Re-imagining Corporate Governance: Board dynamics past, present, future

Symposium overview This symposium will review perspectives on dynamics within boards of directors. Developments in thinking on board effectiveness since the 1992 Cadbury Report will be considered, up to the disruption of the... [ view full abstract ]

Symposium overview

This symposium will review perspectives on dynamics within boards of directors. Developments in thinking on board effectiveness since the 1992 Cadbury Report will be considered, up to the disruption of the global financial crisis. Since then, there is a growing appreciation that effective boards requires more than just systems, structure, processes and procedures. The symposium will examine the importance of information sharing in boardrooms and the influence of behavioural and social psychological processes. The unique corporate governance challenges for the boards of particular organisational types such as family business and credit institutions will be discussed.

Prof Niamh Brennan: The role of information in board dynamics

At the heart of corporate governance is information asymmetry between various parties. Roberts et al. (2005) believe that open dialogue between executive and non-executive directors can promote reciprocal understanding and creative thought. Forbes and Milliken (1999, p. 496) observe that to perform their control and advisory tasks effectively, “board members must elicit and respect each others’ expertise, build upon each others’ contributions, and seek to combine their insights in creative, synergistic ways”.

The symposium will examine information/knowledge exchange, sharing and creation between managers and non-executive directors. By analysing the different information/knowledge sets of managers and non-executive directors, we suggest that information asymmetry in boardrooms is a necessary condition for effective boards.

Dr Margaret Cullen: The role of culture, behaviour and psychological biases in board dynamics

The majority of financial services organisations that failed and/or required state support from 2008 had purported, in the preceding decade, to follow best practice standards in corporate governance. These typically included principles on majority independent board structures, separation of responsibility at the helm of organisations and board committees comprising independent directors. Stakeholders incorrectly assumed that ‘structural’ compliance with corporate governance principles equated to best-in-class governance. How wrong they were! Since then, what lessons have stakeholders really learned about the behavioural aspects of boards?

The global financial crisis points to something more than the best practice “usual suspects” mechanisms (e.g., separation of chair and CEO, independent boards) as being required for good governance. Regulatory reform inevitably follows corporate and regulatory failure. Credit institutions, in particular, have felt the tsunami of regulatory reform, including governance reform, since the crisis began. Regulators, it would appear, have not learned much from the past, continuing to adopt an agency theoretical approach to setting governance standards, ignoring the hard-to-regulate features of organisations and their boards in corporate governance, such as the role of culture, behaviour and psychological biases in boardrooms. In fact, it could be argued that regulatory governance reform will exacerbate these biases and have unintended consequences on board behaviours and, ultimately, board effectiveness.

The symposium will critically evaluate an example of regulatory reform in the context of academic literature that had moved beyond an agency theoretical view of boards even before the crisis (e.g., Roberts and Stiles, 1999; Roberts, 2002; O’Higgins, 2002; Van den Berghe and Levrau, 2004; Roberts, et al., 2005; Huse and Zattoni, 2008). We present a model of manager-non-executive director behaviour applicable in any corporate form that supports a very different regulatory approach.


Dr Collette Kirwan: The role of non-executive directors on boards of private family firms

Prior literature has identified that non-executive directors (NEDs) are critical to achieving accountability in the boardroom. Amid growing public scrutiny, tighter regulation and increased threats to directors’ personal liabilities, the expectations and responsibilities of NEDs are increasing (McDonough, 2012). Research suggests that the ability of NEDs to satisfy multiple role expectations influences how their overall role effectiveness is judged (Nicholson and Kiel, 2004; Adams and Ferreira, 2007). However, academics are divided on the role expectations that can be reasonably expected of NEDs; whether such role expectations reflect the actual roles performed by NEDs; and whether the multiple role expectations placed on NEDs represent complementary or conflicting role activities (O’Higgins, 2002; Sundaramurthy and Lewis, 2003; Roberts et al., 2005; Brennan, 2006).

Prior research primarily addresses the role of NEDs on boards of publicly listed firms. This symposium will examine the role of NEDs in the context of the unique governance characteristics of private family firms. In this context, we will question some of the theoretical principles that continue to dominate our understanding of NEDs’ role execution and effectiveness. We will present an alternative conceptualisation of the role of NEDs; a conceptualisation that reflects NEDs’ ability to integrate the different aspects of their role and to overcome the perceived challenges of balancing different perspectives and demands due to the inherent conflicts of interest that exist amongst the myriad of corporate governance participants that interact with NEDs.

Dr Eleanor O’Higgins: Where was the board?

