Abstract
A key question regarding the impact of the board of directors (BOD) on a firm’s strategic choices is why some BODs are highly involved in the strategic decision-making process and others are not. We offer a novel explanation pertaining to the importance of individual non-executive board members’ attributes in leading such processes of involvement. Specifically, our research sheds light on the question of why an individual board member with particular qualities acts differently when serving on different boards. We explore the dynamics that emerge within the BOD that enable the involvement of such a member. Evidence is derived from fifteen open interviews conducted with non-executive board members, and analyses of twenty strategic decision events in a variety of companies (fourteen public, four private, one nonprofit and one government-owned company; six very large, seven large, four mid-sized and three small companies). Our findings highlight the importance of the BOD leadership style, the potential sources of leadership power and their influence on the work environment and norms that develop within the board with regard to its involvement. We point to the challenges that non-executive board members face in different environments and their considerations in choosing whether and how to promote the BOD’s involvement. Finally, we demonstrate the importance of the expert and referent sources of power and the shared values within the BOD in shaping the context and dynamics of the BOD’s involvement.
Similar content being viewed by others
Notes
Throughout the article the term “board member” refers to an individual who is non-executive, part-time, and independent (i.e., who has the ability to be objective; see Hambrick et al. 2015, p. 330).
In the last decade, following corporate governance regulations and practices an increasing number of firms have appointed a non-executive independent director as the BOD chair (Krause et al. 2016). However, there are still other forms of BOD leadership, and thus, throughout the article the term “Chairperson” refers to different forms of the BOD’s leadership, usually, but not always, the chairperson of the BOD.
References
Adams, R. B., & Ferreira, D. (2007). A theory of friendly boards. Journal of Finance,62(1), 217–250.
Avolio, B. J., Walumbwa, F. O., & Weber, T. J. (2009). Leadership: Current theories, research and future directions. Annual Review of Psychology,60, 421–449.
Bailey, B. C., & Peck, S. (2013). Boardroom strategic decision-making style: Understanding the antecedents. Corporate Governance: An International Review,21(2), 131–146.
Ben Barka, H., & Legendre, F. (2017). Effect of the board of directors and the audit committee on firm performance: A panel data analysis. Journal of Management and Governance,21, 737–755.
Boubaker, S., Derouiche, I., & Nguyen, D. K. (2015). Does the board of directors affect cash holdings? A study of French listed firms. Journal of Management and Governance,19, 341–370.
Calabro, A., & Mussolino, D. (2013). How do boards of directors contribute to family SME export intensity? The role of formal and informal governance mechanisms. Journal of Management and Governance,17(2), 363–403.
Carpenter, M. A., & Westphal, J. D. (2001). The strategic context of external network ties: Examining the impact of director appointments on board involvement in strategic decision making. Academy of Management Journal,44(4), 639–660.
Charmaz, K. (2006). Constructing grounded theory: A practical guide through qualitative analysis (2nd ed.). London: SAGE Publications.
Cornelli, F., Kominek, Z., & Ljungqvist, A. (2013). Monitoring managers: Does it matter? Journal of Finance,68(2), 431–481.
Daily, C. M., Dalton, D. R., & Cannella, A. A., Jr. (2003). Corporate governance: Decades of dialogue and data. Academy of Management Review,28(3), 371–382.
Doan, T., & Nguyen, N. Q. (2018). Boards of directors and firm leverage: Evidence from real estate investment trusts. Journal of Corporate Finance,51, 109–124.
Eisenhardt, K. M., & Graebner, M. E. (2007). Theory building from cases: Opportunities and challenges. Academy of Management Journal,50(1), 25–32.
Fama, U. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics,26(2), 301–326.
Finkelstein, S., Hambrick, D. C., & Cannella, A. A. (2009). Strategic leadership; theory and research on executives, top management teams and boards (chapters 8 and 9). Oxford: Oxford University Press.
Forbes, D. P., & Milliken, F. J. (1999). Cognition and corporate governance: Understanding boards of directors as strategic decision-making groups. Academy of Management Review,24(3), 489–505.
