How job-related diversity affects boards’ strategic tasks performance: the role of chairperson

• DOI: https://doi.org/10.1108/CG-08-2019-0267
• Pages: 583-599
• Date: 13 April 2020
• Published date: 13 April 2020
• Author: Sadi Boğaç Kanadlı,Pingying Zhang,Nada K. Kakabadse
• Subject Matter: Corporate governance,Strategy

How job-related diversity affects boards’

strategic tasks performance: the role of

chairperson

Sadi Bo

gaç Kanadlı, Pingying Zhang and Nada K. Kakabadse

Abstract

Purpose –Board diversity has been a hotly debated topic in the field of corporate governance. The

paper examinesthe role of board chairperson and its moderating effect on therelationship between job-

related diversity and boards’ strategic tasks performance. The purpose of this paper is to add on our

body of knowledgeabout the impact of job-related diversityon boards’ strategic tasks performance.

Design/methodology/approach –The paper appliesthe structural equation modeling (SEM) technique

to examine survey responses from chief executive officers (CEOs). Both the measurement model and

structural model have obtained good results, supporting the appropriateness of using the SEM

approach.

Findings –The findings suggest that there is a positiveassociation between job-related diversity and

boards’ strategictasks performance, which is moderatedby a chairperson’s leadership efficacy andthe

option ofa former-CEO as board chair.

Practical implications –To achieve the intendedeffect of job-related diversity in boards,policymakers

need to be mindful about the importanceof the board chairperson. Board chairperson’s characteristics

such as leadershipefficacy and a former-CEO experiencewould amplify the positive effect of diversity.

Originality/value –This researchpaper contributes to the literature on board diversity,board leadership

and strategic management of firms. Findings validated researchers’ concern about the negligence of

examiningmoderating factors in board diversity research.Moreover, results echo the concern that board

leadershipresearch should shift the attention from structuralaspects to the behavioral issues. Finally, this

study is the first to show the positive influence of a board chairperson in disseminating benefits of a

diverseboard.

Keywords Corporate governance, Board diversity, Strategic tasks performance, Board chairperson,

Behavioral theory of the f‌irm

Paper type Research paper

Introduction

To enable the board to effectively deal with increased business complexities and to fulfil

stakeholders’ expectations, corporate leaders have been restructuring their boardrooms for

a greater job-related diversity –variety in knowledge, skills and experience (Forbes and

Milliken, 1999;Milliken and Martin, 1996). Despite its practical importanceand scholars’ call

for more research (Harjoto et al.,2018;Hillman, 2015;Ingley and Van Der Walt, 2003), our

understanding of how job-related diversity enables the board to perform strategic tasks has

remained limited.

The rational of establishing job-related diversity in boards could be traced to the behavioral

theory of the firm (Cyert and March, 1963). Behavioral theory posits that board decision-

making is under the threat of decision-makers’ cognitive limitations, hindering the qualityas

well as creativity of board decisions (Van Ees et al.,2009). Pertinent perspectives related to

Sadi Bo

gac¸ Kanadlı is

Trade Specialist at Turkish

Republic, Ministry of Trade,

Ankara, Turkey.

Pingying Zhang is

Professor of Management

at the Coggin College of

Business, University of

North Florida, Coggin,

Jacksonville, Florida, USA.

Nada K. Kakabadse is

Professor of Policy,

Governance and Ethics at

Henley Business School,

University of Reading,

Reading, UK.

Received 26 August 2019

Revised 8 November 2019

21 January 2020

Accepted 13 March 2020

DOI 10.1108/CG-08-2019-0267 VOL. 20 NO. 4 2020, pp. 583-599, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 583

board strategic tasks are likely to be overlooked in board discussions, leading to

unchallenged views and unsatisfactory results(Brodbeck et al.,2007). Job-related diversity

is regarded as the remedy to overcome the above problems (Kakabadse et al.,2018;

Brodbeck et al.,2007).

One drawback of the application of the behavioral theory is the assumption that the

existence of diversity equates to the use of it, where board decision-making involves the

diverse knowledge and information (Van Ees et al.,2009). It is, though, not always the case

(Haynes and Hillman, 2010;Zhu, 2014).Relaxing this assumption, we consider an essential

contingency factor –the chairperson –and argue to investigate the moderating effect of

board chairperson. For example, a board chairperson with strong leadership efficacy is

quick at observing and making use of each director’s skills and talents, gracefully guiding

discussions toward goals and objectives, and adequately summarizing conclusions after

heated debates (Gabrielssonet al.,2007;Kanadlı et al., 2018a;Machold et al.,2011). Such

board chairperson is likely to safeguard the use of board diversity. Other researchers have

shown that a former chief executive officer (CEO) as board chairperson may also protect

the use of diverse knowledge and information when dealing with strategic issues (Krause

and Semadeni, 2013).

The contribution of the paperis twofold. First, we apply the behavioral theory to highlight the

critical role job-related diversity plays, contingent on the characteristics of the board

chairperson, thus contributing to board diversity literature and enriching the behavioral

research in boards (Torchia et al.,2018;Van Ees et al.,2009). Second, the paper

contributes to the literature on strategic management and board leadership that has so far

neglected to investigate the chairperson’s moderating effect on firm strategy (Krause et al.,

2014;Withers and Fitza, 2017).

Theoretical framework and hypotheses formulation

Relationship between job-related diversity and boards’ strategic tasks performance

As a key function in shaping the firm strategy, analysis of boards’ strategic tasks

performance has drawn considerable research attention (Bailey and Peck, 2013;Pugliese

et al.,2009

; Stiles, 2001). In this study, boards’ strategic tasks are a set of tasks that

involves controlling and evaluating strategic decisions, ratification of these decisions

through advice and counsel, as well as initiating strategic decision proposals (Stiles, 2001;

Zhang, 2010). We argue that job-related diversity –commonly measured by the variety in

directors’ educational background, functional background and industry experience

(Kanadlı et al., 2018b)–would benefitboard strategic decision-making for reasons below.

According to the behavior theory (Cyert and March, 1963;Van Ees et al., 2009), decision-

makers are limited in their ability to process information and solve problems. They are

primarily concerned with immediate problems and short-run solutions, which are

characterized as “good enough” rather than “optimum” (Van Ees et al.,2009), reflecting a

limited and selective information-processing biases (Brodbeck et al.,2007;Van Ees et al.,

2009). Another often-mentioned limitation is groupthink, which also leads to an inferior

decision-making quality (Brodbeck et al.,2007). Groupthink describes a dysfunctional

pattern of interaction and thought, which occurs during group decision-making and is

characterized by pressures toward uniformity, closed-mindedness, overestimation of the

group, and defective information processing, and can lead to group decision fiasco (Janis,

1991). We argue that job-related diversityis likely to improve board decision-making quality

when facing complex strategicissues.

Board decision-making in handling complex tasks can be divided into three phases:

scanning, interpretation and decision choice (Rindova, 1999). In the scanning phase,itis

most likely that directors will notice issues and collect information in which they have

expertise. For example, a director with a marketing background may effectively recognize

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