Academic journal article Journal of Comparative International Management

Board Structure, Board Process and Board Performance: A Review & Research Agenda

Academic journal article Journal of Comparative International Management

Board Structure, Board Process and Board Performance: A Review & Research Agenda

Article excerpt

While the conceptual importance of boards of directors in modern day businesses is undisputed, it is equally crucial to study the relationship between board of directors and board performance. The objective of this study is to examine the current literature and suggest that a better way to examine the role of board of directors is through a careful study on board structure, board processes and board performance, instead of focusing on board structure and firm performance alone.

INTRODUCTION

Board research has traditionally centred on the relationship between board structure and firm performance. Empirical studies have however shown that the relationship is equivocal. In this paper, we propose that board process could be the missing link. We introduce an integrative conceptual model between board structure and board performance, with board process as an intervening variable.

We based our definition of board structure on Tricker (1994). He noted that board structure distinguishes between those directors who hold management positions in the company and those who do not. Those with management positions are referred to as insider directors in the United States or executive directors in United Kingdom and Australia. The top person in the board is the chairman. He could be an executive or a non-executive of the company. If the CEO happens to be a director on the board, then he is an executive director. Zahra and Pearce (1989) identified other dimensions of board structure, such as the number and types of board committees, committee membership, flow of information among these committees and patterns of committee membership. In this paper, we concentrate only on CEO-chairman duality and insider-outsider directorships as they are widely covered in board research (see Dalton & Daily 1999; Davis, Schoorman & Donaldson, 1997; Johnson, Daily & Ellstrand, 1996; Zahra & Pearce, 1989).

Board processes refer mainly to the decision-making activities of directors of companies. We identified four process variables, based largely on existing research on group and top management team (TMT) studies (Amason & Sapienza, 1997: Forbes and Milliken, 1999; Jehn & Mannix, 2001). They are effort norms, conflict, presence/use of knowledge/skills and cohesiveness.

We define board performance as the ability of the directors in executing their roles. We identify three main roles that merit careful investigation: monitoring, service and strategic planning (Johnson, Daily & Ellstrand, 1996; Ong & Lee, 2000).

The layout of the paper is as follows. Firstly, we present the "why" to study board process as the intervening variable between board structure and board performance. For this, we review past studies on board research. This helps us to identify existing research gap and hence the need to study beyond current focus on board research. We will highlight the present status of theoretical analysis on board process and performance, illustrating in particular the lack of empirical studies in this area. The need for new areas of board research and a better theoretical framework lead us to the "how" question. We will introduce a new conceptual model of board processes and performance. In the concluding section, we will highlight the uniqueness and potential contributions of undertaking such a study, based on the suggested model.

WHY THE NEED TO STUDY BOARD PROCESSES AS AN INTERVENING VARIABLE BETWEEN BOARD STRUCTURE AND PERFORMANCE

To date, the relationship between board structure (as opposed to board processes) and company performance has been the most-studied aspect among all board investigations (Bhagat & Black, 1999). In these studies, it is often assumed that a company's financial performance is mainly determined by board characteristics. Pfeffer (1983) argued that it is not necessary to understand board processes as directors' performance can be inferred from their demographic characteristics. …

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