Abstract
PurposeThe plethora of changes in the corporate governance landscape over the past two decades has the potential to tighten governance regimes and influence the preference of supervisory board members vis-à-vis the involved decision-making role of business unit (BU) controllers and their independent fiduciary role. Stricter financial reporting and compliance requirements may lead organizations to prioritize the latter role. However, recent studies support the need to balance these roles, inducing the potential for role conflict. The purpose of this study is to shed light on the influence of a tight and loose governance regime on this balance as preferred by supervisory board members.Design/methodology/approachThis study uses a unique data set from an experiment among 73 supervisory board members. The authors take their perspective because compliance with governance codes and corporate policies are relevant topics for their function.FindingsThe authors find evidence for the preference of supervisory board members for “all-round” BU controllers who, irrespective of the governance regime, demonstrate substantial levels of fiduciary and decision-making qualities and deal with the resulting role conflict.Originality/valueThe outcomes of the experiment among supervisory board members provide evidence for their preferences concerning the balance of the two primary controller roles and for the potential of role conflict. The authors have not found studies that provide such empirical evidence.
Highlights
In his pioneering research, Sathe (1982, 1983) [1] substantiates the relevance and the merits of independence and involvement as the two major responsibilities of controllers
An explanation could be that, irrespective of the governance regime, the supervisory board members see the relevance of both roles and feel the need to balance them and manage the potential role conflict, which is in accordance with the insights gained from the work of Sathe (1982), Maas and Matejka (2009), Chang et al (2014) and Merchant and Van der Stede (2017)
Using data from a survey-based experiment with supervisory board members, we test whether the tightness of the governance regime positively affects the preferred level of business unit (BU) controller independence and negatively affects the preferred level of BU controller involvement
Summary
In his pioneering research, Sathe (1982, 1983) [1] substantiates the relevance and the merits of independence and involvement as the two major responsibilities of controllers. The value of each of these roles is supported in more recent literature (Indjejikian and Matejka, 2009; Friedman, 2012, 2014; Merchant and Van der Stede, 2017). Sathe’s initial research and more recent studies (Maas and Matejka, 2009; Indjejikian and Matejka, 2009; Van der Stede and Malone, 2010) point out that the two roles could be conflicting: involvement could lead controllers to defend managers’ stakes and jeopardize independence, and vice versa.
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