by Steve Boivie, Mike Withers, Scott Graffin, and Kevin Corley
A new study in the Strategic Management Journal coauthored by Steve Boivie, Mike Withers, Scott Graffin, and Kevin Corley, helps to shed light on what directors actually think they are supposed to do. For publicly traded companies, the board of directors is the highest legal authority of the firm and has the responsibility to oversee managers.
After interviewing 50 current directors and executives of publicly traded US companies, the authors found that how researchers conceptualize directors does not match with how directors themselves view their duties.
Instead of viewing themselves as being there to serve as independent watchdogs, directors instead view their role as primarily designed to support and help the managers of the firm. This view is profoundly different from most academic and practitioner views of the role of boards, which has been shaped by agency theory and financial economics. While directors stress that it is important to protect shareholder value, they believe that the best way to accomplish this is by acting as strategic partners with the CEO and collaborating with the CEO to help the firm succeed.
When pushed more about monitoring, most directors also admit that they couldn’t monitor executives effectively, even if they wanted to monitor them. According to directors, this inability to effectively monitor CEOs is driven by the CEO’s informational advantage. When pushed on this point, directors confess that they do not even want to monitor the CEO. Directors believe that if they didn’t trust the CEO, then they should fire the individual and hire someone they can trust.
This paper is a qualitative study, based on a series of in-depth interviews with 50 directors and executives of US public firms. The study is built on an in-depth exploration of more than 1000 transcribed pages of interviews and is one of the very first studies of its kind published by a top business journal. Despite thousands of studies of corporate governance topics and boards, this study is one of the first papers published in a top journal that is based on interviews with actual directors of US publicly traded firms.
In addition to the finding that directors view themselves as collaborating with the managers, rather than monitoring them, the study also found that directors describe their jobs as a service role. Directors feel like they are giving back by serving on boards. This feeling of service makes them very unwilling to tolerate conflict or tension in the boardroom.
Boivie, S., Withers, M. C., Graffin, S. D., & Corley, K. G. (2021). Corporate directors’ implicit theories of the roles and duties of boards. Strategic Management Journal, 1– 34. https://doi.org/10.1002/smj.3320
Steve Boivie is the Carroll & Dorothy Conn Chair in New Ventures Leadership at Texas A&M University
Mike Withers is the Gina and Anthony Bahr Professor in Business at Texas A&M University
Scott Graffin is the Synovus Chair in Servant Leadership at the University of Georgia
Kevin Corley is a Professor at Arizona State University