When will boards influence strategy? inclination × power = strategic change

While boards of directors are usually recognized as having the potential to affect strategic change in organizations, there is considerable debate as to whether such potential is typically realized. We seek to reconcile the debate on whether boards are typically passive vs. active players in the strategy realm by developing a model that specifies when boards are likely to influence organizational strategy and whether such an influence is likely to impel vs. impede change. Specifically, we develop arguments as to when certain demographic and processual features of boards imply a greater inclination for strategic change, when these features imply a greater preference for the status quo, and how differences in such inclinations will influence strategic change. We then also propose that a board's inclination for strategic change interacts with a board's power to affect change, generating a multiplicative effect on strategic change. These ideas are tested using survey and archival data from a national sample of over 3000 hospitals. The supportive findings suggest that strategic change is significantly affected by board demography and board processes, and that these governance effects manifest themselves most strongly in situations where boards are more powerful. We discuss these findings in terms of their relevance for theories of demography, agency, and power. Copyright © 2001 John Wiley & Sons, Ltd.     

Who needs experts most? Board industry expertise and strategic change—a contingency perspective

Research summary: We analyze the effects of board industry expertise on corporate strategic change and the moderating role of institutional quality. We suggest that country‐level contingency factors mitigate the effect of experienced boards on strategy formation by providing alternative sources of information and control in strategic matters. We develop institutional quality as institutional information provision and institutional control provision to test our hypotheses on a sample of firms from MSCI Europe and the S&P 500. Our findings confirm that industry expertise is a salient driver of strategic change across countries. The strength of the effect, however, depends on the institutional quality. We submit that weak institutions require greater board industry expertise as an alternative channel of information and control. Management summary: This study provides new empirical evidence that experience in the firms' industries enables directors to increase strategic change. Our findings show that this effect is even stronger in countries with weak regulatory environments. We hereby provide guidance for multiple stakeholders. First, shareholders seeking a more active adjustment of their firms' strategies may want to compose boards that leverage such experienced directors. Second, directors can use their industry experience to control and to challenge managers better to move beyond the status quo. Third, managers lacking access to information on potential strategic change can use such experienced directors for strategic advice and as a source of information. Overall, we add to the understanding of the corporate board's role in shaping strategy and the influence of weak regulations. Copyright © 2016 John Wiley & Sons, Ltd.     

Effects of corporate governance on risk taking in Taiwanese family firms during institutional reform

Can internal corporate governance mechanisms (such as boards of directors) and external corporate governance mechanisms (such as institutional reform) promote risk-taking behavior in family firms? This paper argues that conflicts between majority and minority owners, known as principal–principal conflicts, and cronyism in the board of directors affect firm risk taking. Moreover, institutional corporate governance reform to appoint outside directors may not have an immediate effect on reducing these problems. Based on a sample of family firms in Taiwan, we find that outside directors reduce the negative relationship between family ownership/involvement and risk taking. However, when their influence is examined further, it is found that in those sample firms that went public after institutional reform, outside directors did not improve the relationship between family ownership/involvement and risk taking.     

Home Alone: The Effects of Lone‐Insider Boards on CEO Pay,Financial Misconduct,and Firm Performance

Research summary: Corporate scandals of the previous decade have heightened attention on board independence. Indeed, boards at many large firms are now so independent that the CEO is “home alone” as the lone inside member. We build upon “pro‐insider” research within agency theory to explain how the growing trend toward lone‐insider boards affects key outcomes and how external governance forces constrain their impact. We find evidence among S&P 1500 firms that having a lone‐insider board is associated with (a) excess CEO pay and a larger CEO‐top management team pay gap, (b) increased likelihood of financial misconduct, and (c) decreased firm performance, but that stock analysts and institutional investors reduce these negative effects. The findings raise important questions about the efficacy of leaving the CEO “home alone.” Managerial summary: Following concerns that insider‐dominated boards failed to protect shareholders, there has been a push for greater board independence. This push has been so successful that the CEO is now the only insider on the boards of more than half of S&P 1500 firms. We examine whether lone‐insider boards do in fact offer strong governance or whether they enable CEOs to benefit personally. We find that lone‐insider boards pay CEOs excessively, pay CEOs a disproportionately large amount relative to other top managers, have more instances of financial misconduct, and have lower performance than boards with more than one insider. Thus, it appears that lone‐insider boards do not function as intended and firms should reconsider whether the push towards lone‐insider boards is actually in shareholders' best interests. Copyright © 2017 John Wiley & Sons, Ltd.     

