Board Background Heterogeneity and Exploration‐Exploitation: The Role of the Institutionally Adopted Board Model

Abstract

Boards of directors are in a position to contribute vital knowledge resources to strategy‐making. We propose that the relation between board functional background heterogeneity and exploration‐focused versus exploitation‐focused strategy is contingent on the extent to which the institutionally adopted board model enables or constrains inclusion of the board's knowledge resources in strategy‐making. We empirically juxtapose the Anglo‐Saxon (‘one‐tier’) and Rhineland (‘two‐tier’) board models in the U.K. and Germany, respectively, and find support for our assertion that the influence of board functional background heterogeneity on relative exploration orientation is more pronounced when the adopted board model accommodates inclusion of the board's knowledge resources into strategy‐making. Implications for theory and practice are discussed.