Thanks to my amazing co-authors, Amin Moeinian, Prof. Taieb Hafsi, and Dr. Mahdi Ebrahimi, I’m delighted to have the chance to present our recent paper on “Board’s strategic involvement climate” at the European Group for Organizational Studies’ annual meeting. Despite the current Covid situation that has forced all conferences to be held virtually, EGOS 2021 was phenomenal in gathering scholars with “really” similar research interests and giving them a “meaningful” stage for discussing and sensemaking their recent works. Among 80 well-defined sub-themes, we targeted our research at sub-theme 17: “Boards Interaction and Decision-making: Inside the Black Box of Board Performance.” We proudly presented our findings besides 22 other impressive studies. If you are interested, please take a look at our presentation file.
Falcon Invoice Discounting: Empowering Your Business Growth
Typology of board strategic involvement EGOS 2021
1. M. Sadegh Hashemi, Lecturer & Postdoctoral fellow at HEC Montréal
Mahdi Ebrahimi, Assistant Prof. in Business Administration, Allame University, Iran
Amin Moeinian, MSc. Public Administration, University of Tehran, Iran
Taïeb Hafsi, Chair Prof. of Management, HEC Montréal
Board’s strategic involvement climate:
Looking simultaneously at the power and cognitive conflict
3. Boards do not have the same level of
involvement in strategy!
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Ratifying CEOs
decisions
Shaping the
content, context,
and conduct of
strategy
4. From structural approach toward
cognitive/behavioral perspective
Most research on this subject is quantitative, with an “input-output”
approach
Many scholars have examined the impact of structure, demographics,
human capital, organizational context, and institutional environment
Research in this field has shifted from structural and normative
issues to cognitive and behavioral ones over time (Pugliese et al.
2009)
To better understand the factors affecting the Boards’ strategic
involvement, it is necessary to study Boards through qualitative
methods and process data (Daily, Dalton, & Cannella, 2003)
In other words, we should open the black box of Board interactions
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5. Board interactions
Recent studies show Board members’ interactions with each other,
with the top executive team, and other stakeholders significantly
impact the Board’s strategic involvement (P.-J. Bezemer, Nicholson, &
Pugliese, 2014; Van Puyvelde, Brown, Walker, & Tenuta, 2018).
Scholars have tried to study these interactions using sociology and
social psychology theories.
They have developed a behavioral approach to corporate
governance.
In this avenue, issues such as power and politics, trust, emotions,
and cognitive aspects have been mainly studied
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6. Empirical support for behavioral governance research is still limited, leaving the
literature with shady explanations and unanswered questions. For example:
Agency theory prescribes the Board’s power to control executives’ opportunistic
behavior (Fama & Jensen, 1983)
Stewardship theory justifies the CEO supremacy to create unity of command and
achieve strategic goals in the long-run (Davis, Schoorman, & Donaldson, 1997).
Power and Politics perspective: Power distribution is preferred (Eisenhardt & Bourgeois
III, 1988). Effective strategic involvement processes occur when both the CEO and the
Board have high power (Pearce & Zahra, 1991)
However, we witness that various coalitions between Board members and the CEO
and the distribution of power between them exacerbate political behavior (Sauerwald &
Peng, 2013; Willems, Andersson, Jegers, & Renz, 2017)
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Research gap in Behavioral Studies on the
Boards
7. Research Gaps: summary
Lack of enough empirical work
on primary behavioral processes
affecting the Board’s strategic
involvement and mutual effects
Still unsure whether power
distribution among decision-
makers always leads to the best
involvement space.
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8. Our Research Goal/Question
Explaining the dynamics of behavioral processes in
forming different degrees of the Board’s strategic
involvement by focusing on Board members’
interactions with each other and the CEO
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How the interactions affect the formation of different
levels and climates of strategic involvement?
