Rethinking board composition: Balancing competence and compatibility in director selection

Board composition is critical to board effectiveness. Shaping an effective board begins with the selection of directors. While much attention has been paid to the skills and qualifications directors require, there has been less focus on the necessity for board members to interact and work well together. This exploratory study offers insights into what qualities directors look for when selecting new members and the approach adopted to identify and select them. The findings of 10 in-depth interviews with Australian directors suggest new members are selected both on competencies and compatibility. Yet not all selection approaches adequately assess candidates for these two criteria. As a result many appointments fail to realise the selection criteria reducing capacity to reach its full potential.

Assessing the relationship between board composition and nonprofit hospital financial performance from a multi-theoretic perspective

This dissertation assesses the relationship between board composition and financial performance for the top 71 major nonprofit hospitals in the United States during the period 2004-2009. The underlying data were collected from copies of IRS Form 990 available at http://www.guidestar.org . The dissertation investigates five factors: board size, board independence (percentage of outsiders), number of MDs, CEO succession and CEO compensation. And it evaluates the results within a multi-theoretic framework drawing on agency theory, resource dependence theory, institutional theory and social network theory. Corporate governance literature suggests that board composition has an important impact on firm financial performance. This dissertation examines whether the same may be true for nonprofit hospitals. The results should help hospital executives make better governance decisions during trying economic times.^

Board composition, ownership structure and dividend policies in an emerging market: further evidence from CASE 50

Purpose – The purpose of this study is to examine dividend policies in an emerging capital market, in a country undergoing a transitional period. Design/methodology/approach – Using pooled cross-sectional observations from the top 50 listed Egyptian firms between 2003 and 2005, this study examines the effect of board of directors’ composition and ownership structure on dividend policies in Egypt. Findings – It is found that there is a significant positive association between institutional ownership and firm performance, and both dividend decision and payout ratio. The results confirm that firms with a higher return on equity and a higher institutional ownership distribute higher levels of dividend. No significant association was found between board composition and dividend decisions or ratios. Originality/value – This study provides additional evidence of the applicability of the signalling model in the emerging market of Egypt. It was found that despite the high institutional ownership and the closely held nature of the firms, which imply lower agency costs, the payment of higher dividend was considered necessary to attract capital during this transitional period.

Board composition, ownership structure and dividend policies in an emerging market: further evidence from CASE 50

Purpose – The purpose of this study is to examine dividend policies in an emerging capital market, in a country undergoing a transitional period. Design/methodology/approach – Using pooled cross-sectional observations from the top 50 listed Egyptian firms between 2003 and 2005, this study examines the effect of board of directors’ composition and ownership structure on dividend policies in Egypt. Findings – It is found that there is a significant positive association between institutional ownership and firm performance, and both dividend decision and payout ratio. The results confirm that firms with a higher return on equity and a higher institutional ownership distribute higher levels of dividend. No significant association was found between board composition and dividend decisions or ratios. Originality/value – This study provides additional evidence of the applicability of the signalling model in the emerging market of Egypt. It was found that despite the high institutional ownership and the closely held nature of the firms, which imply lower agency costs, the payment of higher dividend was considered necessary to attract capital during this transitional period.

Ownership Structure, Board Composition and Entrepreneurship : Evidence from Family Firms and Venture-Capital Backed Firms

The purpose of this article is to investigate how ownership structure, especially family and/or venture-capital involvement, as well as entrepreneurial activities, defined as strategic change and renewal, help explain the involvement of independent members on boards of directors. The CEOs of 2,455 small and medium-sized, private enterprises from practically all industries were contacted in a telephone survey, resulting in an exceptionally high response rate. The findings reveal that family firms are more reluctant to involve independent directors on their boards than non-family firms that presence of venture capitalists increases the frequency of independent board members and that ownership has an impact on board roles. The results do not support the hypothesised relationship that independent directors enhance entrepreneurial activities. One implication of our study is that the often-argued-for strategic contribution of outsiders to the boards in family firms may be overemphasised. Another implication is that family firms that choose to acquire additional capital should be aware that this could result in a change in the board composition and the loss of control of the business. However, new and external owners’ inclusion on the board seems to be negotiable since there are also venture capitalists that do not insist on board representation.