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

While product market choices have been central to strategy formulation for firms in the past, the integration of financial markets makes the choice of capital markets an equally important strategic decision. We advance a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market. We find that internal governance characteristics (founder‐CEO, executive incentives, and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication, and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms. Our results suggest foreign IPO firms select a host market where the firms' governance characteristics and third party affiliations fit the host market's institutional environment. Copyright © 2012 John Wiley & Sons, Ltd.     

Board representation in international joint ventures

Research summary : Relatively little attention has been paid to boards in international joint ventures (IJVs), and the composition of these boards in particular. We examine the determinants of foreign partners' representation on IJV boards in order to advance our knowledge of this facet of IJV governance. We argue that a foreign partner's representation on the IJV board is related to its equity contribution. However, we hypothesize that this relationship is moderated by IJV and host country characteristics that affect the importance of the internal and external roles IJV boards serve. These results provide insights into the conditions under which a partner might wish to secure greater board representation for its level of equity, or utilize less board representation than might be suggested by its equity level alone. Managerial summary : The functioning and composition of corporate boards have long been seen as critical to managers and shareholders alike. In contrast, the boards of IJVs have been relatively neglected. We advance our knowledge of this important facet of IJV governance. Specifically, we highlight the importance of two roles (i.e., an internal and external role) that IJV boards and directors fulfill. We find that the importance of these internal and external roles of boards determines whether a foreign partner might wish to secure greater board representation for its level of equity, or utilize less board representation than might be suggested by its equity level alone. Our results provide novel insights that can help managers structure their IJV boards. Copyright © 2016 John Wiley & Sons, Ltd.     

Board involvement in international joint ventures

The last two decades have witnessed substantial scholarly interest in corporate boards, yet little research has been devoted to boards of international joint ventures (IJVs). We combine the corporate governance and alliance governance literatures in order to study this important ex post governance mechanism for IJVs. We identify a fundamental tension inherent in IJVs, which arises from the unique features of this organizational form and influences the level of involvement by their boards. International joint ventures are hybrid organizational forms that can require administrative control to facilitate monitoring and coordinated adaptation in the presence of exchange hazards. At the same time, the fact that IJVs operate in different host countries can make it efficient to delegate authority to local management for certain collaborations. In investigating the determinants of IJV board involvement, we therefore examine characteristics of IJVs that reflect this underlying tension. We conclude that board involvement reflects efficiency considerations in individual ventures, and the administrative control provided by boards is an important dimension of IJV governance. Copyright © 2013 John Wiley & Sons, Ltd.     

Independent boards and the institutional investors that prefer them: Drivers of institutional investor heterogeneity in governance preferences

Institutional investors report that they prefer to invest in firms with greater board independence despite the fact that researchers have been unable to demonstrate a link between board independence and firm performance. We investigate whether differences among institutional investors affect these preferences. We find that trading strategies have some effect but that mutual funds—facing the strongest institutional pressures—have significantly stronger preferences for firms with greater board independence than do other types of institutional investors. This suggests that institutional investor preferences for independent boards are at least partially driven by institutional pressures rather than anticipated reductions in agency costs. Copyright © 2013 John Wiley & Sons, Ltd.     

