Unitary Board Research Articles

Corporate culture, staggered boards, and managerial entrenchment: Evidence from textual analysis

Capitalizing on an innovative measure of corporate culture derived from sophisticated machine learning algorithms and textual analysis, we explore how corporate culture is influenced by one of the most controversial corporate governance mechanisms, i.e., staggered boards. Our findings demonstrate that corporate culture is considerably weakened in the presence of a staggered board, consistent with the notion that staggered boards exacerbate managerial entrenchment and lead to more adverse corporate policies and outcomes. Specifically, corporate culture is approximately 7% weaker, as indicated by a decline in the text-based corporate culture score, in firms with a staggered board than those with a unitary board. Furthermore, we show that the negative effect of staggered boards on corporate culture is significantly more pronounced during more uncertain times. Additional analysis validates the results, i.e., propensity score matching, entropy balancing, and instrumental-variable analysis.

Corporate governance practices in a Parastatal: A case study of Zambia railways limited

The topic of corporate governance in firms and organisations has become a matter of serious concern among shareholders, regulators, and society. This study sought to assess the corporate governance practices of Zambian parastatals through a case study of Zambia Railways Limited (ZRL). The objectives of the study were to determine compliance with good corporate governance in terms of board structure and functions at the ZRL, to investigate challenges faced by ZRL in implementing good corporate governance practices and to explain the impact of ZRL's corporate governance structure on its operations. The study followed the mixed-method approach where data was collected using questionnaires and in-depth and semi-structured interviews. The case-study research design was employed. A convenient sample of 40 was employed. The study revealed that ZRL has a unitary board structure that is common in the Anglo-American model. The main challenges to good corporate governance include lack of internal controls, excessive political interference and lack of clear roles. The study further found that poor corporate governance negatively impacts operations. The study recommended for a very clear separation of the roles of shareholders and board of directors. The study also recommended for a clear legal framework. Besides, the research indicated the need for future research to investigate the role of Industrial Development Corporation (IDC) in the companies under its portfolio.

Prospects of governance 4.0: Moving beyond directors’ networks to the networked board

The problem that this paper addresses is growing evidence that conventional board models (especially the unitary board version) are approaching their use-by-date and may no longer be fit-for-purpose. This paper follows the published research by Ernst & Young (EY, 2021) with Dean Blomson as the lead researcher on board operating models of the future. One model was the ‘networked board operating model’; but its operation was not outlined in any detail. This conceptual paper examines the relevance, contribution, role and operation of a networked board. Methodologically, it draws on existing governance and networks’ literature and extrapolates that abductively to consider the applicability of a networked board/governance model. This paper outlines the design logic, construct, features and possible operation of such a model; and the key conditions for its success. The conclusion is that a networked board (governance) model for an enterprise (as opposed to multiple enterprises): 1) has interesting, relevant features worthy of consideration and adoption; 2) is not simply an abstract, theoretical construct but could be pragmatically applied and ‘operated’; and, therefore, 3) should have a place as an ‘alternative’ governance model (recognising that what is unconventional today may be mainstream tomorrow). The relevance of this paper is that it provides a foundation for further contemplation and critique of the model — as a viable alternative governance construct that is likely to be far more responsive to the vagaries of a VUCA (volatile, uncertain, complex and ambiguous) world, where ‘always on’ vigilance and heightened stakeholder engagement will be governance imperatives, for growing numbers of enterprises.

Board Diversity and Earnings Quality of Listed Deposit Money Banks in Nigeria

Instability due to frequent threats of financial distress has been a major problem facing deposit money banks (DMBs) in Nigeria. Efforts by the Nigerian government in the past to address this problem seem to have yielded little results as recent developments of instability in the banking industry indicate. In making such efforts, not much attention has been directed to the area of deceptive earnings reporting, and how board diversity can help checkmate such practices to enhance the quality of earnings reports which is essential in detecting in time financial distress warnings and identifying the necessary steps required to arrest the distress. In view of this, the study investigated the issue of board diversity as it affects the earnings quality of 13 out of 14 listed deposit money banks in Nigeria. The board diversity variables studied include board independence, block-shareholding, gender, age, expertise in accounting and finance, and board diversity combined index (representing the joint effect of the board diversity attributes on earnings quality). Earnings quality was measured from the accruals quality perspective using loan loss provision accruals quality. The study adopted fixed effect regression, employing two models to achieve the research objectives. It was found that Board Diversity Index had negative and significant effect on the discretionary loan loss provision of listed deposit money banks in Nigeria. Hence, the study concluded that the joint effect of the board diversity attributes improves the earnings quality of listed deposit money banks in Nigeria. The study recommended that the regulatory authority for the DMBs should ensure that appointment of board members aligns with corporate governance code demands on board diversity best practices, as this holds the potential of optimizing the joint effect of the board diversity attributes on earnings quality in a typical unitary board system setting as obtains in Nigeria.

