Design guidelines for boardroom’s effectiveness: the case of Fortune 500 firms

• Published date: 06 June 2016
• Pages: 490-506
• DOI: https://doi.org/10.1108/CG-08-2015-0104
• Date: 06 June 2016
• Author: Karim S. Rebeiz
• Subject Matter: Strategy,Corporate governance

Design guidelines for boardroom’s

effectiveness: the case of

Fortune 500 firms

Karim S. Rebeiz

Karim S. Rebeiz is

Associate Professor at

the Olayan School of

Business, American

University of Beirut,

Beirut, Lebanon.

Abstract

Purpose –Boardroom’s effectiveness has emerged as an issue of considerable importance in the

minds of academics and practitioners, particularly in the aftermath of the highly visible corporate

governance scandals of the past few decades. The purpose of this paper is to shed new lights on this

topic by proposing a robust design framework for boardroom’s effectiveness.

Design/methodology/approach –The interpretative investigation is based on semi-structured

interviews administered to directors of Fortune 500 firms. The adopted thematic analysis is

phenomenology, or the feelings, experiences and perceptions of events as depicted first hand by

individuals with significant boardroom’s experience.

Findings –Two central findings could be construed from this investigation. First, the optimum

boardroom’s configuration is not a universal proposition. In other words, there are no magic recipes, and

no one-size fits all approach. Rather, the optimum boardroom’s configuration ought to be framed in light

of the overarching needs of the firm in relation to the dynamic forces in the external environment.

Second, the design of boardrooms ought to span beyond structural aspects (i.e. the outwardly visible

aspects) to also encompass two largely unobserved boardroom’s phenomena, namely, the directorship

personal trait factors and the directorship behavioral patterns.

Research limitations/implications –The findings presented herein may be contaminated with

cognitive and personal biases, a common and unavoidable occurrence in qualitative research. A more

integrative research approach using inductive and deductive techniques would allow for triangulation of

results, thus providing an additional dose of validity and relevance to the research findings.

Practical implications –There has been a growing disenchantment about the modus operandi of the

board of directors among practitioners, particularly as it pertains to large corporations with diffuse and

heterogeneous shareholders and stakeholders. New design guidelines for the board of directors would

directly impact on corporate practices.

Social implications –The design of high performance boardrooms is instrumental to shareholders,

policymakers, directors, executives, rank and file employees, suppliers, customers and other direct and

indirect stakeholders, as it may help avert future corporate governance mishaps.

Originality/value –As of today, the academic and popular literature has yet to provide unequivocal

guidance for the development of high performance boardrooms. This study fills an important gap in the

prevailing corporate governance literature by integrating both structural and socio-cognitive factors into

the design framework of the board of directors.

Keywords Corporate governance, Boards of directors, Boardroom effectiveness,

Boardroom performance

Paper type Research paper

Introduction

Corporate governance refers to systems, protocols, procedures and institutions regulating

the interaction patterns between the central organizational players to ensure the proper

functioning of the firm. The board of directors is the steward of the internal corporate

governance system and, as such, it is the highest authoritative body of the organization.

The notion of a board of directors has emerged as an issue of significant relevance ever

since the separation of ownership and control and the ensuing dilution of managerial

Received 4 August 2015

Revised 3 February 2016

29 February 2016

Accepted 1 March 2016

PAGE 490 CORPORATE GOVERNANCE VOL. 16 NO. 3 2016, pp. 490-506, © Emerald Group Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-08-2015-0104

incentives. It is now universally accepted that every corporation, regardless of its size and

vocation, ought to be run under the direction of a board of directors. The operative word

“under the direction” is highly pertinent. It means that the board of directors delegates the

day-to-day firm’s operations to the professional managers. In turn, the board controls,

monitors, advises and incentivizes management with utmost vigilance and diligence, but

without infringing on management ability to effectively run the company on a daily basis

(Lorsch, 1995). It is not the responsibility of the board to manage or, worse, micro-manage

the firm. There should definitely be a clear demarcation between corporate management

(under the jurisdiction of the CEO/management team) and corporate governance (under

the jurisdiction of the Chairman/board of directors).

The boardroom’s key functions are highlighted below under Directorship functions:

understanding corporate information (e.g. financial information, report of the CEO,

committee reports, and specific management proposals);

preparing and attending meetings (e.g. board meetings, committee meetings and

executive session meetings);

selecting, assessing, compensating and replacing the CEO;

overseeing and evaluating management and corporate performance;

reviewing and approving important corporate plans (e.g. strategic plan, leadership

succession plan and human resource plan);

assuring ethical and legal compliance;

acting as a sounding board for the CEO and management;

acting as a liaison with the external environment;

making capital allocation decisions (e.g. declaring dividends);

communicating with shareholders and other stakeholders; and

dealing with crises (internal/external crises and sudden/gradual crises).

The importance of designing a sound board of directors is driven by the belief that the

boardroom shapes corporate leadership. In turn, corporate leadership sets the tone and

the culture at the top hierarchical level and, ultimately, influences corporate performance.

A well-designed boardroom translates into a high-performance team that is empowered

and equipped with adequate resources to perform its oversight functions in an effective

manner. For instance, a well-designed boardroom is autonomous, empowered and

coordinated. It proactively secures information from independent sources rather than

passively waiting for information to be provided to them by management. It also takes the

self-initiative to improve the boardroom’s modus operandi rather than merely reacting to

externally bestowed regulations. Conversely, a poorly designed boardroom translates into

a dysfunctional group that is uncoordinated, uninformed, weak and often subservient. A

boardroom with poor performance norms would either maintain the status quo or, worse,

would contribute to the destruction of the firm’s economic value.

As the dust settles on the relatively recent corporate scandals, academics and practitioners

are realizing the dire consequences of malfunctioning corporate governance practices. It

is noteworthy that the highly publicized corporate scandals (e.g. Enron, WorldCom, Tyco

International, Adelphia Communications, Global Crossing – just to mention a few) are only

visible syndromes of dysfunctional corporate governance practices. More subtle, yet

pervasive, corporate malfunctioning cases would occur gradually, insidiously and outside

the preview of the public and the media. The hidden aspects of ineffective boardroom

practices are eminently dangerous because they may remain undetected over a significant

period. As a practical example, a boardroom may over-extend the tenure of a poorly

performing CEO. The possible motives may be boardroom’s excessive complacency,

and/or sheer incompetence, and/or intentional malfeasance, and/or subtle conflicts of

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