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Keywords:

  • Corporate Governance;
  • TMT-Board Relationship;
  • Strategic Change;
  • Board Involvement

ABSTRACT

Manuscript Type:

Empirical

Research Question/Issue:

This study analyses the form of the board-TMT interaction and the firm's level of strategic change. Relatedly, we explore the premise that there needs to be a good fit between the board of directors and the top management team to effectively bring about strategic change.

Research Findings/Insights: Using archival data from a sample of 119 firms in the period 1993–2000, we found that when a synergy exists between the board and the TMT, there will be a greater inclination for strategic change. The results indicate that a board's inclination to contribute to strategic change increases as the board size increases. Equally, it is possible to accept that the relationship between board tenure and their inclination towards strategic change is not linear. Finally, the simultaneous analysis of board composition and the ratio of directors on the TMT, demonstrates that the interaction of both variables has effects on the firm's strategic change.

Theoretical/Academic Implications: This study provides empirical support in favor of an active role of the board shaping the firm's strategic decisions. We have developed and tested a set of arguments regarding with the role of the board on the firm's change in strategy. We have investigated as well, the leveraging effect of one of the variables that define the composition of the management team on the relationship board-change in strategy.

Practitioner/Policy Implications: In order to create an effective board, a broader governance structure must be examined with a detailed study of aspects of the composition of the board and the TMT (previous research has only considered characteristics linked to the CEO). The dynamics of the relationships between both governance mechanisms are essential and leverage the board capability.