Directors’ career concerns: Evidence from proxy contests and board interlocks

This paper studies the disciplinary spillover effects of proxy contests on companies that share directors with target firms, that is, interlocked firms. In difference-in-differences tests, I find that interlocked firms reduce excess cash holdings, increase shareholder payouts, cut CEO compensation, and engage in less earnings management in the year after proxy contests. The effects are more pronounced when both the interlocked and target firms have a unitary board and when the interlocking director is up for election, is younger, or has shorter tenure. Overall, the evidence highlights the importance of directors’ career concerns in policy spillovers across firms with board interlocks.

Corporate boards, shareholding structures and voluntary disclosure in emerging MENA economies

PurposeThe purpose of this paper is to investigate the level of voluntary compliance with, and disclosure of, corporate governance (CG) best practices, and the extent to which board characteristics and shareholding structures can explain discernible differences in the level of voluntary CG disclosure in a number of emerging Middle Eastern and North African (MENA) economies.Design/methodology/approachThe paper uses a number of multivariate regression methods, namely, ordinary least squares, weighted, non-linear, lagged-effects, two-stage least squares and fixed-effects regression techniques to analyse data collected for a sample of listed corporations in emerging MENA economies from 2009 to 2014.FindingsFirst, in general, MENA listed firms have a relatively lower level of voluntary compliance with, and disclosure of, CG practices compared to listed firms in developed countries. Second, the evidence suggests that corporate board characteristics, including board diversity, have a positive association with the level of voluntary CG disclosure. In contrast, the findings indicate that unitary board leadership structure, director shareholdings and government shareholdings negatively impact on the level of voluntary CG disclosure. The study does not, however, find any evidence to suggest that family shareholdings have any significant relationship with the level of voluntary CG disclosure. The findings are generally robust to alternative measures and potential endogeneity problems.Originality/valueThis is one of the first empirical efforts at investigating the association between CG mechanisms and voluntary disclosure in emerging MENA economies that observably relies on a multi-theoretical framework within a longitudinal cross-country research setting.

Value-added distribution to stakeholder of Spanish listed companies: a corporate governance perspective

Following a stakeholder corporate governance perspective, we examine whether the characteristics of boards of directors (board size, separation of Chairman and CEO roles, independent directors and board ownership) have an impact on the value-added distribution to stakeholders, who are differentiated as shareholders and other primary stakeholders (workers, creditors and government), and if these characteristics could contribute to a more equitable distribution of the value added. Considering that the main concern of the primary stakeholders is the distribution of wealth, we focus our approaches on the value-added distribution as a proxy for the primary stakeholders interests. We conduct a panel data analysis of 438 observations of Spanish listed firms during the period 2007–2012 and test various models that offer new insights into stakeholder perspectives. The results show that within the context of ownership concentration and with a unitary board system of corporate governance, the incorporation of independent directors on the Board and the separation of power (between Chairman and CEO) are important corporate control mechanisms with which to defend the interests of other primary stakeholders (workers, creditors and government). In addition, the results highlight that regulators and shareholders should be wary of excessive board ownership and oversized boards, as these may contribute to exacerbating the conflict of interests between shareholders and other primary stakeholders. These results contribute to the debate concerning the dichotomized approach of corporate governance (shareholders/stakeholders corporate governance).