French, J. R. P., & Raven, B. (1959). The bases of social power. In D. Cartwright (Ed.), Studies in social power (chapter 9). Ann Arbor: University of Michigan.
Hambrick, D. C., Misangyi, V. F., & Park, C. A. (2015). The quad model for identifying a corporate director’s potential for effective monitoring: toward a new theory of board sufficiency. Academy of Management Review,40(3), 323–344.
Haynes, K. T., & Hillman, A. (2010). The effect of board capital and CEO power on strategic change. Strategic Management Journal,31(11), 1145–1163.
Heemskerk, E. M., Heemskerk, K., & Wats, M. M. (2017). Conflict in the boardroom: A participant observation study of supervisory board dynamics. Journal of Management and Governance,21(1), 233–263.
Huse, M., Hoskisson, R., Zattoni, A., & Vigano, R. (2011). New perspectives on board research: Changing the research agenda. Journal of Management and Governance,15, 5–28.
Judge, W. Q., & Zeithaml, C. P. (1992). Institutional and strategic choice perspectives on board involvement in the strategic decision process. Academy of Management Journal,35(4), 766–794.
Kanungo, R. N. (1982). Measurement of job and work involvement. Journal of Applied Psychology,67(3), 341–349.
Khanna, P., Jones, C. D., & Boivie, S. (2014). Director human capital, information processing demands, and board effectiveness. Journal of Management,40(2), 557–585.
Krause, R. (2017). Being the CEO’s boss: An examination of board chair orientations. Strategic Management Journal,38, 697–713.
Krause, R., Semadeni, M., & Withers, M. C. (2016). That special someone: When the board views the chair as a resource. Strategic Management Journal,37, 1990–2002.
Laux, V. (2010). Effects of litigation risk on board oversight and CEO incentive pay. Management Science,56(6), 938–948.
Li, W., Krause, R., Qin, X., Zhang, J., & Zhu, H. (2018). Under the microscope: An experimental look at board transparency and director monitoring behavior. Strategic Management Journal,39, 1216–1236.
Luft, J. (1984). Group processes: An introduction to group dynamics (3rd ed.). Palo Alto, CA: Mayfield.
Machold, S., Huse, M., Minichilli, A., & Nordqvist, M. (2011). Board leadership and strategy involvement in small firms: A team production approach. Corporate Governance: An International Review,19(4), 368–383.
McDonald, M. L., Westphal, J., & Graebner, M. (2008). What do they know? The effects of outside director acquisition experience on firm acquisition performance. Strategic Management Journal,29, 1155–1177.
McNulty, T., & Pettigrew, A. (1999). Strategists on the board. Organization Studies,20(1), 47–74.
McNulty, T., Pettigrew, A., Jobome, G., & Morris, C. (2011). The role, power and influence of company chairs. Journal of Management and Governance,15(1), 91–121.
McNulty, T., Zattoni, A., & Douglas, T. (2013). Developing corporate governance research through qualitative methods: A review of previous studies. Corporate Governance: An International Review,21(2), 183–198.
Minichilli, A., Zattoni, A., Nielsen, S., & Huse, M. (2012). Board task performance: An exploration of micro- and macro-level determinants of board effectiveness. Journal of Organizational Behavior,33, 193–215.
Nahavandi, A. (1997). The art and science of leadership (chapter 4). Upper Saddle River, NJ: Prentice Hall.
Neubert, M. J. (1999). Too much of a good thing or the more the merrier? Exploring the dispersion and gender composition of informal leadership in intact manufacturing teams. Small Group Research,30, 635–646.
Nguyen, B. D. (2012). Does the rolodex matter? Corporate elite’s small world and the effectiveness of boards of directors. Management Science,58(2), 236–252.
Nicholson, G. J., & Kiel, G. C. (2007). Can directors impact performance? A case-based test of three theories of corporate governance. Corporate Governance: An International Review,15(4), 585–608.
Pfeffer, J., & Salancik, G. R. (1978). The external control over organization: A resource dependence perspective. New York: Harper & Row.
Picone, P. M., Dagnino, G. B., & Minà, A. (2014). The origin of failure: A multidisciplinary appraisal of the hubris hypothesis and proposed research agenda. The Academy of Management Perspectives,28(4), 447–468.
