New Answers and Questions Arising from Corporate Governance Research


  • William Judge

Good science not only addresses important questions, but it also raises new questions. The six articles in this issue do just that. Our lead-off article is a novel conceptual study written by Knapp, Dalziel, and Lewis. They argue that two of the leading theories within the field of corporate governance (i.e., agency and stewardship theory) offer rather simplistic and rather rigid perspectives on human nature. In contrast, they assert that a social-cognitive perspective is more realistic and precise; and they expound on social categorization theory as a social-cognitive perspective that can reconcile the many contradictions between agency and stewardship perspectives. As such, organizations are viewed as networks of social categories whereby managers categorize the board's attempt to control the firm. In so doing, they discuss concepts like negative and positive discretionary behavior and intended and unintended consequences of board control mechanisms that hover around over top management teams, as well as emphasize the importance of considering social perceptions and doing cost/benefit analyses behind all control initiatives. One new question created by this study is: What assumptions regarding human nature are required for a generalizable, parsimonious, and accurate theory of comparative corporate governance? Another that arises is: Can we meaningfully study the board in isolation from its relationship with the top management team?

Our second study in this issue was an empirical study of the relationship between corporate governance and firm performance in the US mutual fund industry. Using an agency perspective, Chen and Huang seek to better understand the relative importance of board control versus managerial incentives as corporate governance mechanisms. Interestingly, they find that the impact of both board control and managerial incentives is very different in the overall sample, as compared to their relationship at the high and low end of the firm performance spectrum. Using quantile regression analysis, they demonstrate that effective board control is more important to firm performance than managerial incentives overall, but that these governance mechanisms vary in their relative impacts depending on the performance profile of the firm in question. Clearly, this study raises the very interesting question: Should our research focus on general tendencies across all firms, or seek to understand outliers?

The next two studies empirically investigate the effects of corporate boards on firm internationalization. First Chen studies a wide range of firms in Taiwan and finds that average top management team tenure is positively associated with internationalization and average top management team age is negatively associated with it. Furthermore, board composition moderated the top management team tenure relationship with firm internationalization. Following that study, Barroso, Villega, and Perez-Calero seek to understand how board capability influences firm internationalization for a sample of firms based in Spain. Notably, they find a negative relationship between average board member tenure and firm internationalization, just the opposite of what Chen found in her study for top management team members. In addition, they found several other linear relationships associated with board capability. So what explains this difference in findings related to tenure? Does tenure have a different impact within the board as compared to the top management team? Does tenure play a different role in different parts of the world? Is the relationship between tenure and internationalization different than other outcomes variables?

The next empirical study, authored by Machold, Huse, Minichilli, and Nordqvist, examines board processes in small firms in Norway. Using the team production perspective, these scholars seek to understand how board processes and structures might influence board involvement in the strategic making process. Notably, they find that processes such as average board member knowledge, board leadership efficacy, and board development activities are much more influential in explaining board involvement in strategy than board structure is. As a result, this study raises the very interesting question as to the relative importance of board processes versus board structure for explaining firm-level outcomes. If, for instance, board processes are much more important, as this study implies, what are the most important processes and how might those processes be best encouraged and/or demanded within a society?

The final article in this issue is written by Bob Tricker, the founding editor of this journal. Bob offered a very interesting perspective on the concept of the corporation. He argues that the original concept of the corporation had its roots in the 19th century and it worked brilliantly. However, he adds that this concept no longer works today and we need an entirely new concept for the corporation since so many corporations are failing society in so many ways. Using a historical perspective, Tricker argues that the modern corporation has become too powerful to be governed and that corporate governance needs to devolve more to external stakeholders and regulators. As such, he advances such notions as a stakeholder liaison group, a revamped governing body, and auditors reporting to regulators as a means for rebalancing corporate power for the well-being of society. These ideas and arguments are big and bold – exactly what we are looking for in our perspectives articles. In essence, Tricker asks us to consider the very weighty question – is our historical concept of the corporation with its associated roles and responsibilities adequate for modern corporations today?

We conclude this issue with announcements of the best paper and best reviewer awards for 2010. Last year, nearly 400 manuscripts were submitted to the journal. Without our talented and dedicated action editors and reviewers, we could never have processed this many manuscripts in such a timely and high quality fashion. Over 1,000 reviewers helped us towards this end, but some clearly went above and beyond the call of duty. As such, we recognized Andrea Melis and Alessandro Minichilli for their consistently high quality and timely reviews in 2010. Furthermore, we can only publish the best of what is submitted to our journal. Fortunately, we continue to see more manuscripts each year and those manuscripts continue to improve in quality. After screening all published articles in 2010 for the criteria of both rigor and relevance, I am pleased to announce that our 2010 best paper award went to the article written by Professors Aurélian Eminet and Zied Guedri, which was entitled “The Role of Nominating Committees and Director Reputation in Shaping the Labor market for Directors: An Empirical Assessment.” This article was published recently in our November 2010 issue and will be made available for free downloads in the future. Our runner up best article was written by Professors Katja Rost and Margit Osterloh. Their article was published in our May 2010 issue and was entitled “Opening the Black Box of Upper Echelons: Drivers of Poor Information Processing during the Financial Crisis.” I commend both sets of authors for their novel theoretical contributions, cogent writing styles, robust empirical analyses, and relevant findings.