Board turnover in Taiwan’s public firms: An empirical study

Using a data set of 220 Taiwanese public firms with 2,200 observations over a ten-year period representing Taiwan’s economic takeoff period in the late 1990s, as well as six follow-up interviews conducted with top managers several years hence, this research examines the propensity of an important change variable for firms: the turnover of boards of directors. Specifically, it examines the relationship between board turnover and the organization’s environment, firm performance, and the largest shareholder’s control during a key period of economic transition and growth for Taiwan. The results show that substantial changes in board composition, though still not especially common in Taiwan, do occur, even in closely held companies. Turnover in the board is negatively related to the largest shareholder’s control power as well as firm performance. Board changes however, are not related to the environmental munificence and dynamism. These results are rather consistent with related research on firms in ethnic Chinese communities which suggests that top management and board turnover while not common, does sometimes occur, and more recent institutional and industrial change in Taiwan is likely encouraging further governance reform. This has implications for important facets of firm governance and change, as well as expanding our knowledge about firms domiciled in an ethnic Chinese community, particularly during times of economic transition and growth. Follow-up interviews with four top managers from our sample, along with one consultant and one government official in Taiwan provided additional confirmation and clarification of our results.     

Environment, governance, controls, and radical innovation during institutional transitions

Researchers pay only limited attention to the problem of drive force of radical innovation in institutional transitions, especially in China. Drawing on both institutional theory, managerial control theory, and innovation theory, this study examines the roles of external and internal drivers to firms?? radical innovation. Specifically, we examine the effects of external institutional environment and internal corporate governance on radical innovation by introducing management control systems. Based on data from a sample of 585 firms in China, this study finds that the effect of institutional environment uncertainty on radical innovation is significant but formal corporate governance is not. These results suggest that firms facing an uncertain institutional environment emphasize both financial control and strategic control, and firms that have adopted formal corporate governance prefer strategic control to financial control. The implications of these findings for research during institutional transitions are discussed.     

Who Drives Unrelated Diversification? A Study of Indian Manufacturing Firms

This paper builds on recent research that focuses on the context-specific nature of diversification and the impact of organizational ownership on the choice of diversification strategy. Set in the Indian manufacturing sector, it compares the influence of institutional investors and banks against the influence of CEOs and boards on unrelated diversification. Results show that (a) external constituents collectively have more influence on unrelated diversification than CEOs and boards, (b) institutional investors tend to discourage unrelated diversification, but banks are quite supportive of such moves, and (c) corporate governance constituents other than foreign directors do not have a statistically significant influence on unrelated diversification strategies.     

信息获取、效率替代与董事会职能的改进——一个关于独立董事作用的假说性诠释及其应用

独立董事制度的兴起是现代公司治理理论和实践发展的产物，但独立董事信息获取能力的欠缺制约了他们持续改进董事会职能的作用。随着董事会独立性（独立非执行董事人数的比例）的提高，董事会决策的公正性效率会提高，但董事会决策的达用性效率会降低。在效率替代作用的影响下，董事会的独立性高低与董事会决策交率之间并不存在线性关系，而是倒U型关系，这一模型可以对关于独立董事问题的各种争议给出很好的解释，也可以对我国探索公司治理中独立董事的人数比例，人选确定方法，遴选途径和激励约束等方面提供一个基本框架。     

Corporate governance and national institutions: A review and emerging research agenda

We present a critique of corporate governance research grounded in agency theory and propose that cross-national comparison of corporate governance should consider how the nature and extent of agency relationships differ across different institutional contexts. Building on prior governance studies grounded in sociology and organizational theory we argue that performance outcomes of boards of directors, ownership concentration, and executive incentives may differ depending on the legal system and institutional characteristics in a specific country. Institutions may also affect the extent of complimentarity/substitution among different firm-level governance practices producing patterned variations in firm-level governance mechanisms. Our discussion suggests that researchers need to develop more holistic, institutionally embedded governance framework to analyze organizational outcomes of various governance practices.     

