The previous chapter indicates that the roles of boards of directors can be analyzed from both a conflict perspective as well as a consensus perspective of board involvement. In a similar way, these perspectives can also be applied to understand the formal organization of boards. Consistent with a conflict perspective of board organization, corporate boards of directors are internal control devices that align the interests of management with those of the owners of the corporation (Judge, 1989; Walsh and Seward, 1990; Rediker and Seth, 1995). To reduce the danger of managerial opportunism and to mitigate agency problems, corporate boards are understood to be most effective when they operate independently of management when they perform their control roles (Jensen and Meckling, 1976; Fama and Jensen, 1983; Boyd, 1995).
In theory, one-tier and two-tier boards provide different structures that may facilitate the independence of boards through the separation of decision management from decision control. In practice, one-tier and two-tier boards differ in the way boards organize the leadership structure of the board, the way boards make use of oversight board committees and how boards are composed. This chapter further elaborates on the observation that one-tier and two-tier board models provide distinctive organizational approaches to the formal independence of boards.
Seen from a conflict perspective of board organization, this chapter focuses on the first group of central research questions of this study. These research questions concentrate on design strategies related to the separation of decision management from decision control in corporate boards in the US, the UK and the Netherlands. The organization of this chapter is as follows. First, paragraph 3.2 briefly reviews the theoretical base of a conflict perspective of board organization, the underlying assumptions with respect to the economic model of managerial behavior and the implications of these assumptions for the formal organization of corporate boards.
Second, paragraph 3.3 addresses the formal independence of one-tier boards. This paragraph investigates the theoretical assumption that board attributes of one-tier boards are negatively associated with the separation of decision management from decision control. Based on a conflict perspective of board organization, four assumptions are presented related to the association between board attributes and the formal independence of one-tier boards.
In a similar vein, key board attributes are associated with the formal independence of two-tier boards in paragraph 3.4. This paragraph also presents four assumptions related to the formal separation of decision management from decision control in two-tier boards. This chapter concludes with a summary in paragraph 3.5.
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