| Inside the "Black Box" of Board Processes: An Integrative Framework |
| | Baack, Sally | U. of Southern California | [baack@bus.usc.edu] | [(213)-740-0762] |
| | Rajagopalan, Nandini | U. of Southern California | [nrajagopalan@marshall.usc.edu] | [(213)-740-0750)] |
| | In this paper we develop a multi-theoretic, integrative framework of the antecedents and consequences of board structure and processes. We conduct a focused review of empirical papers over the past nine years along the theoretical links identified in this framework. Our review identifies a significant omission in prior research - the "black box" of board processes - and focuses upon the underlying theoretical and methodological reasons for this omission. Finally, we present specific research questions aimed at addressing this gap in prior work and offer illustrative hypotheses and methodological suggestions to address these questions. |
| | Keywords: corporate governance; boards of directors; strategy process |
| The Impact of Board Composition on the Target Debt Ratio of Firms |
| | Mizruchi, Mark S. | U. of Michigan | miziruchi@umich.edu | 734-764-7444 |
| | Byrd, Daniel | U. of Michigan | dtbyrd@umich.edu | (734) 434-7179 |
| | Board members have a fiduciary responsibility to act in the interest of shareholder. However, different board members have different affiliations which may alter the degree and direction of influence that they exert upon the firm. In this paper we focus upon three categories of affiliation that directors may hold: links to management, links to debt-holders and links to shareholder. When the interests of these three groups diverge, does the board become a battleground for corporate control? What are the subsequent implications of these board ties for firm behavior? We attempt to address these questions by examining the impact of board representation of the three groups on a crucial policy decision of the firm, its target capital structure. From an empirical study of Fortune 500 firms using a partial rate adjustment model, we provide evidence f a link between board composition and a firm's target debt ratio. |
| | Keywords: Board; composition; debt |
| Do Outside Directors Matter? An Examination of Their Attributes at Declining Organizations |
| | Halpin, Annette L. | Beaver College | halpin@beaver.edu | 215-572-2849 |
| | Subba Narasimha, P. N. | St. Cloud State U. | psubba@stcloudstate.edu | (320) 255-3823 |
| | Many firms go through a phase of declining performance. Corporate
governance is an important determinant of whether a firm recovers or not.
In this study we focus on the role played by outside directors in
declining organizations. Results indicate post-decline performance
depends on two attributes of outside directors--their manufacturing
experience and whether they are currently working as executives at other
firms. Contrary to expectations, neither proportion of outside directors
appear to be systematically related to decline or post-decline financial
performance. |
| | Keywords: governance; outside directors; declining organizations |
| Looking Beyond the Board to Explain Demographic Effects: How Individual Experience and Social Capital Affect the Influence of Minority Directors on Corporate Boards |
| | Westphal, James D. | U. of Texas, Austin | westphal@bus.utexas.edu | (512) 471-5286 |
| | Milton, Laurie P. | U. of Calgary | [lmilton@mgmt.ucalgary.ca] | [(403)-220-8523] |
| | We examine factors that enable demographic minorities on boards of directors to exert influence over strategic decision making. Our theoretical framework suggests that in order to predict whether minorities will become involved in board decision making and exert influence over strategy, one must look beyond the board itself to consider the prior experience of directors on other boards, as well as the larger, social structural context in which demographic differences are embedded. We find that (1) the prior experience of minority directors in a minority role on other boards can enhance their ability to exert influence on the focal board, while the prior experience of minority directors in a majority role can reduce their influence; (2) the prior experience of majority directors in a minority role on other boards can enhance the influence of minority directors on the focal board, and (3) minority directors are more influential if they have direct or indirect social network ties to majority directors through
common memberships on other boards. We find evidence for these relationships using survey indicators of director influence, as well as archival measures of director retention on the board and subsequent change in corporate strategy. We discuss implications for research on corporate governance, organizational demography, and intergroup relations. |
| | Keywords: corporate governance; demographic minority influence; strategic decision making |
| Who Directs Change? Director Experience, the Selection of New CEOs, and Change in Corporate Strategy |
| | Westphal, James D. | U. of Texas, Austin | westphal@bus.utexas.edu | (512) 471-5286 |
| | Fredrickson, James W. | U. of Texas, Austin | fredricksonj@mail.utexas.edu | (512)-471-5694 |
| | This study examines the relative influence of boards vs. top executives in determining the firm's strategic direction. Contemporary perspectives on top management and corporate governance tend to assume that executives play a dominant role in the formation of corporate strategies, and that boards have little influence over this process. Moreover, a growing body of empirical research in the upper echelon literature appears to support this assumption by providing evidence that the prior experience of executives predicts strategic change. In this study, we suggest how such findings may actually result from the influence of board members. We develop a theory of board-directed strategic change in which directors, particularly under conditions of poor performance, (1) conceive strategic changes that reflect the strategies of their own home companies, and (2) in order to facilitate implementation, select new CEOs who have prior experience with similar strategies. We test the hypotheses using archival data on change in corporate strategy for 406 large and medium-sized firms over a recent thirteen-year period. The results support our theoretical perspective on board-directed strategic change, and indicate how evidence that appears to show manager effects on change can mask board effects. Implications for research on corporate governance and strategic change are discussed. |
| | Keywords: governance; boards; change |