Board Influence on a Firm's Internationalization

• Author: Carmen Barroso,Ma Mar Villegas,Leticia Pérez‐Calero
• DOI: http://doi.org/10.1111/j.1467-8683.2011.00859.x
• Published date: 01 July 2011
• Date: 01 July 2011

Board Inf‌luence on a Firm’s Internationalization

Carmen Barroso*, MaMar Villegas, and Leticia Pérez-Calero

ABSTRACT

Manuscript Tytpe: Empirical

Research Question/Issues: The resource-based view of the f‌irm may provide the theoretical explanation as to how boards

can be a source of f‌irm competitive advantage. Directors’ experience, knowledge, expertise are valuable,rare, inimitable and

non-substitutable resources that make up the board potential. These resources must be integrated with other f‌irm resources

in strategic processes through dynamics of relations.

Research Findings/Insights: Given the preliminary nature of this work, the empirical section is an exclusive analysis of the

board’s potential. Our specif‌ic aim is to establish whether resources that directors bring to board are sources of board

competence and ability with consequences for international strategic decisions. To do this, we use a sample of 562 board

members of 45 listed Spanish companies. Our results show that average board tenure is negatively related to the f‌irm’s

degree of international diversif‌ication. Directors with long tenures may operate from the basis of routines that are built up

over time and their knowledge of the f‌irm could eventually become a less valuable resource. The empirical f‌indings also

indicate that the directors’ managerial experience within the specif‌ic industry to which the f‌irm belongs and a high level of

academic achievement affects the f‌irm’s degree of international diversif‌ication.

Theoretical/Academic Implications: The contribution of this article is three-fold. First, it emphasizes the role of directors in

board effectiveness, investigating why and how relevant elements of directors’ human capital can enhance board ability to

perform their roles making up the board potential. Secondly, it ref‌ines and extends the concept of “board capability” as an

adequate conf‌iguration of potential and relationship dynamics that allow boards to undertake their task competently over

time. Third, this article stresses the active participation of a board in f‌irm internationalization.

Practitioner/Policy Implications: One of the important practical implications of these results refers to the selection of board

members. In order to increase board effectiveness, in the context of f‌irm internationalization, the selection process must be

guided by the search of intangibles, inimitableand unique resources, that the board can capitalize on in order to differentiate

its potential over competitors.

Keywords: Corporate Governance, Directors’ Resources, Board Capability, Board of Director Mechanisms, Resource-

Based Theory

INTRODUCTION

The inf‌luence of the board on a f‌irm’s behavior consti-

tutes an extremely fruitful line of investigation

(Deutsch, 2005). The literature in the f‌ield of company man-

agement describes the importance of the link between the

board of directors and results (Demb & Neubauer, 1992; Kiel

& Nicholson, 2005; Sonnenfeld, 2002; Westphal & Bednar,

2005), leading to the suggestion that “the character of com-

panies in the coming years will be decided,in large measure,

on how well boards can improve their own effectiveness”

(Bird, Buchanan, & Rogers, 2004: 132). On the other hand,

the ongoing globalization process has dramatically changed

the business landscape. Internationalization strategies have

never been more important; today’s business world bound-

aries are increasingly global, encouraging f‌irms to develop a

commanding international presence. Under the circum-

stances, f‌irms need effective boards for appropriate decision

making on internationalization.

What is meant by an effective board and what behaviors

make a board effective as a governance mechanism are some

of the most fundamental questions concerning today’s cor-

porate governance (Conger, Lawler, & Finegold, 2001; De la

Rosa, 2006; Nicholson & Kiel, 2004a; Schmidt & Brauer,

2006). Much of the corporate governance literature refers to

the board’s effectiveness in ensuring the company’sprosper-

ity, enabling the company to move closer to its goals (Agu-

ilera, 2005; Nicholson & Kiel, 2004a; Pye & Pettigrew, 2005),

while it emphasizes the important role of the board in the

*Address for correspondence: University of Seville,Admon de Empresas y Marketing,

Seville 41005, Spain. Tel:+34 954557521; Fax: +34 954556989; E-mail: barroso@us.es

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Corporate Governance: An International Review, 2011, 19(4): 351–367

© 2011 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2011.00859.x

f‌irm’s corporate strategic orientation (Hendry & Kiel, 2004;

Pugliese, Bezemer, Zattoni, Huse, Van den Bosch, & Vol-

berda, 2009). However, despite the importance of the board

on key organizational outcomes and the high degree of

internationalexpansion that many f‌irms have experienced in

recent years, there are few studies that link boards to an

organizational outcome such as a f‌irm’s internationalization

(Rivas, Hamori, & Mayo, 2009).

Sanders and Carpenter (1998) argue that f‌irms respond to

international complexity through their governing bodies.

