Board-Management Relationships: Resources and Internal Dynamics

Abstract

This paper investigates directors' relationships with firms' managers, using lenses of resource dependence theory and resource based view. Because of different roles that board members perform in modern organisations we seek to find out what board-management relationships may provide a company with competitive advantage relative to other firms. The paper reports the results from a study conducted in six New Zealand companies. We used multiple respondents from the top management and board members in a variety of firms from different industries. Qualitative analysis of interview transcripts, and matching the qualitative results with secondary information on the companies, reveal several interesting patterns of relationship among top management and board members, as well as the value of this relationship to the firm. Key words: corporate governance, board-management dynamics, resource dependence, resource-based view Introduction The emerging research on corporate governance has extensively considered the changing role of boards in modern corporations. Prescriptive studies by (Carter/ Lorsch 2004; Demb/Neubauer 1992; Huse 1998; Lorsch/Maclver 1989), among others, have analysed a number of issues or paradoxes that boards around the world have to deal with and consequently redesign themselves and their relationships accordingly within and outside corporations. The major issues that are ascribed as key evolutionary changes refer to the changing expectations that management, shareholders, and other stakeholders (customers, employees, and suppliers) have about directors' involvement in the company's affairs. We investigated the specific governance mechanism of board of directors, and directors' relationships with firms' managers, using lenses of resource dependence theory and resource based view. The flexibility in exploration was preserved by using detailed case studies from six companies based in New Zealand from a variety of industries. The research questions investigated directors' knowledge and expertise (resources) and their contribution and involvement (internal dynamics) in the company's affairs. Heeding recent calls to study governance and board policies from within, under the overall rubric of the emerging behavioural perspectives on boards and governance (Gabrielsson/Huse 2002; Huse 1998, 2003, 2005; McNulty/Pettigrew 1999; Rindova 1999; Useem 2003), we place particular emphasis on the internal workings and dynamics of the boards. In particular, this study was motivated by a desire to provide an empirical underpinning to theoretical developments that widen the context of corporate governance, by investigating a wider variety of roles and processes within the board (Gabrielsson/Huse 2005; Goel/Erakovic 2003; Huse 2005). In addition, by investigating boards in firms in different stages in the lifecycle (young versus mature) and in two different contexts (traditional versus high-tech), we are able to see the contrast between board roles hypothesi2ed by lifecycle theories of board processes (Shen 2003). We believe that our research enhances literature on internal board working (Demb/Neubauer 1992; Finkelstein/Mooney 2003; Gabrielsson/Winlund 2000; Roberts et al. 2005) by providing evidence from a relatively understudied context of New Zealand. Because of different roles that board members perform in modern organisations we seek to find out what board-management relationships may provide a company with competitive advantage relative to other firms. Also, how these 'internal qualities' can be translated into valuable 'external' relations? What are the distinctive structures and norms of various governance practices? Are these qualities specific for certain types of companies/industries? It is these questions, this research aims to explore. The major contribution of this paper is investigating the board's role as a resource via three key roles. First, we investigate the board's sources of knowledge about the company's affairs and how they are linked or deployed toward the roles boards are supposed to play. …