10. Critical contributions of Boards to the strategy
process: Different theories/perspectives
Upper echelons
theory
• Board’s strategy tasks include determining the
firm’s macro-orientations
Institutional
theory
• Institutional isomorphism
Resource
dependence
theory
• Connecting to the environment to obtain
valuable resources
Stewardship
theory
• Being the firm’s steward for securing the interests
of owners, especially in family businesses
Strategy as a
practice
approach
• Strategizing processes during board meetings
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11. Our theoretical lenses
Upper echelons theory (Hambrick and Mason 1984)
Firms’ strategic choices largely reflect the cognitive processes of their top managers
These processes are influenced by their demographic factors, values, and “cognitive base.”
The “bounded rationality” of these decision-making actors leads to “selective perception” of the
firm’s strategic conditions.
These processes ultimately affect firm performance
Power and politics perspective (Pfeffer, 1992)
Scholars have examined the impact of power processes and political behaviors on Board
performance quality, especially in strategic decision-making (Bailey & Peck, 2013; Garg &
Eisenhardt, 2017).
As the strategic decisions are mostly unstructured and ambiguous, different people try to use their
power and political behavior to pursue their mandates (Finkelstein, 1992).
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13. Research strategy and setting
A multiple case study with a theory-building approach
Eisenhardt’s (1989a) eight-step process has been used for this purpose.
Research setting: The Iranian Banking sector:
Various ownership structures and Multiple stakeholders
High Information Asymmetry
Widespread legal and governmental interventions
International political interplays
All these lead to more intensified behavioral processes
10 banks with different sizes and diverse ownership structures were selected
Besides the interviews, we used boards’ reports to annual shareholder
meetings, and financial statements to validate the findings
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14. 14 Research Cases
Row Board Bank size (assets) Ownership
CEO
tenure
(year)
Board
size
Directors’
average tenure
(year)
The ratio
of non-
executive
directors
Non-director
CEO
1 Alpha Very Large State-owned 1.5 5 3.7 0% NO
2 Beta Large
Mix of state and pseudo-
private block holders
6 6 5.1 50% NO
3 Gamma Medium Municipalities 4 4 3 25% NO
4 Delta Medium
Mix of state and private
block holders
1 5 3 80% YES
5 Omega Medium Family Business 1 5 3.4 100% YES
6 Theta Small Private block holders 2 11 2 55% NO
7 Pi Small
Mix of pseudo-private and
private block holders
6 9 4.8 100% YES
8 Zeta Small
Mix of pseudo-private and
private block holders
0.5 7 4.1 86% YES
9 Sigma Very Small
Widely held (65% minority
shares)
6 9 5.3 67% NO
10 Epsilon Very Small State-owned 2 5 4.5 80% NO
15. Research participants
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A total of 73 people were interviewed, including directors, CEOs, CEO
deputies, and officers of strategy or corporate governance (i.e., chief auditing,
compliance, risk, and strategic planning officers, and Board secretaries).
Position / Bank Epsilon Sigma Zeta Pi Theta Omega Delta Gamma Beta Alpha Total
CEO 1 1 1 1 1 1 1 1 1 - 9
Chairman 1 1 1 - - 1 1 1 - 1 7
Non-executive director 2 2 3 2 2 2 2 - 2 - 17
Executive director 1 1 1 - 2 - 1 2 2 2 12
CEO deputy - 3 2 2 2 2 1 2 1 4 19
Officers of Strategy or CG 1 - 2 2 1 1 1 - 1 - 9
Total 6 8 10 7 8 7 7 6 7 7 73
18. By putting the data together for each Board and looking at them
from different angles, descriptive narratives were written for each
case.
These 10 write-ups helped to identify behavioral processes such as
power and leadership, trust, political behavior, Board
discussions, criticizing and questioning, strategic thinking,
creativity, emotional issues such as friendships, supporting
behavior, and empathy, as well as early guesses about their
importance and their impact on strategic involvement.
