The effects of director tenure on monitoring and advising: New insights from behavioral governance and learning theories

• Published date: 01 September 2021
• Author: Ann Mooney,Jill Brown,Andrew Ward
• Date: 01 September 2021
• DOI: http://doi.org/10.1111/corg.12373

ORIGINAL ARTICLE

The effects of director tenure on monitoring and advising: New

insights from behavioral governance and learning theories

Ann Mooney

1

| Jill Brown

2

| Andrew Ward

3

1

School of Business, Stevens Institute of

Technology, Hoboken, New Jersey, USA

2

Department of Management, School of

Business, Bentley University, Waltham,

Massachusetts, USA

3

Department of Management, College of

Business, Lehigh University, Bethlehem,

Pennsylvania, USA

Correspondence

Ann Mooney, School of Business, Stevens

Institute of Technology, Castle Point on

Hudson, Hoboken, NJ 07030, USA.

Email: amooney@stevens.edu

Abstract

Research Questions/Issues: We integrate behavioral governance and learning theory

to address the overarching research questions—“What are the core mechanisms

driving a director's monitoring and advising effectiveness over board tenure?”; and

“What factors affect how and when a director becomes and stays effective in the

monitoring and advising roles?”

Research Insights: Our research provides new insights into director effectiveness by

examining how a director's tenure, both independently and in concert with other

moderating factors, affects the director's ability to be effective in the key but distinct

roles of monitoring and advising.

Theoretical/Academic Implications: We provide a nuanced and dynamic theoretical

understanding of director effectiveness over time. We explain that the monitoring

and advising roles that determine director effectiveness are each driven by different

theoretical mechanisms, and we offer testable propositions that shed light on a

director's ability to become and stay effective in their monitoring and advising roles

at different points in their tenure.

Practitioner/Policy Implications: Boards will benefit from the insights we provide for

how a director's relationships with the board and CEO and a director's individual

attributes help or hinder their monitoring and advising effectiveness over time. We

discuss practical solutions for harnessing these insights to inform decisions around

board composition, structure, and process. We also discuss policy implications,

including staggered boards, refreshed boards, and term limits.

KEYWORDS

corporate governance, advising, boards of directors, director effectiveness, monitoring, tenure

1|INTRODUCTION

The effectiveness of individual directors has drawn widespread atten-

tion from academic scholars, journalists, practitioners, and regulators

as critical to understanding board-level processes, actions, and perfor-

mance. Examples abound of boards “refreshing”their membership by

replacing directors perceived as ineffective, particularly those who

have served for too long and are considered to lack sufficient inde-

pendence from management. For example, General Electric recently

replaced some of its longest serving directors with eight new directors

appointed to the board in the last three years.

1

Another example is

retailer L Brands, Inc. that buckled under pressure from shareholders

(Safdar, 2019) and announced that three “independent”directors who

have served on the board for over 30 years would be retiring

(Maheshwari, 2020). This phenomenon extends internationally as well,

with countries like Japan, Brazil, and France revising governance

codes to require higher independence standards in an effort to

address refreshment and entrenchment issues (Mishra, 2018).

Compromising these efforts, however, is a lack of understanding

of how a director becomes effective by fulfilling the key but distinct

Received: 8 April 2019 Revised: 1 March 2021 Accepted: 13 March 2021

DOI: 10.1111/corg.12373

Corp Govern Int Rev. 2021;29:479–495. wileyonlinelibrary.com/journal/corg © 2021 John Wiley & Sons Ltd 479

roles of monitoring and advising over the course of their time on the

board. In academia, scholars often consider the monitoring and

advising roles together under a more generic consideration of

“effectiveness”(e.g., Veltrop et al., 2018). Alternatively, researchers

have focused on one role only (e.g., Hambrick et al., 2015) or taken a

more static view that does not consider tenure (De Andres &

Vallelado, 2008). While this research has contributed to our under-

standing of board functioning, such approaches have limitations

because they fail to address the fundamental differences in how the

monitoring and advising roles function over time, which has important

implications for understanding director effectiveness.

