Boardroom Strategic Decision‐Making Style: Understanding the Antecedents

• Author: Bernard C. Bailey,Simon I. Peck
• DOI: http://doi.org/10.1111/corg.12008
• Date: 01 March 2013
• Published date: 01 March 2013

Boardroom Strategic Decision-Making Style:

Understanding the Antecedents

Bernard C. Bailey* and Simon I. Peck

ABSTRACT

Manuscript Type: Empirical

Research Issue: The purpose of this study is to develop an understanding of the antecedents that lead to boards embracing

either procedural rationality or political behaviors as a particular style of strategic decision making.

Research Findings: Semi-structured interviews with 29 directors and off‌icers of eight publicly-traded US companies were

conducted. Of the eight boards analyzed, there were clear differences in the predominant style of decision making

operationalized by each. More importantly, however, the variance between boards that tended towards procedural ratio-

nality versus political behaviors as the predominant style of strategic decision making was explained by three primary

factors. These included: (1) shared mental models; (2) balanced power relationships between the board members and CEO,

as well as amongst individual board members; and (3) board chair leadership skills. Our data allow us to identify important

antecedents of these factors.

Theoretical Implications: We add to the work seeking to understand the processes associated with board level strategic

decision making. We augment decision-making theories relating to procedural rationality and political behaviors with

board-specif‌ic factors and their characteristics.

Practitioner Implications: We isolate a number of antecedents relating to the conduct of boards and the environment of

board decision making. We also highlight the roles of the board chair and the CEO for creating a boardroom environment

conducive to engaging in quality decision-making processes.

Keywords: Corporate Governance, Decision Making, Qualitative Methods, Procedural Rationality, Political Behavior

INTRODUCTION

The primary work of boards of directors is to make deci-

sions (Leblanc & Gillies, 2005; Useem, 2003) but, despite

the centrality of decision making in corporate governance,

we have little insight into how board decision-making pro-

cesses differ or their outcomes. Much of the research on

corporate boards focuses on two board characteristics –

structure and composition (Useem & Zelleke, 2006; Zahra &

Pearce; 1989) – though for more than a decade, there have

been repeated calls for new directions in research on boards

and corporate governance, with a specif‌ic focus on develop-

ing a better understanding of the working processes and

effects of boards of directors (Daily, Dalton, & Cannella,

2003; Davis, 2005; Gabrielsson & Huse, 2004; Hambrick,

Werder, & Zajac, 2008; Pye & Pettigrew, 2005; van Ees, Gab-

rielsson, & Huse, 2009a). To facilitate this understanding,

scholars have advocated gaining deeper insights into the

inner workings of the so-called “black box” of board opera-

tions (Finkelstein, Hambrick, & Cannella, 2009; Leblanc &

Gillies, 2005; Leblanc & Schwartz, 2007; Pettigrew, 1992;

Roberts, McNulty, & Stiles, 2005; Vigano, Zattoni, Hoskis-

son, & Huse, 2011). As McNulty and Pettigrew observed,

“there is a need to get closer to boards and directors to

collect primary data about processes of contribution, power,

and inf‌luence” (1999:52).

Consistent with this call, this paper seeks to understand

more about the context and processes by which boards make

strategic decisions. This article examines the strategic

decision-making styles deployed by boards of directors of

eight US publicly-traded (NASDAQ) companies and in

doing so, we seek to def‌ine the factors that are most likely to

inf‌luence a board’s decision-making style.

We conducted in-depth, semi-structured interviews with

29 corporate directors and off‌icers from the selected eight

f‌irms. The literature informs our ability to locate our boards

on a typology by the extent to which they display levels of

procedural rationality and/or overt political behavior in

*Address for correspondence: Bernard C. Bailey, WeatherheadSchool of Management,

Case Western Reserve University, Cleveland, OH 44106, USA. Tel: 469-737-4033;

Fax: 469-737-4405; E-mail: bcb34@case.edu

131

Corporate Governance: An International Review, 2013, 21(2): 131–146

© 2012 Blackwell Publishing Ltd

doi:10.1111/corg.12008

their strategic decision making. The conceptual home for

this study is the literature on procedural rationality and

politics in decision making which we augment with the

broader governance literature. Our analysis suggests that

three key factors appear to drive board-level strategic deci-

sion making that we synthesize and are consistent with the

extant literature. These factors are (1) compatible shared

mental models; (2) a stable and balanced power relationship

between the board members and CEO, as well as amongst

individual board members; and (3) strong board chair lead-

ership skills. However, by going further into our rich quali-

tative data, we are able to identify important characteristics

that appear to determine these factors. Our analysis high-

lights these characteristics, and we use this to inform our

underlying model of board-level strategic decision-making

style and advance a number of propositions that extend our

understanding of board decision-making dynamics.