Corporate Governance in Ukrainian Firms: Multiple Model Selections, Their Current Functioning, and Potential Future Problems

This article explores corporate governance in Ukrainian firms in order to show the parallel application of multiple models of corporate governance within the same business and cultural framework. Ukrainian corporate law is based on a two-tier system, according to which joint-stock companies are governed by two boards: a management board and a supervisory board. Nevertheless, those Ukrainian firms that aim to raise capital on international stock markets and are ready to go public tend to use the uk principles-based model. Since a unitary board structure in public companies is not recognized by Ukrainian law, these firms have to migrate from Ukraine, setting up their centers of corporate governance in foreign jurisdictions. At the same time, recent amendments to the Law on Joint-Stock Companies aimed at enhancing the protection of investors’ rights in Ukraine significantly expanded the legal requirements for corporate governance in public joint-stock companies. The introduction of special statutory obligations along with significantly toughened listing requirements for corporate governance in public joint-stock companies demonstrates the impact of the us rules-based model on Ukrainian corporate governance regulations. Therefore, the governance practices of Ukrainian firms and recent changes in Ukrainian corporate law are evidence of the convergence of corporate governance models in the modern world.

Rethinking Governance in a Dynamic Environment: Board Leadership and Governance Beyond the Boundaries of the Board

The rapidly changing nonprofit landscape and new challenges have led to new thinking about the traditional models of governance and board leadership. This article, based on the Alliance for Nonprofit Management’s 2015 national conference research to practice sessions, describes findings from several key board chair leadership studies and research of new shared governance approaches beyond the structure of the normative, unitary board. Findings from the largest U.S. study of board chairs to date reveal that preparation for the board leadership role is severely lacking and that most board chairs generally do not engage with their community or constituents. This article also describes several shared governance approaches, including network governance and Community Engagement Governance™, that move beyond the board as the sole locus of governance. Implications for practice and suggested discussion questions for the classroom and trainings are also provided to help students learn about alternative approaches of governance.

Directorss Career Concerns: Evidence from Proxy Contests and Board Interlocks

This paper studies the disciplinary spillover effects of proxy contests on companies that share directors with target firms, that is, interlocked firms. In difference-in-differences tests, I find that interlocked firms reduce excess cash holdings, increase shareholder payouts, cut CEO compensation, and engage in less earnings management in the year after proxy contests. The effects are more pronounced when both the interlocked and target firms have a unitary board and when the interlocking director is up for election, is younger, or has shorter tenure. Overall, the evidence highlights the importance of directors’ career concerns in policy spillovers across firms with board interlocks.

Effective challenge on a unitary board

This is the third of four articles that explore a range of problem areas in foundation trusts that have caused the trust to have been identified by the FT regulator Monitor (now NHS Improvement) for special attention. These problem areas focus on the board's insight to its business, the information it has for decision making, the effectiveness of the non-executive challenge function, and how executives are held to account. This learning is equally applicable to governing bodies of clinical commissioning groups. This third article in the series considers the effective challenge function within the board. Resulting from governance reforms in the early 1990s, the challenge function carried out by non-executives—with the aim of more effective decision-making and greater assurance—has not stopped the failures of governance in the NHS. Three areas are explored to get under the surface of the challenge function: first, the level of balcony thinking that underpins an effective challenge function, allowing non-executives and the board overall to understand and shape their context rather than be buffeted by it; and second, the type of behaviour that is effective when carrying out the challenge function on a unitary board. Last, the article explores how the challenge function plays out in different settings such as committees and in public board meetings. In each area the article highlights the problems and makes recommendations to improve how the challenge function can more effectively work in practice. The article concludes with a set of actions that the board can implement to improve the challenge function it experiences. The final article in this series will focus on board effectiveness in holding executives to account for the implementation of board decisions.

Comparative Board Structures Under Corporate Governance Framework

Board structures are integral part of corporate governance. Board structures significantly influence corporate growth and are governed and regulated by legal and regulatory framework in order to protect shareholders rights and curb malpractices. The organisational framework categorise Board structures into two types: (a) Unitary or single tier board system where the governing body is comprised of a single board, is prevalent in Anglo Saxon countries such as UK, US, Canada and India, (b) Two tier board system where the governing body is comprised of two separate boards, a supervisory board and a management board and is found is countries such as Germany, Finland and Netherland. In the various reports such as Cadbury report (UK) , King report (South Africa) and Higgs report (UK) the unitary board structure was preferred to the two tier structure. According to Kings Report the unitary board structure provides greater interaction among all board members, when dealing with matter such as strategy, planning, performance, resources, standard of conduct and communication with stakeholders. The Higgs report concludes that it is important to establish a spirit of partnership and mutual respect on the unitary board. This requires the non-executive director to build recognition by executives of their contribution in order to promote openness and trust. The two-tier board institutionalizes a clear distinction and segregation between the supervisory and monitoring functions on the one hand, and the managerial functions on the other hand. The unitary board combines both functions although certain governance models through various mechanisms achieve a certain degree of segregation of these functions. It is however not easy now days to make an exact distinction between these two board structures, as most developed countries have moved away from traditional unitary board structures in the case of large public organizations. This paper analyses board structure of India and Germany to find out the similarities and difference between both types of boards and seeks to figure out best option.