The Resource Dependence, Service and Control Functions of Boards of Directors in Hong Kong and Taiwanese Firms

Since the Asian financial crisis of the late 1990's, there have been numerous calls for the reform of East Asian corporate governance. Without reform, fears abound that the crisis will return. However, a baseline understanding of corporate governance in East Asia needs to be established before reform efforts can begin. In the West, three major functions of boards are commonly recognized: resource dependence, service, and control. These functions have yet to be examined in the context of boards of directors of Overseas Chinese firms in East Asia. In this exploratory study, we examine the extent to which these functions are performed, primarily by outside board members, in Overseas Chinese firms in Hong Kong and Taiwan. We find that the service and control functions are less pronounced for East Asian boards than what would be expected in the West, while the resource dependence function is more pronounced. We also findthat the governance of the region is being moved closer to international practices by a new generation of leaders that have been exposed to Western influences and intense global competition. The implications of our findings for managers, educators, and researchers are discussed.     

Outside directors and firm performance during institutional transitions

Do outside directors on corporate boards make a difference in firm performance during institutional transitions? What leads to the practice of appointing outside directors in the absence of legal mandate? This article addresses these two important questions by drawing not only on agency theory, but also resource dependence and institutional theories. Taking advantage of China's institutional transitions, our findings, based on an archival database covering 405 publicly listed firms and 1211 company–years, suggest that outsider directors do make a difference in firm performance, if such performance is measured by sales growth, and that they have little impact on financial performance such as return on equity (ROE). The results also document a bandwagon effect behind the diffusion of the practice of appointing outsiders to corporate boards. The article not only highlights the need to incorporate multiple theories beyond agency theory in corporate governance research, but also generates policy implications in light of the recent trend toward having more outside directors on corporate boards in emerging economies. Copyright © 2004 John Wiley & Sons, Ltd.     

团队氛围、董事会内部沟通与战略绩效

本文在理论分析的基础上提出研究假设,通过问卷调查的方式搜集数据,以47家企业董事会454份有效问卷为样本进行实证研究,结果表明,团队氛围中的团队信任对董事会内部沟通具有显著的正向影响;团队氛围中的情感冲突对董事会内部沟通具有显著的负向影响;董事会内部沟通对企业战略绩效中的团队学习力、决策有效性和战略一致性均具有显著的正向影响。研究不仅丰富了董事会团队过程理论,而且能够有效地指导公司治理实践。     

Internal governance mechanisms and firm performance in China

Corporate governance issues arising from concentrated ownership structure in emerging economies have received growing attention. Adopting a principal–principal perspective, this paper employs structural equation modeling to evaluate the independent and interdependent effects of internal governance mechanisms in enhancing firms’ value in China. Based on a 3-year dataset covering 304 publicly listed companies over 2003–2005, our findings suggest that ownership concentration has the most significant governance effect and has impacted negatively on firm performance. Furthermore, the governance role of the board of directors and supervisory boards is found to have been hindered by ownership concentration, rendering them unable to improve firm performance at present.     

企业理论的社会资本逻辑

本文在回顾以知识为基础的企业理论的基础上，提出了社会资本不仅是企业战略资源，也是企业的一种有效的治理机制。企业交易复杂性程度越高，社会资本治理存在的价值就越大。按照社会资本治理的逻辑，企业比市场更能有效地创造社会资本，更能充分有效地利用社会资本的价值；与之相适应，本文分析了企业制度安排从资本为基础转向以社会资本为基础的可能性与现实性。     

Board structure and firm capability: An environment-embedded relationship between board diversity and marketing capability

The role of the firm’s top governance team, the board, is largely missing in the capability literature. This paper takes the first step to link board diversity, one of the most critical traits of the board, to marketing capability. Further, this relationship is embedded into a contingency-based model involving a set of environmental factors, munificence, turbulence, and competition intensity. This model illustrates how the internal top governance traits and external factors may jointly and dynamically affect firm competency. The empirical results show that board diversity significantly increases marketing capability. This effect is stronger when a firm faces unfriendly market situations characterized by low munificence, high turbulence, and intensified competition. This study generates meaningful theoretical implications for marketing capability-building of business firms, especially in the business-to-business (B2B) settings in which reciprocal organizational engagements are more emphasized. It also advances firm governance theories and business environment studies, and provides useful guidelines for managerial practices.