This study examines variation among firms in different countries in terms of how corporate boards are structured for effective governance. We discuss the fiduciary role of boards along two dimensions: (1) boards as wealth protectors and (2) boards as wealth creators. We explore how external governance mechanisms affect the emphasis placed on these two board role dimensions.
Using data from 23 countries and 19 industries, we show that board structure choices depend upon national institutional characteristics. Specifically, Investor Protection, Rule of Law, and Open Markets institution act as complements or substitutes to how a board is structured to emphasize two different aspects of corporate governance. The results hold while controlling for firm, industry, and other country level effects.
We offer a more nuanced understanding of the linkages between internal/firm and external/institution level governance mechanisms by studying them in tandem. Our results imply that external governance mechanisms within a nation alter the costs and benefits of designing boards for a certain fiduciary role. This finding contributes to the governance bundles literature by articulating how governance mechanisms from both firm and nation levels configure together to form national governance bundles.
As opportunities and constraints differ by country due to distinct institutional characteristics, firms varyingly structure their boards in accordance with the environment. They emphasize stronger wealth protection and/or wealth creation, or neither. This paper contributes to public policy by presenting how corporate laws and de/regulating markets may affect board structure choices.