A comparative approach to the organization of corporate boards gives rise to a number of practical and theoretical research questions that are related to the formal independence of one-tier and two-tier boards in Anglo-Saxon and continental European countries. The central research questions in this study can be divided into three interrelated topics. The first group of research questions concentrates on the separation of decision management from decision control in one-tier and two-tier boards. The second group of research questions concentrates on the integration of these steps in decision making in one-tier and two-tier boards. The third group of research questions focuses on the transformation and convergence of board models.
Research Questions Related to the Separation of Decision Management From Decision Control in Corporate Boards
The first group of research questions concentrates on design strategies that separate decision management from decision control in boards of directors in listed corporations. Related to one-tier boards, this study explores how corporate boards of directors are organized in the US and the UK. It seeks to find what design strategies are used by boards of directors to separate decision management from decision control in these countries. More specifically stated, what types of board leadership structures are established by directors? How are one-tier boards composed and structured? Does the formal organization of boards in the US and the UK hinder the separation of decision management from decision control?
In a similar way, the following research questions explore the formal organization of two-tier boards of listed corporations in the Netherlands: what design strategies are used by boards of directors that separate decision management from decision control in the Netherlands? How are supervisory boards composed and structured? How is board leadership organized in Dutch two-tier boards? Does the formal structure of two-tier boards enhance board independence in practice? And, are two-tier board structures an answer to the supposed concentration of power in the hands of executive directors who operate in one-tier boards in the US and the UK?
Research Questions Related to the Integration of Decision Management With Decision Control in Corporate Boards
Although a majority of reformers advocate independent board structures that separate decision management from decision control, others urge the formation of dual board structures that empower management (Donaldson and Davis, 1991, 1994). This approach to board organization opposes the notion that corporate boards can be mainly seen as devices that align the interests of shareholders and management. As indicated in the introduction to this research (paragraph 1.1), a stakeholder perspective of corporate governance sees the corporation as a coalition of vested interests in which executive and non-executive directors balance the pluralistic claims of management, shareholders and other interest groups (Gedajlovic, 1993). In line with this perspective, a relatively new approach to the organization of corporate boards - the stewardship theory - also understands the corporation as coalition of vested interests. Proponents of the stewardship theory oppose the notion that conflicts of interests exist between management, directors and shareholders (Donaldson and Davis, 1991, 1994; Davis et al., 1997; Hung, 1998). The three key actors are seen as a coalition, willing to co-operate and to bargain to achieve long-term growth, stability and profitability.
If one assumes that there are no conflicts of interests between these key actors, than there is also no need to establish corporate boards to monitor management and to secure the maximization of shareholder wealth. Instead, the stewardship theory sees corporate boards as valuable strategic devices to maximize shareholder wealth when authority structures are unified and when boards are composed of experienced executive directors who do not suffer from information asymmetries and unnecessary bureaucratic structures that may paralyze the strategic decision making processes of corporations. This opposing point of view may raise a dilemma for reformers and academics who seek to establish formal board structures that maximize shareholder wealth. Finkelstein and D’Aveni (1994:1080) refer to board independence as a “double-edged sword.” The detachment and distance required to assure that board judgment is independent and critical may be hindered by directors’ responsibility to be closely involved in the initiation and implementation of critical strategic decisions (Demb and Neubauer, 1992a). We call this dilemma the paradox of board involvement. This paradox suggests that design strategies that support the formal independence of corporate boards may hinder the involvement of non-executive directors in the initiation and implementation of decisions.
The second group of research questions further elaborates on the paradox of board involvement. The research questions concentrate on the formal organization of boards and design strategies that integrate decision management with decision control in one-tier and two-tier boards (the so-called duality of corporate boards). Applied to one-tier boards in the US and the UK, this research seeks to find an answer to the following questions: what design strategies are used by directors that integrate decision management with decision control in one-tier boards? What types of board leadership structures are established by boards of directors? Does the composition, the organization and the leadership structure of one-tier boards contribute to the integration of decision management with decision control? Related to the Dutch two-tier board, this study seeks to find an answer to the following questions: what design strategies are used by directors to integrate decision management with decision control in two-tier boards in the Netherlands? What types of board leadership structures are established by supervisory directors in Dutch two-tier boards? Does the composition, the organization and the leadership structure of two-tier boards contribute to the integration of decision management with decision control or does the formal organization of Dutch two-tier boards hinder the integration of decision management with decision control?
Research Questions Related to the Transformation and Convergence of Corporate Boards
The third group of research questions in this study focuses on changes in the formal organization of one-tier and two-tier boards in the US, the UK and the Netherlands. As indicated above, the international call for boardroom reform is strongly reflected by a fierce and ongoing discussion on the formal independence of one-tier boards in Anglo-Saxon countries (Demb and Neubauer, 1992a; Charkham, 1994; Tricker, 1994). Worldwide, one-tier corporate boards of listed corporations are under pressure to change towards an “ideal” independent board type. Stock exchanges play a dominant role in this process by enforcing changes in the attributes of one-tier corporate boards through new listing requirements and more disclosure of board practices.
Reform proposals and guidelines include the application of design strategies related to the separation of chief executive and chairman roles and the introduction of senior non-executive directors (lead directors) to corporate boards. The formation of committees by corporate boards is another development that receives much attention from stock exchanges. New listing requirements and voluntary guidelines promote independent audit, remuneration and nomination committees composed partly or entirely of non-executive directors to establish a system of checks and balances in the boardroom. Other changes aim at directors’ constituent responsibilities and a reduction of the number of executive directors in the board. These developments indicate that directors who operate in one-tier boards are under pressure to restructure and to reconsider the composition and structure of their boards.
It has been suggested that pressures from regulators, legislators and investigators may result to the transformation of the formal organization of one-tier boards into a more independent structure (Pahn, 1998; Rubach and Sebora, 1998; Maassen and van den Bosch, 1999b). This development raises important research questions. Are recent boardroom reform proposals indicating a process of transformation of one-tier board models towards an independent board model, i.e., the Dutch two-tier model? Are one-tier boards becoming more independently composed and structured as suggested by reformers? Is this process unidirectional or are two-tier boards also influenced by corporate governance developments in Anglo-Saxon countries? In other words, can we discern a process of transformation and convergence of corporate boards in the US, the UK and the Netherlands?
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