Abstract
Boards of Directors that function effectively have been shown to be associated with successful organizational performance. Although a number of measures of Board functioning have been proposed, very little research has been conducted to establish the validity and reliability of dimensions of Board performance. The aim of the current study was to validate the measurement properties of a widely-used model and measure of Board performance. Exploratory Factor Analysis (EFA) and Confirmatory Factor Analysis (CFA) were conducted on online survey data collected from 1,546 board members from a range of Australian organizations. The analyses yielded 11 reliable factors: (1) effective internal communication and teamworking (2) effective leadership by the Chair (3) effective committee leadership and management (4) effective meeting management and record keeping, (5) effective information management (6) effective self-assessment of board functioning (7) effective internal performance management of board members (8) clarity of board member roles and responsibilities, (9) risk and compliance management (10) oversight of strategic direction, and (11) remuneration management. These dimensions to a large extent correspond to previously suggested, but not widely tested, categories of effective Board performance. Despite self-reported data and a cross-sectional design, tests of common method variance did not suggest substantive method effects. The research makes significant contributions to the corporate governance literature through empirical validation of a measure shown to reliably assess 11 discrete dimensions of Board functioning and performance. Practical and theoretical implications, study limitations and future research considerations are presented.
Highlights
One of the most important factors underpinning successful organizational performance is the functioning of its board of directors (Machold and Farquhar, 2013; Bezemer et al, 2014)
Given the adapted version of the survey has not previously been validated, the data were randomly split into roughly equal halves so the results of the Exploratory Factor Analysis (EFA) conducted on one half of the data could be cross-validated with Confirmatory Factor Analysis (CFA) using the other half of the data (Tabachnick and Fidell, 2014)
In contrast to the model and measures proposed by Leblanc and Gillies (2005), the results suggest 11 discrete dimensions of board functioning that can reliably be assessed using three to five items per dimension
Summary
One of the most important factors underpinning successful organizational performance is the functioning of its board of directors (Machold and Farquhar, 2013; Bezemer et al, 2014). Boards of directors are responsible for the oversight of systems and processes that direct, control, and govern an organization’s strategy, leadership decisions, regulatory compliance, and overall performance (Mowbray, 2014). Effective corporate governance extends to framing, setting and monitoring an organization’s values and culture (Adams, 2003; Ritchie and Kolodinsky, 2003), and ensuring that business decisions and practices are conducted ethically, fairly, and comply with community and regulatory standards (Nicholson and Kiel, 2004; Brown, 2005). The collapse of Lehman Brothers during the global financial crisis in 2008 is an often-cited example of how an ineffective board failed to ensure appropriate risk settings and policies to monitor corporate practice (Kirkpatrick, 2009). The press and regulatory authorities from across the world continue to expose corporate scandals (e.g., Wells Fargo Bank, Volkswagen, Australian Mutual Provident Society) that have been attributed to Board mismanagement and ineffectiveness (e.g., Cossin and Caballero, 2016)
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