independence and control may hinder the board contribution to the strategic decision-making. Our study invites investors and policy-makers to consider the requirements for an effective strategic task when they nominee board members and develop new regulations.
... Under this view, boards exist to provide support to management for three reasons. First, is to satisfy the requirements of corporate law (Stiles and Taylor, 1996). Second, is to serve as an ally of management. ...
Manuscript Type: Empirical
Research Question/Issue: This study investigates the association between the composition of the board of directors and corporate diversification, to explore the role of the board in corporate strategic choice.
Research Findings/Results: Based on a sample of 101 Australian publicly listed firms in 2005, this study finds that there is no link between corporate decisions on product and/or geographic diversification and two aspects of board composition – board independence and institutional representation. However, there is a positive link between total diversification and a third aspect of board composition – the proportion of directors who have ties to boards of corporations in other industries.
Theoretical Implications: The results provide support for the managerial hegemony and the resource dependency theories. Corporate strategic decisions regarding diversification are more likely to be made by management than boards of directors, and to be encouraged by interlocking directors with extra-industry ties.
Practical Implications: Contrary to the requirement or recommendation in many jurisdictions that boards be more independent, these results indicate that shareholders' interests, represented by lower levels of diversification, are not promoted under such circumstances. Interlocking directors appear to effectively link the corporation to the external business environment and to encourage diversification. Existing recommendations and regulations to align management with shareholders' interests through independent boards should be revised. Board composition should also consider directors' knowledge, relevant expertise, availability, and length of tenure.
... Resource dependence theory focuses on the role of boards in attaining resources (e.g. knowledge, skills and capabilities) rather than using them (Stiles and Taylor, 1996). However, the extended model of governance that we propose here differs from those arguments by considering not only the accumulation of resources but also their active use. ...
Due to the significant role of non-profit organizations in the development of modern societies, these organizations must adjust their boardrooms. Since traditional theories of corporate governance appear to be limited in explaining the changing non-profit world, we propose an extended model of governance that integrates the traditional arguments of agency theory with a cognitive dimension. Based on a sample of Spanish foundations, we present evidence on the effect of the board composition on foundations' organizational efficiency. We show that board size and independence do not have a definitive effect on the entity's efficiency. Instead, the knowledge diversity inside the boardroom and the active character of trustees have a positive influence on resource allocation. The cognitive dimension of the extended model of governance is critical to explaining how boards impact on organizational performance.
... Building upon earlier contributions by Forbes and Milliken (1999), McNulty and Pettigrew (1999), and Rindova (1999), research on boards and strategy is also characterized by the emergence of behavioral and cognitive approaches. Studies in this tradition aim to understand how boards participate in strategic decision making as an active part of it (Stiles and Taylor, 1996). Based on this approach, Jensen and Zajac (2004) and Useem and Zelleke (2006) highlight that boards participate in these processes through continuously interacting with managers and/or other stakeholders. ...
Manuscript Type: Review
Research Question/Issue: Over the last four decades, research on the relationship between boards of directors and strategy has proliferated. Yet to date there is little theoretical and empirical agreement regarding the question of how boards of directors contribute to strategy. This review assesses the extant literature by highlighting emerging trends and identifying several avenues for future research.
Research Findings/Results: Using a content-analysis of 150 articles published in 23 management journals up to 2007, we describe and analyze how research on boards of directors and strategy has evolved over time. We illustrate how topics, theories, settings, and sources of data interact and influence insights about board–strategy relationships during three specific periods.
Theoretical Implications: Our study illustrates that research on boards of directors and strategy evolved from normative and structural approaches to behavioral and cognitive approaches. Our results encourage future studies to examine the impact of institutional and context-specific factors on the (expected) contribution of boards to strategy, and to apply alternative methods to fully capture the impact of board processes and dynamics on strategy making.
Practical Implications: The increasing interest in boards of directors' contribution to strategy echoes a movement towards more strategic involvement of boards of directors. However, best governance practices and the emphasis on board independence and control may hinder the board contribution to the strategic decision making. Our study invites investors and policy-makers to consider the requirements for an effective strategic task when they nominate board members and develop new regulations.
... Tashakori and Boulton (1983) showed that slightly half of the companies' boards in their sample were involved mostly in the formulation, implementation and evaluation of strategic planning, while a third were involved in primarily two of these stages: formulation and evaluation. In a British investigation, Styles and Taylor (1996) found that more than 70% of the boards in the sample played a major role in developing a strategy and analysing strategic options and more than 60% of the sample played a major role in supporting strategy implications and monitoring strategic implementation. In the phases of evaluation of strategy achievement and communication of strategy, more than 50% of the boards played a major role. ...
