Corporate Governance and
Boards: what good governance
codes fail to tell you about board
effectiveness
Dr Silke Machold
Reader in Governance and
Ethics
The problem
Anglo-Irish Bank: “'a cosiness'
around the boardroom table”; “no formal
plan in place – reactions are
instinctive when crisis strikes”,
(Hague in Carswell, 2011)
RBS: “There were people in that
boardroom during the ABN Amro
takeover who must have thought
'this is madness', but no-one was
prepared to stand up to Sir Fred. I
know people who worked for him,
and it was a case of 'yes Sir, no
Sir, three bags full, Sir.” (Buik,
2009)
Mace, 1971
Boards and good governance codes
Board structure & composition
• CEO/Chair duality
• % non-executive directors
• Sub-committees
• Unitary/two-tiered board
• Multiple directorships
• Board diversity
Firm Performance
The ‘usual suspects’(Finkelstein & Mooney, 2003)
Company
% Outsiders
% directors
with shares
Board size
CEO duality
A
86
100
14
No
B
75
100
12
No
C
73
100
11
Yes
D
67
100
18
No
The problem with the ‘usual suspects’
Company
% Outsiders
% directors
with shares
Board size
CEO duality
Enron
86
100
14
No
WorldCom
75
100
12
No
Tyco
73
100
11
Yes
RBS
67
100
18
No
Meta-analyses show that there is no conclusive empirical evidence
linking board structure to performance (Dalton et al., 1998).
“Great inferential leaps are made from … board composition to… board
performance with no direct evidence on the processes and mechanisms which
presumably link the inputs to the outputs.” (Pettigrew, 1992:171)
What do boards do?
Board structure
& composition
Firm
Performance
What boards (should) do
Board Task Performance
Monitoring & control task
Service (resource provision,
advice, networking…)
Strategy involvement
Board structure
& composition
Firm
Performance
180
160
140
120
100
80
60
40
20
0
Alpha
M&C
Beta
Gamma
Strategy
Delta
Epsilon
Service
Zeta
Other
The board as a team
Board Processes & Behaviours
Use of knowledge & skills
Pluralistic ignorance
Board Task
Effort norms
Board structure
Performance
& composition
Trust & cohesiveness
Social distancing
Conflict
Leadership
Firm
Performance
Board leadership study (Machold et al., 2011)
• structure vs. process & behaviours
• Leadership as multi-dimensional construct:
ensuring right knowledge & skills and use of
these, initiatives to improve board work,
and effective leadership
behaviours
• Leadership in small firm
boards
Results
β .20*
β .31***
β .21*
Adj R2 .27
F change
15.19***
H1: There is a positive relationship between board
members knowledge and strategy involvement.
Supported
H2: There is a positive relationship between board
development and board strategy involvement.
Supported
H3: There is a positive relationship between
chairperson leadership efficacy and board strategy
involvement.
Supported
H4: In firms with CEO duality, positive relationship
between leadership efficacy and board strategy
involvement will be strengthened.
Supported
β .15*
Adj R2 .29
H5: The negative relationship between recent
changes in board composition and board strategy
involvement is positively moderated by leadership
efficacy of board chairperson.
Supported
β -.19*
β .17
Adj R2 .36
Implications for practice
• Board member selection – firm-relevant
knowledge
• Board development initiatives – away days,
training, board evaluations
• Effective leadership behaviours –
establishment of processoriented board climate
Cognitive conflict
Task-oriented
disagreement
Differences in
viewpoints, opinions,
ideas
Associated with positive
team outcomes (Jehn,
1995; Pelled et al. 1999, Zona &
Zattoni, 2007; Minichilli et al. 2009)
Affective conflict
Personality or
relationship conflicts
Clash in emotions and
feelings, search for
blame
Associated with negative
team outcomes (deDreu &
Weingart, 2003; Runde &
Flanaghan, 2008
Some initial results (Walker & Machold, 2011)
H1: Personality trait diversity is positively
related to CC.
Not supported –
significantly negative
β=-.21*
Adj.R2 =.34
H2: Personality trait diversity is positively
related to AC.
Not supported (ns)
β=.02
H3: Age and gender diversity are positively
related to CC, but less significantly than
personality trait diversity.
Partial support
Age β=-.15
Gender β=.24+
H4: Age and gender diversity are positively
related to AC, but less significantly than
personality trait diversity.
Not supported
Age β=.00
Gender β=.12
H5: Tenure diversity is positive related to CC.
Supported
β=.35***
Adj.R2 =.30
H6: Tenure diversity is positive related to AC.
Supported
β=.68***
Adj.R2 =.60
Other findings
• % non-executive directors has strong negative
relationship to both cognitive and affective
conflict (β=-.44*** and -.75*** respectively) –
failure to challenge executive team
• Also significant negative relations between
company size & turnover – large companies and
growing companies have less conflict in boards
• Board size matters for affective conflict (β=.27**)
Implications for practice
• Diversity matters – but not quite as we thought!
• having different tenure cycles may be doubleedged sword
• Structural prescriptions of codes (non-execs)
unlikely to stimulate effective board processes
and behaviours
Concluding remarks
• Don’t get pre-occupied with the usual
suspects
• Develop effective board processes &
behaviours, and focus on board task
performance
• Collaborative research win-win scenario
Thank you
• This presentation is available online at
http://www.wlv.ac.uk/uwbs80years