Complexity Theory, CSR, and Corporate Governance - The Need for Alternative Governance Models

Manuscript Type: Conceptual Research Question/Issue: How can increased environmental complexity be managed better through more effective integration of corporate governance and CSR? What are the deficiencies of the predominant corporate governance architecture with regard to CSR support and how can the corporate governance architecture improve to support higher levels of managerial responsibility? Research insights/findings: Based on insights from complexity theory, we find that the prevailing complexity reduction approaches lead to suboptimal corporate governance and CSR with regard to establishing managerial responsibility. We suggest that the lens of complexity absorption provides ways to redesign the approach to both corporate governance and CSR. Integrating governance and CSR by establishing decentralized governance structures that divide labor and power among all strategic stakeholders ensure higher levels of managerial responsibility. Theoretical/Academic Implications: We outline the conceptual connection between corporate governance and CSR and advance thinking about integration that improve both. We outline why traditional, centralized governance architecture (e.g. unitary board structures) fail to support monitoring and strategic advice functions concerning CSR of the board adequately. We use complexity theory and argue that complexity reduction approaches to both governance and CSR are failing in complex environments. We also suggest that complexity absorption approaches can help address such failures. Finally, we suggest how governance and CSR can be integrated to absorb complexity and increase managerial responsibility. We thus contribute theoretically by advancing the conceptualization of corporate governance and CSR as well as by providing alternative thinking on governance structures. Practitioner/Policy Implications: We suggest that practitioners and policy makers consider complexity absorption as an alternative to integrate Corporate Governance and CSR which will lead to higher levels of managerial responsibility. We provide evidence that decentralized governance structures that actively divide labor and power among stakeholders can lead to better outcomes in a complex environment.

Lessons from the French Exception: How Firms Choose between Unitary and Dual Boards

Many governance reform proposals focus on strengthening board monitoring. In contrast, Adams and Ferreira (2007) and Harris and Raviv (2008) conclude that a passive board is often optimal. We examine determinants of board structure choice in France, where firms are free to choose between a unitary (passive) board and a dual (monitoring) board. We find firms with greater asymmetric information are likely to adopt a unitary board. Firms with a high potential for private benefit extraction are likely to adopt dual boards. Firms well monitored by financial market and institutional forces are less likely to have dual boards. Our results imply that freedom of contract about board structure is valuable for shareholders.

Network Governance as a Lever for Improved Corporate Social Responsibility

In this paper we explore the question of corporate governance and its connection with CSR.We outline why a traditional governance architecture (e.g. unitary board structures) fails to support monitoring and strategic advice functions concerning CSR of the board adequately. We then provide our perspective on network governance and highlight how it provides better monitoring and strategic advice with regard to CSR. Finally, we suggest how network governance can be introduced by amendments to the corporate charter. We thus contribute theoretically by advancing the conceptualization of corporate governance and CSR as well as by providing alternative thinking on governance structures. We contribute practically by advancing concrete suggestions for implementation of network governance in ways that can supplement or replace the need for external laws and regulations. As such we aim to support theoretical and practical advances for better governance and higher levels of CSR.

Reforming Corporate Governance: Evidence from the Choice between Unitary Versus Dual Boards of Directors

Contemporary governance reform proposals focus on strengthening board monitoring but recent theoretical models find that a passive board is often optimal. We examine board structure choice in France where for 45 years firms have been free to choose between a unitary board and a dual board structure. Our evidence indicates that dual boards are more monitoring intensive and that firms with greater asymmetric information adopt unitary boards, while those with a high potential for private benefit extraction adopt dual boards. Our results imply that freedom of contract about board structure is valuable for shareholders, and run counter to the thesis of convergence to the Anglo-American standard of unitary board structure.