This article investigates the effects of a denationalization of ownership on the activities of corporate boards. A simultaneous change in investors' identity on the Swedish stock exchange and the board activities of large Swedish firms was observed during the late 90s. Drawing on the heritage hypothesis we conjectured that there could be a relationship between increased international ownership and increased board activities on firm level. The results show that board activities in terms of range of activities and engagement in the decision process increased during the 90s. No relationship was found between change in ownership identity and board activities, instead the increase in activities seemed to be a general phenomenon, while ownership change was firm specific. To explain this result a hypothesis of legitimization seeking behaviour and indirect influence of denationalization, specific to the period in question, is formulated.
... However, as with agency theory, the implications of resource dependence theory for the strategy role of boards are mixed. While Stiles (2001) argues that the board's boundary spanning activity contributes to the strategy role by bringing in new strategic information, others (Finkelstein and Hambrick, 1996;Hung, 1998;Stiles and Taylor, 1996) argue that resource dependence theory focuses on the role of boards in attaining resources rather than using such resources. For example, Carpenter and Westphal suggest that boards serve as "a strategic consultant to top managers rather than (or in addition to) exercising independent control" (2001, p. 639). ...
The role of the board of directors in firm strategy has long been the subject of debate. However, research efforts have suffered from several deficiencies: the lack of an overarching theoretical perspective, reliance on proxies for the strategy role rather than a direct measure of it and the lack of quantitative data linking this role to firm financial performance. We propose a new theoretical perspective to explain the board's role in strategy, integrating organisational control and agency theories. We categorise a board's approach to strategy according to two constructs: strategic control and financial control. The extent to which either construct is favoured depends on contextual factors such as board power, environmental uncertainty and information asymmetry. Copyright Blackwell Publishing Ltd. 2004.
This study examines the influence of board capital on firm performance. Annual reports are used as the main sources for data collection. This study finds that firm performance decreases with gender diversity. Next, the interlocking directorate is not associated with firm performance. The findings would be useful to Malaysian policy-makers in deliberating the board’s role as a governance mechanism in strengthening the board structure. The results suggest selecting a director with relevant knowledge and perspective rather than simply meeting the number of board seats.
This literature review aggregates theoretical issues on the main topic of board director behaviours in corporate governance, using principal sources for management, finance, and business. The review then examines the role of boards and highlights what competencies individual directors are required to have and processes they follow in board operations. Among the competencies, emerges the important role of business knowledge including financial derivatives in Chapter 3.
The main objective of this paper is to expand understanding of how supervisory boards contribute to corporate strategy. Using a sample of supervisory boards of Croatian listed companies, in this paper we investigate: (1) the overall level of supervisory boards involvement in corporate strategy, and (2) how are supervisory board’s structural attributes related to the intensity of strategic involvement. Our results indicate that supervisory boards indeed have an active role in shaping and supporting the corporate strategy. Strategic activities that supervisory boards most often execute are authorizing strategic decisions proposed by the management board and crisis management activities.
In this paper, we highlight the strategic role of the board of directors (BOD) in business excellence and its link with firm value. We empirically investigate the relationship between the composition of the BOD and the winning of a Malcolm Baldrige National Quality Award (MBNQA) or a local award explicitly based on the MBNQA criteria, a proxy for business excellence. Using a contingency approach, we examine several characteristics of the BOD, such as the number of inside directors, the number of directors who can be considered industry experts, and the number of directors with management expertise. We show that the likelihood of winning a quality award is positively associated with the number of outside directors with Ph.D. in the main object of business operations, and the number of outside directors with recent industry expertise. Subsequent residual analysis reveals that firm value is positively associated with the degree of the fit between board composition and quality management strategy. Specifically, operating income before depreciation, operating margin, Tobin’s Q, and ten-day raw and market adjusted returns, are positively related to the degree of fit, while cost per dollar of sales, negatively. Thus, we, conclude that an appropriate board structure that fits the QM strategy exists, and this fit is positively associated with firm value.
