Monitoring Strategic Choices: Re-conceptualizing Board Capital

Abstract

Board capital–the human and social capital of the board of directors–is considered crucial for boards to effectively discharge their duties. Despite its purported importance, board capital remains severely under-theorized. Whilst it has been positioned as a collective “board” level construct, rather than an individual “director” level construct, ironically, it has been siloed from the repercussions of interactions between directors, which is fundamental to a collective. In the current paper, we focus on these interaction effects in the course of leveraging expertise of different directors on board, and take board capital beyond the current assumption of it being a simplistic mathematical summation. Further, we show how the board chair may increase board capital via her control over board discussions. Finally, we present a predictive model that distinguishes effective boards from their more ordinary peers, given the uncertainty inherent in strategic decisions.