The Influence of Equity Markets on Firm Financial Performance

Purpose – This paper develops a discussion leading on from a paper relating the influence of capital markets combined with board structure/composition/committees and remuneration and corporate governance on the financial performance of a public listed corporation.Design/methodology/approach – This study entails common and codified law legal systems including; Australia, The United States of America and The United Kingdom, France, Germany and Italy. The data collected is from 350 public listed corporations from 2000 – 2006 for the development of multivariate regression models for parametric data.These developed models are constructed to test relationships between dependant and independent variables in line with research questions and hypotheses.Findings – The findings found that there were a mixture of results in unitary board structures in common and dual board structures codified law legal systems.Originality/value – The paper will be of vital importance to other academics looking at this question, and to both public and private sector entities.

Corporate Governance, Risk Management, and the Financial Crisis: An Information Processing View

Manuscript Type: Perspective Research Question/Issue: What were the reasons for poor risk management on the board level before and during the financial crisis? Were there systemic information processing problems that an alternative board design could alleviate? Research Findings/Insights: Using an information processing perspective, we identify two reasons for boards failing to manage risk well during the financial crisis: (1) board members did not have access to relevant information on the risks management incurred because they had no control over information supply; and (2) board members were unable to process the available risk-related information, and lacked incentives or power to influence managerial decision making. Based on insights from cybernetics and decision making theory, we suggest increasing board level information processing and decision making capabilities by including multiple boards for different stakeholders to create a division of power and labor. We label this alternative structure network governance and posit that it allows superior risk management. Theoretical/Academic Implications: The paper illustrates that the unitary board structure's systemic shortcomings increase the likelihood of poor risk management at the board level. The solutions proposed are an important theoretical advancement of the discussion on ongoing board failure in increasingly complex business environments. Practitioner/Policy Implications: This paper is one of few providing actual recommendations based on a systemic insight. Enlightened shareholders and/or managers could introduce network governance by amending corporate constitutions. Regulators should require firms considered too big to fail to adopt network governance or pay the cost for regulators establishing a risk-monitoring unit in each firm.

Re-inventing the Limited Liability Company

Manuscript Type: Perspective Research Question/Issue: The evolution of corporate governance thinking and its implications for theory building. The 19th century concept of the corporation still underpins corporate governance practice today: If the company was re-invented to meet contemporary circumstances, what might it look like today? Research Findings/Insights: The original corporate concept was superbly simple and brilliantly successful. Subsequently, the growing diversity of corporate objectives, confused ownership structures, and complex corporate groups, has led to abuse. Society has lost the control which it originally demanded for the right to incorporate companies in which shareholders' had no liability for corporate debts beyond their equity stake. Faced with government bail-outs of failing companies, allegedly excessive executive remuneration, and a growing concern for corporate social responsibility and sustainability, the time has come to re-think the rationale, the purpose, and the governance of the joint-stock, limited-liability company. Theoretical/Academic Implications: This paper has been written in response to the editor's initiative to seek contributions that might provide alternative theoretical insights into corporate governance issues. By taking a historical, evolutionary perspective, this paper looks at corporate governance through a different lens than those of agency theory, stewardship theory, or the growing philosophical interest in corporate social responsibility. The primary theoretical call is for a taxonomy of corporate entities that differentiates them according to the way that power is exercised over them. The paper also highlights three unresolved paradoxes in corporate governance orthodoxy – governance by principles or rules, independent directors' ignorance of the business, and the unitary board's dual responsibility for both performance and conformance. Practitioner/Policy Implications: The paper offers an alternative paradigm for the governance of corporate entities introducing the concepts of the governing body, executive management, and the sakeholder liaison groups. It is also suggested that external auditors should report to regulators, not directors. The underlying argument is that limited liability is a privilege granted by society, not a right. What society grants, society can take away if it is not satisfied with the way companies are managed or governed.

Lessons from the French Exception: How Firms Choose between Unitary and Dual Boards

Many governance reform proposals focus on strengthening board monitoring. In contrast, Adams and Ferreira (2007) and Harris and Raviv (2008) conclude that a passive board is often optimal. We examine determinants of board structure choice in France, where firms are free to choose between a unitary (passive) board and a dual (monitoring) board. We find firms with greater asymmetric information are likely to adopt a unitary board. Firms with a high potential for private benefit extraction are likely to adopt dual boards. Firms well monitored by financial market and institutional forces are less likely to have dual boards. Our results imply that freedom of contract about board structure is valuable for shareholders.