Im vorigen Kapitel wurden aus den Grundzielkomponenten der Eigenkapitalgeberfunktion (Nominalgütererwerb durch Überlassung von Kapitalnutzungsmöglichkeiten mit Haftungszusagen) die in der Eigenkapitalgeber-Manager-Austauschbeziehung als Forderungen und Leistungszusagen formulierten Zielkriterien abgeleitet: die Höhe der Einnahmen für die Überlassung von Kapitalnutzungsmöglichkeiten mit Haftungszusagen als konstitutive Forderung und Leistungszusage, sowie die Kapitalsicherheit (Dauerhaftigkeit der Einnahmen), die Entscheidungspartizipation (Einflussmöglichkeiten auf die Unternehmungsleitung) und die Informationsversorgung als komplementäre Forderungen. Die Austauschbeziehung zwischen Eigenkapitalgebern und Managern wird aus unternehmungspolitischer Sicht durch die Gegenüberstellung der Forderungen und Leistungszusagen dargestellt.541 In der bipolaren Eigenkapitalgeber-Manager-Zielkriterienmatrix542 stehen sich die Forderungen und Leistungszusagen als unmittelbare Austauschwerte gegenüber, so dass den spezifizierten Eigenkapitalgeber-Zielkriterien jeweils die unmittelbaren, spiegelbildlichen Leistungszusagen und Forderungen des Managements gegenüberstehen. Die Gegenüberstellung der Forderungen und Leistungszusagen ermöglicht eine Veranschaulichung der Konfliktpotentiale in der Austauschbeziehung: jedes als Forderung oder Leistungszusage formulierte Zielkriterium stellt einen potentiellen Zielkonflikt dar.
An effective system of corporate governance has both internal and external aspects that have to be sufficiently responsive if governance is to succeed. In this book, Ahmed Naciri examines these two core aspects or the latest buzzword in business and management theory. Internal aspects include ownership structure, the board of directors and committees, internal control, risk management, transparency and financial reporting. External aspects can either be market-oriented, or can take the form of credit ranking, and/or social requirements. Due to the original orientation of the Sarbanes/Oxley Law, concentrating solely on financial disclosure and given its decisive and tremendous influence on all other similar corporate governance legislations all over the world, most writings on corporate governance have dealt with solely internal corporate governance mechanisms. This book aim is to fill up the gap by using a systemic approach and giving a global picture of the corporate governance theoretical foundations, mainly by putting the emphasis on its double dimension: internal and external.
Although the Combined Code (Financial Reporting Council, 2003, 2006) clearly identifies the roles and responsibilities of PLC board members, current academic literature offers little guidance to FTSE 250 boards – many of whom are managing different issues compared with their FTSE 100 counterparts including high corporate growth, existing founder and/or family board members, and/or newly formed boards – on ways in which they can improve the quality of decision-making, increase individual board contribution, and enhance overall board performance and effectiveness.
This paper attempts to outline the key issues faced by board members, particularly non-executive directors, serving on FTSE 250 company boards with regard to three distinct roles – strategy, succession planning and risk management – and examines the relevant influences on board members derived from corporate lifecycle, board structure, existing process and board culture which affect board performance and standards of corporate governance. Its conclusions draw on the author's previous research on non-executive contribution (Long, 2004) and her recent experience of reviewing performance and effectiveness of FTSE 100 and 250 boards of directors through Boardroom Review.
Ideally, corporations are directed by boards whose directors provide valuable human capital that match the firms’ strategy. We investigate how directors’ human capital (international experience, industrial know-how, CEO experience, and financial know-how) affects firm performance including the firm’s strategy (diversification and internationalization) and how human capital is related to acquisition strategies (non-diversifying and international acquisitions). Our sample consists of 560 firm-year observations in Switzerland. We find empirical evidence that directors’ human capital affects firm performance and that this relationship depends on the firm’s strategy. Furthermore, human capital is also correlated with acquisition strategy. The study shows that focusing on board independence and compliance issues may be unrewarding in board research and practice.
The paper provides an analysis of the role of 'external' or non-executive directors and their relationship with entrepreneurs in small growth companies, focusing on their impact and style of intervention. We provide qualitative and quantitative analysis of research based on 46 face-to-face interviews with CEOs in small entrepreneurial companies, undertaken in Scotland. Further analysis has been conducted on a sub-sample of firms who have external directors appointed as a result of raising venture capital to compare the impact and role of VC appointed and non-VC appointed board members.
As the question of boardroom diversity gains increasing attention both in the media and the academic world, this paper offers a comprehensive analysis of the evolution of boardroom composition of German Dax 30 corporations over a period of 10 years (2001-2010). In contrast to public opinion, results show that supervisory boards of German blue chip companies are light-years away from being considered as diversified. Both the proportions of female and foreign board members remain on a very low level. Furthermore, some national particularities such as widespread multiple board appointments, supervisory boards which are chaired by erstwhile firm managers or similar socio-educational backgrounds of current chairmen seem to be rather the rule than the exception. Whereas an increasing activity of board subcommittees can be observed, supervisory boards themselves hardly change their activity over time with respect to team size or meeting frequencies.
