The premise that corporate boards are important mechanisms to improve the performance and competitiveness of corporations is receiving support from an increasing number of different and even competing practical and theoretical perspectives on corporate governance. The enormous multi-disciplinary body of prescriptive literature and the growing interest of academics, regulators, institutional investors and others exemplify the diversity of boards’ roles in the governance of corporations.
As one of the leading theoretical approaches, the agency theory is frequently applied to understand the role of corporate boards to mitigate agency problems. Another leading theory, the resource dependence theory, emphasizes the resource allocation role of corporate boards. The involvement of directors in the strategic course of the corporation is mainly understood in the relatively new stewardship theory. Consistent with the recommendations of Judge (1989) and Hung (1998), these multiple perspectives of board involvement in decision making are presented in this chapter to yield a better understanding of the roles of corporate boards of directors.
As a means to conceptualize the involvement of boards of directors in the decision making processes of large publicly held corporations, this chapter builds on Fama and Jensen’s (1983) decision making model. Paragraph 2.2 presents four steps in this widely applied model and introduces the concepts of decision management and decision control. Based on an overview of the corporate governance literature, paragraph 2.3 relates board roles to the four steps in Fama and Jensen’s decision making model. The service roles of directors are associated with decision management. The control roles of directors are associated with decision control. The strategic roles of boards are related to the integration of decision management with decision control. Paragraph 2.3 also presents an integrative model to synthesize the corporate governance literature on board role typologies. Furthermore, this paragraph suggests that the literature on board involvement can be classified in terms of conflict and consensus perspectives of board organization. These theoretical perspectives are examined in chapters three and four of this study to explore the association between board model attributes and the separation and integration of decision management and decision control activities of boards of directors in listed corporations.
Paragraph 2.4 briefly reviews general models of board involvement and presents an integrative research model to capture the complexity of the literature. Another purpose of this integrative model is to guide the focus of this research with respect to the roles of corporate boards, the attributes of one-tier and two-tier boards and the context in which directors operate. This chapter ends with a summary in paragraph 2.5.
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