Board composition and corporate performance: How the Australian experience informs contrasting theories of corporate governance

In many respects, Australian boards more closely approach normative best practice guidelines for corporate governance than boards in other Western countries. Do Australian firms then demonstrate a board demographic-organisational performance link that has not been found in other economies? We examine the relationships between board demographics and corporate performance in 348 of Australia's largest publicly listed companies and describe the attributes of these firms and their boards. We find that, after controlling for firm size, board size is positively correlated with firm value. We also find a positive relationship between the proportion of inside directors and the market-based measure of firm performance. We discuss the implications of these findings and compare our findings to prevailing research in the US and the UK.

The role of the board in firm strategy: Integrating agency and organisational control perspectives

The role of the board of directors in firm strategy has long been the subject of debate. However, research efforts have suffered from several deficiencies: the lack of an overarching theoretical perspective, reliance on proxies for the strategy role rather than a direct measure of it and the lack of quantitative data linking this role to firm financial performance. We propose a new theoretical perspective to explain the board's role in strategy, integrating organisational control and agency theories. We categorise a board's approach to strategy according to two constructs: strategic control and financial control. The extent to which either construct is favoured depends on contextual factors such as board power, environmental uncertainty and information asymmetry.

A framework for diagnosing board effectiveness

Pressure on boards to improve corporate performance and management oversight has led to a series of inquiries and reports advocating governance reform. These reports largely reflect an agency perspective of governance and seek to ensure greater board independence from and control of management. While board independence is important to good governance, we contend that frameworks, models and advice centred on one element of governance ignore the complexity of how boards work. We develop a holistic board framework based upon the concept of board intellectual capital to address this concern. Our framework proposes a series of inputs (e.g. company history, company constitution, legal environment) that lead to a particular mix of board intellectual capital. We contend that the balance of the different elements of board intellectual capital will lead to a series of board behaviours. Further, the board needs to mobilise its intellectual capital to carry out a series of roles. The exact nature of these roles will depend on the company's requirements. Thus, the governance outputs of organisational performance, board effectiveness and director effectiveness will depend on the match between the board's intellectual capital and the roles required of it. We conclude by demonstrating the benefits of this framework as a diagnostic tool. We outline how boards wishing to improve their governance systems can diagnose common governance problems by evaluating their own board's capabilities in relation to the different components of the framework.

The impact of target board recommendations in Australian takeovers

This paper examines the impact of targe board recommendations on the probability of the bid being successful in the Australian takeovers context. Specifically, we model the success rate of the bid as a binary dependent variable and target board recommendations or the board hostility as our key independent variable by using logistic regression framework. Our model also includes bid structures and conditions variables (such as initial bid premium, bid conditions, toehold, and interlocking relationship) and bid events (such as panel and bid duration) as our control variables. Overall, we find board hostility has statistically significant negative effect on the success rate of the bid and almost all control variables (except for the initial bid premium) are statistically significant with the correct sign. That is, we find toehold, the percentage of share required to make the bid becomes successful, and the unconditional bid have positive impact on the success rate of the bid, at least as predictive determinants prior to the release of any hostile recommendation. Consistent with Craswell (2004), we also find the negative relation between interlocking relationship and the success rate of the bid. Our finding supports that from target investors’ point of view, interlock is consistent with the negative story of self interest by directors. Finally, like Walking (1985), we find that the initial bid premium does not have influence on the success rate of the bid. Hence our results reinstate Walking’s bid premium puzzle in Australian context.