The importance of having top managers who know about

and understand the logic and dynamics of the f‌irm’s foreign

markets and global business environment has been dis-

cussed for decades by practitioners and researchers alike

(Herrmann & Datta, 2005; Luo, 2005; Nielsen, 2010; Nielsen

& Nielsen, 2009). Apart from this aspect, however, board

inf‌luence on the f‌irms’ degree of internationaldiversif‌ication

has been overlooked. Thus, whether and how board and the

directors’ characteristics affect the degree of a f‌irm’s inter-

nationalization remains an open question that deserves

further exploration. In this study we attempt to bridge this

empirical gap by examining how the board of directors

inf‌luences the extent of international expansion.

The Uppsala internationalization process model (Johan-

son & Vahlne, 1977) emphasizes the use of experimental

knowledge in expanding and managing f‌irms’ international

operations. The role learning from experience can play in

the process of gradually increasing the level of interna-

tional involvement has been studied in the international-

ization literature. However, the impact of directors’ level of

knowledge and expertise remains largely unexplored

(Nielsen, 2010). In other words, the board members char-

acteristics that shape their ability to advise managers effec-

tively on international strategic decisions remains pretty

much unexplored.

From our point of view, the effectiveness of the board

depends as much on the knowledge, experience, education,

and expertise of their directors as on the relationship

dynamics that are generated on the board. This prompts

us to ref‌ine and extend, from the resource-based view

(RBV), the concept of “board capability” (Macus, 2008) as

an adequate conf‌iguration of potential (measured by the

resources that directors bring to board) and the relationship

dynamics/interactions that allow boards to undertake their

tasks competently over time. This article suggests that the

knowledge, experience, education, and expertise of their

directors are important sources of competence and ability to

deal with the complexity of globalization. Based on these

arguments, this work focuses on the study of boards’ effec-

tiveness in driving forward the f‌irms’s degree of interna-

tional diversif‌ication.

The contribution of this article is three-fold; it empha-

sizes the role of directors in board effectiveness, investigat-

ing why and how relevant elements of directors’ human

capital can enhance board ability to perform their roles

making up the board potential. Secondly, it ref‌ines and

extends the concept of “board capability” as an adequate

conf‌iguration of potential and relations dynamics that

allow the board to undertake their task competently over

time. Third, this article stresses the active participation of

board in f‌irm internationalization. Therefore implications of

this research are important for executives and scholars

alike seeking an understanding of how resources that

directors bring to the board can inf‌luence the f‌irms’ degree

of international diversif‌ication.

This paper is structured as follows. The f‌irst section

explains why we have chosen this theme, and sets out our

goals. In subsequent sections we carry out a literature

review that enables us to propose a set of hypotheses. The

f‌inal section sets out the empirical evidence, as well as our

analysis and interpretation of the data obtained.

LITERATURE REVIEW

The effectiveness of the boardis a key variable in the current

study of corporate governance, as a recent review showed

(Petrovic, 2008). The majority of the literature agrees on the

def‌inition of effectiveness as the board’s ability to perform

its service and control roles effectively, adding value to the

company (Aguilera, 2005; Murphy & McIntyre, 2007).

The literature has traditionally assigned three roles to the

board of directors – control, service/collaboration, and the

provision of resources (Johnson, Ellstrand, & Daily, 1996).

Each of these roles has been independently analyzed and

justif‌ied from different theoretical perspectives (Bennett &

Robson, 2004). Thus, agency theory has emphasized the role

of control (Langevoort, 2001; Sundaramurthy & Lewis,

2003); the stewardship perspective has stressed the service

role (Donaldson, 1990; Donaldson & Davis, 1991, 1994) and

the resource dependency perspective takes a view on the

board as a means for providing resources and protection

(Goodstein, Gautam, & Boeker, 1994; Hillman, Cannella &

Paetzold, 2000; Kakabadse, Kakabadse & Kouzmin, 2001;

Pearce & Zahra, 1991; Pfeffer & Salancik, 1978). The resource

dependency theory has recently been further enhanced by

contributions from the social network perspective (Carpen-

ter & Westphal, 2001; Westphal, 1999). Despite these studies,

a signif‌icant number of authors believe that the distinction

between the roles of the board is unclear and that there is no

real difference between them (Hendry & Kiel, 2004; Hillman

& Dalziel, 2003; Stiles & Taylor, 2001). Moreover, they point

out that boards carry out several roles at once (Hillman &

Dalziel, 2003; Lynall, Golden, & Hillman, 2003; Macus, 2008;

Roberts, McNulty, & Stiles, 2005).

To summarize, agency theory, while providing a sound

theoretical mechanism for the external monitoring of a

f‌irm’s management by its directors, does not account for the

wide range of other attributes that directors bring to the

boardroom besides their non-employment relationship with

the f‌irm. The resource dependency theory provides a mecha-

nism whereby f‌irms have links to critical resources from the

environment through the aff‌iliations of its directors and

tends to emphasize the economic nature of these resources.

Furthermore, these are often regarded as tangible resources.

The board’s role in the provision of resources includes pro-

viding legitimacy, administering advice and counseling,

acting as a link to important stakeholdersor other signif‌icant

bodies, facilitating access to resources such as capital, build-

ing external relations, and so forth. Hillman and Dalziel

(2003) have proposed a theoretical model, which combines

both of these perspectives. They argue that board capital

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