Board members’ contribution to strategic decision-making in small firms

This article explores how the boards of small firms actually undertake to perform strategic tasks. Board strategic involvement has seldom been investigated in the context of small firms. We seek to make a contribution by investigating antecedents of board strategic involvement. The antecedents are “board working style” and “board quality attributes”, which go beyond the board composition features of board size, CEO duality, the ratio of non-executive to executive directors and ownership. Hypotheses were tested on a sample of 497 Norwegian firms (from 5 to 30 employees). Our results show that board working style and board quality attributes rather than board composition features enhance board strategic involvement. Moreover, board quality attributes outperform board working style in fostering board strategic involvement

Inside the boardroom : exploring board member interactions

This study aims to open-up the black box of the boardroom by directly observing directors’ interactions during meetings to better understand board processes. Design/methodology/approach: We analyse videotaped observations of board meetings at two Australian companies to develop insights into what directors do in meetings and how they participate in decision-making processes. The direct observations are triangulated with semi-structured interviews, mini-surveys and document reviews. Findings: Our analyses lead to two key findings: (i) while board meetings appear similar at a surface-level, boardroom interactions vary significantly at a deeper level (i.e. board members participate differently during different stages of discussions) and (ii) factors at multiple levels of analysis explain differences in interaction patterns, revealing the complex and nested nature of boardroom discussions. Research implications: By documenting significant intra- and inter-board meeting differences our study (i) challenges the widespread notion of board meetings as rather homogeneous and monolithic, (ii) points towards agenda items as a new unit of analysis (iii) highlights the need for more multi-level analyses in a board setting. Practical implications: While policy makers have been largely occupied with the “right” board composition, our findings suggest that decision outcomes or roles’ execution could be potentially affected by interactions at a board level. Differences in board meeting styles might explain prior ambiguous board structure-performance results, enhancing the need for greater normative consideration of how boards do their work. Originality/value: Our study complements existing research on boardroom dynamics and provides a systematic account of director interactions during board meetings.

Board Effectiveness in Small Firms

Purpose: This study investigates boards of directors in small firms and explores the link between board effectiveness and the composition, roles and working styles of the boards. Design/methodology/approach: The study analyses data from a telephone survey of boards in 45 small firms. The survey included both the CEO and the chairperson of the board. Findings: The study identifies three groups of small firms: ‘paperboards’, ‘professional boards’, and ‘management lead’ boards. Results show that board composition, board roles and board working style influence board effectiveness in small firms. Research limitations/implications: Although the present study has found a link between board effectiveness and the role, composition and working style of boards of small firms, other potentially influential factors are also worthy of investigation; for example, the personal characteristics of the individuals involved, generational factors in family firms, and the situational circumstances of various firms. Practical implications: The study reveals that, in practice, the management team and the board are substantially intertwined in small firms. Originality/value: The main contributions are that the study explores how boards in small firms actually function and gives a detailed account of their composition and roles.More insight into this issue is important given the overemphasis within the governance literature on input-output studies using samples of large publiclylisted firms.

Board independence and innovation

Legislation introduced in the U.S. in 2002/2003 significantly changed board composition of public firms by imposing a 50% independent directors’ ratio. Research on the effect of independent directors is not consensual, implying that this exogenous shock is a unique opportunity to study their importance. This study answers the question of whether or not independent directors can effectively mitigate agency conflicts between shareholders and the management, having a positive impact on the choice of successful R&D projects. We find that an increase of board independence has a positive impact on patent counts. Hence, the results support that independent directors truly spur innovation and risk taking.

The determinants and effects of board nomination committees

This article assesses the corporate governance-related antecedents of nomination committee adoption, and the impact of nomination committees’ existence and their composition on board independence and board demographic diversity. We conducted a longitudinal study of board composition amongst 210 Swiss public companies from January 2001 through December 2003, a period during which the Swiss (Stock) Exchange (SWX) introduced new corporate governance-related disclosure guidelines. We find firms with nomination committees are more likely to have a higher number of independent and foreign directors, but not more likely to have a higher number of female board members. Further, the existence of nomination committees is associated with a higher degree of nationality diversity but is not related to board educational diversity. We also find that nomination committee composition matters in the nomination of independent and foreign, but not of female directors. Our results suggest that understanding different board roles and composition require a multi-theoretical approach, and that agency theory, resource-dependence theory and group effectiveness theory help to explain different aspects of board composition and effectiveness. Finally, the article discusses the concept of diversity and appropriate ways to study diversity in a boardroom context.