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Corporate Governance and Boards: what good governance codes fail to tell you about board effectiveness

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

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Corporate Governance and Boards: what good governance codes fail to tell you about board effectiveness

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  1. Corporate Governance and Boards: what good governance codes fail to tell you about board effectiveness Dr Silke Machold Reader in Governance and Ethics

  2. 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

  3. 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

  4. The ‘usual suspects’(Finkelstein & Mooney, 2003)

  5. The problem with the ‘usual suspects’ 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)

  6. What do boards do? Board structure & composition Firm Performance

  7. What boards (should) do Board Task Performance Monitoring & control task Service (resource provision, advice, networking…) Strategy involvement Board structure & composition Firm Performance

  8. The board as a team Board Processes & Behaviours Use of knowledge & skills Pluralistic ignorance Effort norms Trust & cohesiveness Social distancing Conflict Leadership Board Task Performance Firm Performance Board structure & composition

  9. 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

  10. Results

  11. Implications for practice • Board member selection – firm-relevant knowledge • Board development initiatives – away days, training, board evaluations • Effective leadership behaviours – establishment of process- oriented board climate

  12. 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

  13. Some initial results (Walker & Machold, 2011)

  14. 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**)

  15. Implications for practice • Diversity matters – but not quite as we thought! • having different tenure cycles may be double-edged sword • Structural prescriptions of codes (non-execs) unlikely to stimulate effective board processes and behaviours

  16. 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

  17. Thank you • This presentation is available online at http://www.wlv.ac.uk/uwbs80years

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