The paper examines the contribution to strategy by chairmen and non-executive directors in large UK companies. The collective label of 'part-time board member' is used to refer to individuals performing these roles. The paper asks 'how, if at all, do part-time board members influence strategy in UK plc's'?. Using data gathered from interviews with 108 company directors, the paper suggests that part-time board members do not simply ratify decisions made by all-powerful executives. A conceptual model is developed to show that part-time board members are able to influence processes of strategic choice, change and control by shaping both the ideas that form the content of company strategy and the methodologies and processes by which those ideas evolve. Their involvement in strategy is conditioned by factors such as: changing norms about corporate governance; the history and performance of the company; the process and conduct of board meetings and informal dialogue amongst company directors between board meetings.
Biological control of cereal aphids was attempted during two years, using two approaches: (1) mass-release of Aphidius rhopalosiphi (21,000 individuals/ha) in May and (2) use of a clover-ryegrass strip as a parasitoid reservoir. Two aphid species (Metopolophium festucae and Acyrtosiphon pisum) considered as alternative hosts for cereal aphid parasitoids occurred in the grassy strips. Three fields for each of the mass release or strip management were compared in 2000 with two control fields where no aphid control was done. Aphid population growth was significantly reduced under both mass release and management compared to controls. There was no significant difference between the two treatments. Yet, the parasitism rates were significantly higher under mass release and strip management than in the controls. In 2001, three fields per treatment were compared with three controls. Aphid numbers were very low in all fields, strip management being the only treatment to slow down aphid population growth.
The traditional methodology of studies examining optimal composition of boards typically relates a simple board variable (e.g., independence of board members or board demography) to firm performance, at the same time ignoring many other potentially relevant board characteristics. In reality, however, board members predominantly are selected upon their business skills. Given the practical importance of these criteria, we investigate how directors’ education and business experience affect firm performance. The sample consists of 4,027 directorships from 559 firm-year observations in Switzerland. Using OLS and including control variables, we show that boards on average are composed according to the firms’ needs in terms of education and industrial knowledge. Furthermore, industrial knowledge and Tobin’s Q are negatively correlated especially if the firm has more divisions, showing that in highly diversified firms, general management skills are more important as opposed to specific industrial knowledge. In addition, director fixed effects, i.e. unobserved characteristics such as, e.g., talent, are significant and improve the explanatory power of the models by 5 percent.
The purpose of this paper is to report the results of a survey of independent directors on a range of issues relating to the execution of their role including the independent directors' perceptions relating to board effectiveness, board interactions, information sources, and performance and evaluation. A survey was forwarded to independent directors of the top 200 Australian Securities Exchange (ASX) listed companies. The paper aims to provide the perceptions of independent directors themselves and so contribute to the literature through a better understanding of the nature of the work performed by Australian company independent directors and the environment in which it occurs. Findings suggest that the fundamental role of the independent director has not changed as a result of the corporate governance reforms.
Boards of directors are a vital part of corporate governance systems. In the on-going discussion about the development of
national corporate governance systems, however, little interest has been given to the issue of how and why board behavior
changes over time. In this article, we use an institutional approach and study the development of board behavior in Sweden
between 1994 and 2004 and if it is affected by board composition and board network characteristics. In order to do so, we
introduce the constructs of board activities, i.e. what the boards do, and board involvement, i.e. when in the decision process
they get involved. Findings show that range of board activities and board involvement have increased drastically during this
period, which indicates a change in the logic of appropriateness of Swedish board behavior. There are robust indications that
new types of actors affect activities and involvement positively, as do board interlocks, whereas network centrality affects
activities and involvement negatively.
KeywordsBoard of directors–Board activities–Board involvement–Board composition–Board networks–Institutional theory
We propose that corporate directors are important in helping organizations deal with two major issues of stakeholders. First,
directors can help manage the interests of organizational stakeholders, and second, they assist in protecting the interests
of their organizations as stakeholders in society. Their contribution can be conceptualized as the directors’ roles in corporate
social responsibility (DR-CSR). We identify two types of DR-CSR, organization-centered and society-centered roles. Based on
a study of 120 corporate directors, we observe that the more concern that corporate directors have for stakeholders, the more
likely that they will perceive the need to perform their DR-CSR effectively.