Pugliese, A., Nicholson, G., & Bezemer, P. J. (2015). An observational analysis of the impact of board dynamics and directors’ participation on perceived board effectiveness. British Journal of Management,26, 1–25.
Ravasi, D., & Zattoni, A. (2006). Exploring the political side of board involvement in strategy: A study of mixed-ownership institutions. Journal of Management Studies,43(8), 1671–1702.
Roberts, J., McNulty, T., & Stiles, P. (2005). Beyond agency conceptions of the work of the non-executive director: Creating accountability in the boardroom. British Journal of Management,16(1), S5–S26.
Ruigrok, W., Peck, S. I., & Keller, H. (2006). Board characteristics and involvement in strategic decision making: Evidence from Swiss companies. Journal of Management Studies,43(5), 1201–1226.
Schaubroeck, J., Carmeli, A., Bhatia, S., & Paz, E. (2016). Enabling team learning when members are prone to contentious communication: The role of team leader coaching. Human Relations,69(8), 1709–1727.
Stevenson, W. B., & Radin, R. F. (2015). The minds of the board of directors: the effects of formal position and informal networks among board members on influence and decision making. Journal of Management and Governance,19, 421–460.
Sundaramurthy, C., & Lewis, M. (2003). Control and collaboration: Paradoxes of governance. Academy of Management Review,28(3), 397–415.
Tang, J., Crossan, M., & Rowe, W. G. (2011). Dominant CEO, deviant strategy, and extreme performance: The moderating role of a powerful board. Journal of Management Studies,48(7), 1479–1503.
Volonté, C., & Gantenbein, P. (2016). Directors’ human capital, firm strategy, and firm performance. Journal of Management and Governance,20(1), 115–145.
Westphal, J. D. (1999). Collaboration in the boardroom: Behavioral and performance consequences of CEO-board social ties. Academy of Management Journal,42(1), 7–24.
Westphal, J. D., & Fredrickson, J. W. (2001). Who directs strategic change? Director experience, the selection of new CEOs, and change in corporate strategy. Strategic Management Journal,22, 1113–1137.
Westphal, J. D., & Khanna, P. (2003). Keeping directors in line: Social distancing as a control mechanism in the corporate elite. Administrative Science Quarterly,48(3), 361–398.
Westphal, J. D., & Milton, L. P. (2000). How experience and network ties affect the influence of demographic minorities on corporate boards. Administrative Science Quarterly,45, 366–398.
Westphal, J. D., & Zajac, E. J. (2013). A behavioral theory of corporate governance: explicating the mechanisms of socially situated and socially constituted agency. The Academy of Management Annals,7(1), 607–661.
Wheelan, S. A., & Johnston, F. (1996). The role of informal member leaders in a system containing formal leaders. Small Group Research,27, 33–55.
Withers, M. C., & Fitza, M. A. (2017). Do board chairs matter? The influence of board chairs on firm performance. Strategic Management Journal,38, 1343–1355.
Zattoni, A., Gnan, L., & Huse, M. (2015). Does family involvement influence firm performance? Exploring the mediating effects of board processes and tasks. Journal of Management,41(4), 1214–1243.
Zhang, P. (2013). Power and trust in board-CEO relationships. Journal of Management and Governance,17, 745–795.
Zhu, D. (2013). Group polarization on corporate boards: Theory and evidence on board decisions about acquisition premiums. Strategic Management Journal,34(7), 800–822.
Acknowledgements
An earlier version of this paper has been presented at the 2016 EISAM conference. We also acknowledge financial support by the Raymond Ackerman Family Chair in Israeli Corporate Governance at Bar-Ilan University and Hurwitz Institute of Strategic Management at the Coller School of Management, Tel Aviv University. We are thankful to the Editor and our anonymous reviewers for their very helpful comments on earlier drafts of this paper.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Nahum, N., Carmeli, A. Leadership style in a board of directors: implications of involvement in the strategic decision-making process. J Manag Gov 24, 199–227 (2020). https://doi.org/10.1007/s10997-019-09455-3
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10997-019-09455-3