In the following section we provide a review of the rel-

evant theoretical background that informed this study. An

overview is then provided of the research methodology and

data analysis techniques that were utilized. We then provide

the f‌indings from our research. The paper concludes by dis-

cussing the signif‌icance of these f‌indings while addressing

the limitations of our study as well as outlining the impor-

tant implications associated with future research and

practice.

THEORETICAL BACKGROUND

Unlike routine decisions that are made on a regular basis in

the normal course of carrying out the functioning of an

organization, strategic decisions are those choices that shape

a f‌irm’s general direction by committing resources, setting

important precedents, and/or directing important f‌irm-

level actions (Mintzberg, Raisinghani, & Théorêt, 1976).

Many normative decision-making models have been devel-

oped, all suggesting a series of stages which move the deci-

sion from conceptualization through analysis of alternatives

to f‌inal decision outcome (Bazerman, 2006). Progression

through these stages, coupled with the interactions of team

members, including how they gather and share information,

build knowledge, and create decision outcomes def‌ine the

decision-making processes within the boardroom (Carter &

Lorsch, 2004).

Procedural Rationality and Politics in

Decision Making

Theoretical context for this study is provided from the

insights of prior research into organizational decision

making. The concept of rationality has had a long and pro-

found impact on organizational studies from economics to

organization theory and psychology (Dean & Sharfman,

1993). Procedural rationality as a decision-making style is

def‌ined as the process by which decision makers collect

information relevant to the decision and rely upon the analy-

sis of this information in making the decision (Dean & Sharf-

man, 1993). Fundamental to this def‌inition is the implicit

understanding that rationality is a variable construct,

anchored on one end by complete rationality and on the

other by the absence of rationality.

The idea thatthe processes and outcomes of strategic deci-

sions are partly shaped by politics is also a central theme in

decision-making research (Dean & Sharfman, 1996; Eisen-

hardt & Zbracki, 1992) and represents a second style of

decision making. In organizations, it is common to f‌ind coa-

litions of people with competing interests relative to the

outcome of strategic decisions and as a result they will tend

to exert inf‌luence – either formally or informally – on the

decision-making processes (Pfeffer, 1972); as Hickson com-

mented, “in a decision-making process . . . the search is not

only for problem-solving information but for interest-

accommodating alternatives” (Hickson, 1987:173). A nega-

tive impact on strategic decision-making effectiveness is

observed when excess political behavior, such as the focus

on personal interests at the expense of organizational goals

or the resistance to share relevant information, results in the

organization creating decision outcomes that fail to align

with its goals (Eisenhardt & Bourgeois, 1988; Ravasi &

Zattoni, 2006).

Several common actions, often covertly applied, are asso-

ciated with a political decision making (Pettigrew, 2001) style.

These behaviors are enacted with the intent of enhancing the

power of one group over another in an effort to inf‌luence

decision outcomes to their personal advantage and include

off‌line lobbying, controlling agendas, withholding informa-

tion, behind-the-scenes coalition building, and cooptation.

Political behaviors contrast with procedural rationality in

that the problem def‌inition, data collection, data analysis,

evaluation criteria, and presentation of alternatives can

become “weapons used to manipulate decision outcomes

towards personal ends rather than tools to inform a f‌inal

decision” (Dean & Sharfman, 1993:1071). While previous

research (Eisenhardt & Bourgeois, 1988) has shown political

behaviors to be detrimental to effective decision making,

other studies have argued the instrumentality of political

behaviors to an effective strategic outcome (Pettigrew, 2001;

Pfeffer, 1980). Like procedural rationality, we suggest that

political behaviors represent a variable construct with highly

political behaviors at one end and no political activity at the

other.

Coexistence of Procedural Rationality and

Political Behaviors

Strategic decisions are complex decisions in that they often

involve interdependent relationships, uncertain outcomes

and conf‌licting views held by the various actors. As a

result they are often inherently political. In an effort to

def‌ine the relationship between procedural rationality and

political behaviors, Dean and Sharfman (1993) conducted a

study involving 61 strategic decisions in which they found

procedural rationality and political behaviors to be inde-

pendent dimensions within the strategic decision-making

process. In other words, both styles of strategic decision

making – procedural rationality and political behaviors –

can be present or absent to varying degrees in each

decision.

It is important to emphasize that strategic decision-

making processes are patterns of behavior that develop in

organizations and as such are visible to the actors involved

(Fredrickson & Mitchell, 1984). Political behaviors are dis-

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