Key wordscorporate directors–corporate social responsibility roles–stakeholders
This paper provides an analysis of the role of 'outside' or nonexecutive directors (NEDs) and their relationship with chief executive officers (CEOs) and entrepreneurs or 'insiders' in small growth companies. We discuss research results from a matched sample of forty-six interviews with a core sample of twenty-three companies with matched CEOs and NEDs. Findings are placed in the context of European small and medium-sized enterprises, where great attention has been given to the future development of long-term relationships such as those brought by outside directors in small companies.
This study describes the survival cases of two local savings banks in Finland during fundamental changes in 1990’s when 90% of the Finnish Savings Bank Group did not survive. Survival is studied through the roles of the non‐executive boards and the CEOs in the context of three change periods. Institutional theory is used as a framework in describing and explaining the survival. The cases describe how radical renewals can be made despite dominant actors and generally agreed ways of change in the field. It is suggested that the CEO and the non‐executive board of directors were in a key role in changing the future of a local savings bank. Old institutions can die, but the active role of the small banks themselves was decisive; by taking active role they recreated and renewed their organizations (c.f. Greenwood and Hinings 1996).
This article synthesizes empirical researchfindings on the impact of boards of directors on corporate financial performance. An integrative model of board attributes and roles is presented, and research support on their links is discussed. The review identifies critical short-comings of past studies and concludes by offering an agenda for future studies in this promising area of empirical research.
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A typology of the relative powers of the chief executive officer and the board of directors was derived based on the literature, highlighting four situations: Caretaker, Statutory, Proactive and Participative boards. Data collected from Fortune 500 Industrial and Fortune 500 Service corporations supported the typology. The results showed significant differences among the four board types in their characteristics, internal process, decision-making styles, board effectiveness, and contribution to company performance. Powerful boards were associated with superior corporate financial performance.
Corporate governance and the role of boards is a topic hotly debated in boardrooms, associations and media across the industrialized world. However intense, discussions are largely national phenomena due to the widespread belief that boards cannot be compared on an international plane. The authors argue the contrary: that there is a great deal to be learned from such comparisons because boards in different countries are more similar than they are different. Insights are drawn from a four-year study the authors have conducted involving boards from eight countries. The full results have been published earlier this year by Oxford University Press, as The Corporate Board; Confronting the Paradoxes.
Written for practitioners, this book is about corporate governance and the role of the board of directors in modern multinational companies. Throughout the world, corporations are experiencing the second major transition in corporate governance of this century. The nature of the relationship between the corporation and the rest of society is changing fundamentally. The corporate board has unique responsibilities during this transition, but as it tries to respond directors are faced with destabilizing paradoxes: resolving who is in control - management or the board, achieving critical judgement while maintaining detachment, and avoiding becoming either a cosy club or a collection of all-stars. This book, based on interviews with 71 directors serving on more than 500 boards in eight countries, shows the nature of the challenges and suggests ways to analyse and confront them. This major international study compares the experiences of board members in Canada, Finland, France, Germany, Great Britain, The Netherlands, Switzerland, and Venezuela.
Most organization theorists believe that boards of directors in large American corporations are dominated by management. This paper argues that this view is based on a problematic definition of control. Several distinctions between long run and short run control are presented, and a framework in which boards of directors have control over managers is suggested. Case examples are given and possible objections are confronted. Finally, an agenda for further research on board-management relations is offered.
In a study of 57 hospitals in a large midwestern state, the determinants of the size, composition, and function of boards of directors were examined. The function of the board was partly explained by the organizational context, and particularly the ownership and source of funds. The size of the board of directors was related to the requirements for successful linkage with the environment and with the function of the board. The composition of the board was related to the social context in which the organization is embedded, as well as to the function of the board. Finally, board function and composition did have an impact on the hospital's ability to obtain community support and on organizational effectiveness, defined as the ability to attract resources from the environment. It was concluded that boards of directors of formal organizations can be productively analyzed as one possible mechanism linking the organization with its environment.
On the surface, things haven't changed. In 1971, Professor Myles L. Mace, in his seminal study, Directors: Myth and Reality, reported that the typical board does not get involved in the establishment of objectives, strategies, and policies. Recently, more than a decade later, the author conducted a study of the boards of more than 225 U.S.-based firms in which the majority of chairmen, contrary to what was subsequently found to be their practice, indicated that their boards are not involved in strategic planning.
