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

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Presentation on theme: "Corporate Governance and Boards: what good governance codes fail to tell you about board effectiveness Dr Silke Machold Reader in Governance and Ethics."— Presentation transcript:

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 Mace, 1971 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)

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) Company% Outsiders% directors with shares Board sizeCEO duality A No B No C Yes D No

5 The problem with the ‘usual suspects’ Company% Outsiders% directors with shares Board sizeCEO duality Enron No WorldCom No Tyco Yes RBS 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)

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

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

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

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 H1: There is a positive relationship between board members knowledge and strategy involvement. Supportedβ.20* β.31*** β.21* Adj R 2.27 F change 15.19*** 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. Supportedβ.15* Adj R 2.29 H5: The negative relationship between recent changes in board composition and board strategy involvement is positively moderated by leadership efficacy of board chairperson. Supportedβ -.19* β.17 Adj R 2.36

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) 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 supportAge β=-.15 Gender β=.24+ H4: Age and gender diversity are positively related to AC, but less significantly than personality trait diversity. Not supportedAge β=.00 Gender β=.12 H5: Tenure diversity is positive related to CC.Supportedβ=.35*** Adj.R2 =.30 H6: Tenure diversity is positive related to AC.Supportedβ=.68*** Adj.R2 =.60

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


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