Corporate failings tend to concentrate on strategic mistakes, usually placing the blame on the management team – but where was the board in all this? Moreover, many failures have a moral dimension – a dimension which is often unrecognised explicitly as a board responsibility. Would such a recognition forestall ethical failures, resulting in scandals? How can a truly effective board ensure that a company behaves with integrity, genuinely earning the trust of all stakeholders?

Some cases-in-point will be discussed. The Volkswagen case whereby the US Environmental Protection Agency (EPA) found that many VW cars being sold in the US had a ‘defeat device’. When the story broke, the corporate response was to force the resignation of the CEO, replacing him with an insider. This scandal will cost Volkswagen billions in fines, lawsuits and lost sales. However, the company is in denial that anyone senior knew about this widespread illegal and unethical practice. Shouldn’t the board have known? In fact, should the presence of an effective board have prevented such unethical practices in the first place?

Another case is that of Tesco which deliberately delayed payments to suppliers and unilaterally paid them less than they were owed in an attempt to meet financial targets. The company was also guilty of accounting irregularities which made the company appear more profitable than it actually was. Again, the role or non-role of the board in these deceitful practices will be examined.

Procedures for managing the discussion among panellists and with the audience

A senior figure from the business community will be invited to moderate the discussion. Each of the four presenters will make a short ten-minute presentation on their topic, without visual aids such as powerpoint. Panellists will exchange their short presentations in advance of the conference so that each is fully familiar with the other presentations, such that the four presentations have a coherency. Questions to be addressed during the panel discussion will be prepared in advance and provided to the moderator. Panellists’ presentations will take approximately 40 minutes of the hour-and-a-half slot, leaving 50 minutes for discussion.

References

Adams, R.B. and Ferreira, D. (2007) “A theory of friendly boards”, Journal of Finance, Vol.62 No.1, pp.217-250.

Brennan, N.M. (2006), “Boards of directors and firm performance: is there an expectations gap”, Corporate Governance: An International Review, Vol.14 No.6, pp.577-593.

Brennan, N.M. and Solomon, J. (2008), “Corporate governance, accountability and mechanisms of accountability: an overview”, Accounting, Auditing & Accountability Journal, Vol. 21 No. 7, pp. 885-906.

Cadbury Report (1992) Committee on Financial Aspects of Corporate Governance, (1992) Gee Publishing, London.

Finkelstein, S. and Mooney, A.C. (2003), “Not the usual suspects: how to use board process to make boards better”, Academy of Management Executive, Vol.17 No.2, pp.101-113.

Forbes, D.S. and Milliken, F.J. (1999), “Cognition and corporate governance: understanding boards of directors as strategic decision-making groups”, Academy of Management Review, Vol. 24 No. 3, pp. 489-505.

Huse, M. and Zattoni, A., (2008), “Trust, firm life cycle, and actual board behavior - evidence from "one of the lads" in the boardroom of three small firms”, International Studies of Management and Organisation, Vol.18 No.3, pp.71-97

McDonough, G. (2012), “High expectations, low fees lead to tougher times for non-exec directors”, Accountancy Ireland, Vol.44 No.4, pp.33-34.

Nicholson, G.J. and Kiel, G.C. (2007), “Can directors impact performance? A case-based test of three theories of corporate governance”, Corporate Governance: An International Review, Vol.15 No.4, pp.585-608.

O’Higgins, E., (2002), Non-executive directors on boards in Ireland: co-option, characteristics and contributions, Corporate Governance: An International Review, Vol.10 No.1, pp.19-28.

Roberts, J. and Stiles, T., (1999), “The relationship between chairmen and chief executives: competitive or complementary roles”, Long Range Planning, Vol.32 No.1, pp.36-48.

Roberts, J., (2002), “Building the complementary board. the work of the plc chairman”, Long Range Planning, Vol.35, pp.493-520.

Roberts, J., McNulty, T. and Stiles, P. (2005), “Beyond agency conceptions of the work of the non-executive director: creating accountability in the boardroom”, British Journal of Management, Vol. 16 No. Supplement, pp. S5-S26.

Sundaramurthy, C. and Lewis, M. (2003), “Control and collaboration: paradoxes of governance”, Academy of Management Review, Vol.29 No.3, pp.397-415.

Van den Berghe, L.A.A. and Levrau, A., (2004), “Evaluating boards of directors: what constitute a good corporate board”, Corporate Governance: An International Review, Vol.12, No.4, pp.461-478.

Boards of directors, information asymmetry, non-executive directors, role conflict [ view full abstract ]

Boards of directors, information asymmetry, non-executive directors, role conflict