Agency theory argues that shareholder interests require protection by separation of incumbency of rôles of board chair and CEO. Stewardship theory argues shareholder interests are maximised by shared incumbency of these rôles. Results of an empirical test fail to support agency theory and provide some support for stewardship theory.
Explains the model which underlies the Institute of Directors'
Standards of Good Practice for Boards of Directors produced in
association with Henley Management College. These standards were derived
from an extensive, rigorous research and consultation process over a
period of two-and-a-half years involving over 1,000 directors. The model
consists of three major parts: organizing and running the board;
personal competences and knowledge; and the tasks of the board which are
supported by indicators of good practice.
This study examines an important potential conflict between the institutional, governance, and strategic functions of boards. We specifically test how higher levels of board size and diversity, traditionally associated with optimal institutional and governance performance of boards, affect the boards ability to initiate strategic changes during periods of environmental turbulence. Our findings suggest that board diversity, in particular, may be a significant constraint on strategic change.
For a long time, boards of directors have been considered weak, incapable of contributing to the financial success of their companies. This article proposes a way to revitalize boards by involving them in mapping corporate strategic directions. Building on recent changes in boardroom practices, it outlines eight conditions for an effective strategic contribution by boards and specifies areas of potential for an effective strategic contribution by boards and specifies areas of potential interest to directors. Taken together, these suggestions are expected to ensure continuous and disciplined contribution by boards to strategy and, ultimately, to effective corporate performance.
This paper analyzes the survival of organizations in which decision agents do not bear a major share of the wealth effects of their decisions. This is what the literature on large corporations calls separation of "ownership" and "control." Such separation of decision and risk bearing functions is also common to organizations like large professional partnerships, financial mutuals and nonprofits. We contend that separation of decision and risk bearing functions survives in these organizations in part because of the benefits of specialization of management and risk bearing but also because of an effective common approach to controlling the implied agency problems. In particular, the contract structures of all these organizations separate the ratification and monitoring of decisions from the initiation and implementation of the decisions. Journal of Law and Economics, Vol. XXVI, June 1983. Separation of Ownership and Control * Eugene F. Fama and Michael C. Jensen Journal of...
Responsibility for Corporate Strategy' in Boards of Directors: Part 2, a selection of articles taken from Harvard Business Review 1977-81 Harvard Business Re-view 1982The Composition of Boards of Directors and Strategic Control; Effects on Corporate Strategy
- K R Andrews
- B D Baysinger
- R E Hoskisson
Andrews, K.R. (1980) 'Responsibility for Corporate Strategy' in Boards of Directors: Part 2, a selection of articles taken from Harvard Business Review 1977-81, Boston, Mass., Harvard Business Re-view 1982. Baysinger, B.D., and Hoskisson, R.E. (1990) 'The Composition of Boards of Directors and Strategic Control; Effects on Corporate Strategy', Academy of Management Review, Vol 15, no 1, pp. 72-87.
Creating Excellence in the Boardroom
- C J Coulson-Thomas
Coulson-Thomas, C. J. (1993) Creating Excellence in the Boardroom, McGraw-Hill International (UK).
Directors Without Direction', journal of General Manage-ment
- D Norburn
- P Grinyer
Norburn, D. and Grinyer, P. (1974) 'Directors Without Direction', journal of General Manage-ment, Vo12 No 2, pp. 37-48.
Corporate Power and Responsi-bility
- J E Parkinson
Parkinson, J.E. (1994) Corporate Power and Responsi-bility. Oxford University Press, Oxford.
Directors: Myth and Reality, Harvard Business School ClassicsStrategy Making in Three Modes
- M L Mace
- H Mintzberg
Mace, M.L. (1971) Directors: Myth and Reality, Harvard Business School Classics, Harvard Busi-ness School Press: Boston, Mass. Mintzberg, H. (1988) 'Strategy Making in Three Modes' in The Strategy Process: Concepts, Contexts and Cases, ed. J.B. Quinn, H. Mintzberg and R.M. James, Englewood Cliffs, N.J., Prentice-Hall, pp. 82-89.
The Effects of Board Size and Diversity on Strategic Change', Strategic Management JournalInvolving the Board of Directors in Strategic Planning
- J Goodstein
- K Gautam
- W Boeker
- Henke
- J W Jr
Goodstein, J., Gautam, K., and Boeker, W. (1994) 'The Effects of Board Size and Diversity on Strategic Change', Strategic Management Journal, Henke Jr, J.W. (1986) 'Involving the Board of Directors in Strategic Planning', Journal of Busi-ness Strategy, Vol 7, no 2.