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Research

Bridging economic and psychological perspectives

Extant theory development by scholars from economics, management and psychology reflects the relevance of studying board effectiveness across these different fields. However, while these fields may offer complementary perspectives for explaining board behavior, scholars from the different disciplines are used to work with their own theories and methodologies, at different levels of analyses, and thus examine board effectiveness with a different focus. Economic and management literature typically relies on organizational level demographic archival data (e.g., board diversity, board internationalization, corporate governance systems) and use firm performance indicators as measures of board effectiveness (e.g., number of acquisitions, R&D investments, overall financial performance). In contrast, psychological literature examines board effectiveness at the micro-behavioral level, through field surveys and (quasi-)experiments, focusing on issues such as CEO leadership behavior, board dynamics, and risky decision making. Recent calls have been made to connect these different disciplines. Yet, attempts to integrate the fields are still relatively rare. As our research group represents a unique variety of relevant disciplines, we are able to develop a long-term, overarching research program that bridges economic and psychological perspectives on board effectiveness and unites their diverse methods.

Sustainable society

Society is increasingly demanding that organizations perform well financially and demonstrate social responsibility. Ultimately, it is the board that decides on taking into account the interests of different stakeholders and sustainable organizational practice. As these goals of different stakeholders can contradict each other, it is necessary to combine insights from economics, management and psychology to understand how boards make decisions in complex and often ambiguous situations. This is exactly what we will be doing in our group. As a starting point for our future work, we describe two exemplary projects that we aim to examine with our interdisciplinary approach. These two examples illustrate the value of using a more integrated approach to studying board effectiveness, and indicate how the interplay between macro-economic conditions, country-level regulation systems and psychological dynamics within boards determines board effectiveness.

Themes

  • Board Diversity, Board Dynamics and Board Effectiveness

Board diversity can be a serious impediment for organizational success, if not embedded in the right context. Yet, studies from economics, management and psychology have expressed contradicting views on how contextual factors influence the relationship between board diversity and board effectiveness. These different perspectives signify the need for a more integrated approach to studying whether diverse boards are able to create change in the face of low organizational performance. In more general terms, there is a clear need to examine which contextual factors influence the consequences of board diversity and processes for board effectiveness. In particular, the different perspectives indicate that research on board diversity and board effectiveness would benefit from a multi-method approach, where objective macro-level data on board diversity and board effectiveness are combined with micro-level data on psychological responses to, and board dynamics as a result of, diversity.

  • Board Roles, Models of Corporate Governance and Board Effectiveness

There is common agreement across different disciplines that one important task of governance is to ensure that senior management (i.e. the CEO and other executive directors) acts in the best interest of the organization in order to ensure organizational sustainability. Yet, international comparisons reveal that boards, which are responsible for governing senior management, adopt different ways of organizing their monitoring role, depending on the corporate governance setting of a country. Boards can differ, for example, in the presence of co-determination (i.e. whether or not they represent both owners and employees), in the degree to which they use sub-committees for task execution and in the use of a one-tier or two-tier system (i.e. whether executive or non-executive directors reside within a single one-tier board of directors or are formally separated into a two-tier supervisory board and management board).

Economic researchers have primarily examined how national legislation affects these board structures, focusing on promoting independence as a means to improve the board’s monitoring role. Yet, psychological research on norm induction in groups and psychological responses to accountability suggests that boards may best be monitored by internal stakeholders to whom board members can relate and who do not threaten the board’s reputation. So, here too, the different streams of literature would benefit from studies using interdisciplinary methods that directly compare the effectiveness of different corporate governance systems, at different levels of analyses using a variety of different data sets. Such a stream of research would greatly inform organizations when and why certain forms of monitoring are more effective in influencing board decisions than other ones.

Last modified:26 January 2017 1.36 p.m.