|
Meta-Analytic
Reviews of Board Composition, Leadership Structure, and Financial
Performance
Dalton, D.R.,
Daily, C.M., Ellstrand, A.E., & Johnson, J.L., (1998)
Meta-analytic
| reviews of
board composition, leadership structure, and financial
performance. Strategic Management Journal, Vol. 19,
269-290. |
The composition of the individuals
who are seated on the board of directors may have direct results to
a company's financial performance.
If members of a business's board of
directors are managers of the same company, is that a conflict of
interests or is it the secret for success in an organization?
Or, do members of the board of directors who are outsiders have more
of a positive impact on the financial success in the company?
Dan Dalton, Catherine Daily, Alan
Ellstrand, and Jonathan Johnson, a group of business professors
decided to conduct a study to take a look at the relationship
between the board of directors in a company, both composition and
leadership structure, and financial performance of that company.
There have been very little results found in studies of this sort in
the past. Therefore, these researchers decided to perform a
meta-analytic review of 54 examples to determine if they could find
any consistent results.
The researchers looked at two
factors, board composition and leadership structure. Board
composition refers to the proportion of outside directors
compromising positions. Leadership structure is similar in
that it focuses on who fills the head of the board, one in
management or an outsider.
There are basically two views put
forth on this subject. First, agency theory states that
outside directors will compose the best boards because there will be
no management represented. The theory states that having
management represented on boards increases the power by position of
those individuals that can create conflict of interests in decision
making.
The opposing view is stewardship
theory, which states that managers are inherently trustworthy and
not prone to misappropriate conduct. The theory goes on to say
that centralized control should fall into the hands of managers.
These same two theories also apply directly to both board
composition and leadership structure.
There were three moderating factors
found in prior research, size of firm, nature of performance
indicators (accounting vs. market based), and four primary
operationalizations of board composition, inside director
proportion, outside director proportion, affiliated director
proportion and independent/interdependent director proportion.
The size of the firm is self-explanatory. The natures of
performance indicators are simply the means by which firms record
their financial performance. The four factors were proportions
of inside and outside directors to the total number of board
members. The affiliated director proportion refers to any
personal and/or professional relationships that exist among firm
managers and directors. The independent directors, are those
that held the position before the new CEO's appointment.
Interdependent directors are those that were appointed by the CEO.
After analyzing the data collected
from the 54 samples, the following findings were made. Board
composition has virtually no effect on firm performance, and none of
the moderating variables identified had any effect either.
Also, there was concluded to be no relationship between board
leadership structure and firm performance. Here, none of the
moderating effects had any significance as well.
The findings suggest that neither of
the two theories mentioned, agency nor stewardship theory, support
why certain firms are successful financially and others fail.
The researchers suggest that further research would be in vain and
similar findings would exist. The results of this research are
suggested to give firms a case against reforming the existing
corporate governing bodies due to poor financial performance.
It is suggested for firms to look elsewhere for reasons why they are
not achieving their financial goals.
Back to Aslan
News
|