The within-case analysis revealed two factors among all behavioral
processes as more vital in explaining the Board’s strategic
involvement climate.
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20. CEO-Board Power Relations
The empirics showed three CEO-Board power relations, including CEO
dominance, Board dominance, and power distribution
CEO-dominance was when the CEO played a crucial role in strategic decision-
making while the Board was merely ratifying the decisions.
Board-dominance was when the Board was responsible for directing the
strategic formulation, while the CEO was merely in charge of implementing
decisions
The distribution of power was when both sides participated in the decision-
making process and sought to influence it.
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21. Cognitive conflict among decision actors
Studied cases showed different qualities in processes such as constructive
discussions (i.e., task-related arguments for finding a better choice),
challenging and sometimes endless discussions (i.e., mostly political debates),
questioning, criticizing, and challenging the CEO, brainstorming, building or
destroying trust, the achievement of a consensus and creation of a shared
vision.
Evidence showed that these processes were related to the degree of diversity
and dispersion of individuals’ goals, values, attitudes, and expertise.
By referring to the literature, this process was conceptualized as “cognitive
conflict among decision actors.”
Cognitive conflict means differences in people’s judgments and viewpoints
on issues (Forbes & Milliken, 1999).
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22. Cognitive conflict among decision actors
Our evidence showed three levels of cognitive conflict, including low, balanced, and high.
Low cognitive conflict meant that there were no significant differences in views in the
decision-making room. This circumstance led to a lack of fresh ideas and not challenging
previous decisions, ultimately losing motivation to pursue strategic changes. These
conditions were mainly related to demographic similarities (e.g., gender, education, work
experience) and homogeneity in the bank’s ownership structure.
The high cognitive conflict was observed in Boards with too many directors, intense
functional diversities, and, more importantly, when people had different political or
relational views (not just differences in their task-related views).
Finally, the balanced cognitive conflict in cases emerged when varieties of views appeared
just in task-related issues, providing a constructive space for discussion and achieving
consensus based on the bank’s interests (rather than individual/coalition interests).
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23. The typology of Boards’ strategic
involvement climate
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The reason for using the term
“climate” is the atmosphere of
interactions between the main
actors of strategic decision-
making. We have been inspired
by the concept of “organizational
climate” that reflects people’s
experiences in the work setting
from a behavioral and relational
perspective (Schneider, Ehrhart,
& Macey, 2013).
25. Conclusion
Numerous studies in corporate governance have addressed the Board’s
strategic involvement.
Most of these researches have a structural approach and are based on theories
such as agency theory.
A new research trend has focused on studying the behavioral dimensions and
directors’ interactions with top executives in the decision-making room
These studies claim their efforts to understand the Boards’ success factors more
realistically and pragmatically (Westphal & Zajac, 2013).
Within this behavioral line of research, ours proposed nine types of Boards’
strategic involvement climates by opening the black box of 10 Boards.
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26. Contributions
previous studies have not provided such a contingent image
of the Board’s strategic participation dynamics.
Mainly in the behavioral corporate governance literature, the
distribution of power has been introduced as a useful
configuration
This study showed that if cognitive conflict is high, the
distribution of power will create a corrosive Board that will
be one of the challenging spaces for strategy-making.
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27. Future research implications
Other scholars are welcomed to test our findings, mainly by conducting
quantitative research.
We suggest examining the relationship between each type of Board’s strategic
involvement with factors reflecting the quality of Board performance, such as
speed (Eisenhardt, 1989b), comprehensiveness (Kanadlı et al., 2018), and
consensus (Bailey & Peck, 2013) in the decision-making process.
Furthermore, the relationship of these types with firm financial performance can
be evaluated.
Besides, the influence of factors such as ownership structure, Board
structure (e.g., the Board size, the proportion of non-executive directors),
chairman’s leadership, and macro-environmental factors such as
fluctuations and environmental uncertainty on the formation of each type of
strategic involvement should be examined.
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