Corporate governance, boards of directors, and firm performance: Avenues for future research

• Date: 01 November 2018
• DOI: http://doi.org/10.1111/corg.12262
• Published date: 01 November 2018
• Author: Alessandro Zattoni,Praveen Kumar

EDITORIAL

Corporate governance, boards of directors, and firm

performance: Avenues for future research

The board of directors is a key governance mechanism aimed at both

monitoring powerful corporate actors and shaping strategy decisions

with the final purpose to increase firm performance (i.e., Forbes &

Milliken, 1999; Hillman & Dalziel, 2003). Boards seem to be designed

to achieve this purpose. Directors are competent and reputed

persons and are typically successful managers, entrepreneurs, profes-

sionals, academics, or politicians. In addition, directors receive a fee

for their contribution and have fiduciary duties of loyalty and care

to the company and its shareholders (Cyert, Kang, & Kumar, 2002).

In sum, they have proper competencies and incentives to perform

their duties effectively.

Despite this encouraging picture, early studies on boards (Lorsch

& MacIver, 1989; Mace, 1971) indicated that boards may fail to per-

form their duties. This happens as, for example, some board members

are strongly connected through family, personal, or business relation-

ships and hence may be unable to challenge powerful corporate

actors. Moreover, directors can be tempted to approve inappropriate

decisions advanced by executives or controlling shareholders in

order to be reelected on the board. Furthermore, directors may not

devote enough time to board duties or may not be strong enough to

challenge powerful actors during board meetings. These early studies

highlighted a discouraging picture: boards of directors tend to “rubber

stamp”management proposals and may fail to perform their monitor-

ing and strategy tasks. In the next decades, several waves of corporate

frauds and scandals reinforced this view and contributed to raise

further concerns on the ability of directors to perform their tasks

effectively (Kumar & Sivaramakrishnan, 2008).

Since then, research have contributed to help legislators and

practitioners to develop best practices. The first stream of studies,

built on agency theory, advanced the idea that a proper board compo-

sition and structure can increase board effectiveness in performing its

monitoring and strategy tasks and so can positively influence firm per-

formance (Johnson, Daily, & Ellstrand, 1996; Zahra & Pearce, 1989).

On these premises, agency scholars encourage boards to separate

CEO and chairperson role, to add more nonexecutive and independent

directors, to create board (audit, compensation, and nomination)

committees, to nominate a lead or senior independent directors, to

increase board shareholding, and so forth (Zattoni & Cuomo, 2010).

Based on agency theory and pushed by institutional investors,

legislators and stock exchanges promoted laws and codes of good

governance supporting these recommendations. Despite some

reforms, some meta‐analyses (Adams, Hermalin, & Weisbach, 2010;

Dalton, Daily, Ellstrand, & Johnson, 1998) and reviews (Daily, Dalton,

& Cannella, 2003; Huse, Hoskisson, Zattoni, & Viganò, 2011)

underlined that these practices are useful but are not enough to

improve board effectiveness and positively impact on firm perfor-

mance (Kumar & Zattoni, 2013, 2014a).

The mixed results of early studies led governance scholars to open

the black box of board research in order to investigate board internal

processes and dynamics. These second stream of studies have

highlighted that three processes are particularly important to improve

board decision making: effort norms, cognitive conflicts, and use of

knowledge and skills (Forbes & Milliken, 1999). Empirical studies

supported this view by highlighting that both board demography

and processes may improve board effectiveness in performing its

tasks (e.g., Minichilli, Zattoni, & Zona, 2009; Zona & Zattoni, 2007).

Building on these studies, board practices and good governance codes

encouraged companies to increase board diversity, create induction

programs, engage external consultants in board self‐assessment, and

so forth.

After several decades of studies on boards of directors, it is worth

to ask if there is still need for further research. Our opinion is that,

despite board research has evolved and matured over time, the

answer is definitely yes! We see several areas of research that future

studies may investigate. For example, we need to explore in more

depth boards of directors in different type of organizations, like family

business (Zattoni, Gnan, & Huse, 2015), cooperative banks (D'Amato &

Gallo, 2017), credit unions (Guerrero, Lapalme, Herrbach, & Séguin,

2017), state‐owned companies (Kuzman, Talavera, & Bellos, 2018),

and mixed ownership institutions (Ravasi & Zattoni, 2006). We may

investigate which mediating and moderating variables affect boards

of directors' ability to perform their tasks,e.g., the role of share-

holders—especially large shareholders (Kumar & Zattoni, 2014b;

Shleifer & Vishny, 1986)—and key stakeholders (Kumar & Zattoni,

2018) or of national business systems (Aslan & Kumar, 2014; Zattoni

et al., 2017). We may better analyze reasons why individual directors

join or leave a board or contribute effectively to board task perfor-

mance,e.g., if and how female board members change internal

processes and task performance (Kumar & Zattoni, 2016a), under

which circumstances executive directors favor board monitoring

(Chancharat, Krishnamurti, & Tian, 2012), which is the effect of polit-

ically connected directors on boardroom effectiveness (Shin, Hyun,

DOI: 10.1111/corg.12262

394 © 2018 John Wiley & Sons Ltd Corp Govern Int Rev. 2018;26:394–396.wileyonlinelibrary.com/journal/corg