In this research, we address this gap through an in-depth consid-

eration of the core mechanisms driving a director's monitoring and

advising effectiveness over the course of a director's tenure. We

argue that a director faces different challenges in fulfilling their role as

a monitor than they do as an advisor, because monitoring is a collec-

tive, interdependent activity that depends on other directors, whereas

advising is a more individualistic activity that relies less on other direc-

tors and can be performed by a director in their communications with

management (Tasheva & Hillman, 2019). Thus, we rely on theoretical

underpinnings that inform these different challenges. For a director's

monitoring effectiveness, we draw on behavioral governance theory

(Westphal & Zajac, 2013) and focus on the social risk a director feels

relative to other directors and the CEO when performing monitoring

activities (e.g., raising issues and sharing concerns with the board). For

a director's advising effectiveness, we draw on learning theory

(Kolb, 1984; Lave & Wenger, 1991) and focus on the director's ability

and willingness to learn about the firm so that they can effectively

apply their experiences when engaging in advising activities

(e.g., offering suggestions on strategy and connecting management

with outside resources).

After identifying the core underlying mechanisms driving a direc-

tor's monitoring and advising effectiveness during tenure, we then

develop a conceptual model focused on the important issue of when a

director becomes, and stays, effective in these roles. Theorizing these

effects involves identifying and examining the moderating factors that

influence the underlying mechanisms driving the tenure-monitoring

and tenure-advising relationships (Haans et al., 2016). Since a direc-

tor's monitoring effectiveness depends on the social risks they per-

ceive when acting in concert with the board, we propose that the

tenure-monitoring relationship will be most influenced by factors that

are likely to affect the director's relationships with other directors and

the CEO—specifically, demographic similarity and relative structural

power. However, because the advising role is more individualistic and

less dependent on other directors, we propose the tenure-advising

relationship will be most influenced by the director's individual attri-

butes that impact their ability and willingness to learn about the firm—

specifically, board involvement, outside board memberships, active

CEO experience, and prestige.

More broadly, we believe the primary contributions of our

research lie in improving the understanding of a director's monitoring

and advising effectiveness over time, which has consequences for the

effectiveness of the board as a whole. We contribute to future

research by offering testable propositions and other research sugges-

tions. Moreover, we share practical insights for how boards and policy

makers can harness our research to develop solutions for board

effectiveness, particularly around board composition, structure, and

process.

2|THE KEY BUT DISTINCT ROLES OF

MONITORING AND ADVISING

2.1 |The social risks of monitoring

Monitoring is considered to be at the heart of the board oversight

role, with a focus on wealth protection and preventing the downside

risks that can arise under an agency theory view (Boivie et al., 2016;

Kim & Ozdemir, 2014). The interests of management do not always

align with the long-term welfare of the firm and its stakeholders, and

it is the responsibility of the directors to oversee management

and intervene when needed to minimize such misalignments and

mitigate agency issues (Fama & Jensen, 1983). For example, common

board monitoring activities include carefully considering and voting on

proposals by management, reviewing financials, evaluating and

rewarding the CEO, and CEO succession planning (Kroll et al., 2008).

The board is also responsible for protecting shareholders from the

more extreme cases of managerial misconduct and ethics. In fact,

based on a recent study by PwC, boards removed more CEOs from

their posts due to misconduct than for poor financial performance

(Karlsson et al., 2019).

These and other monitoring activities are all carried out collec-

tively as a board. As noted by Tasheva and Hillman (2019), the “board

of directors operates sui generis at the team level only; no single direc-

tor can act in the monitoring function (i.e., fire the CEO, agree to an

acquisition, or even hire an auditor) alone”(p. 751). Boards can be

structured to promote monitoring effectiveness, for example, by sepa-

rating CEO and chair roles and minimizing inside directors (Kim &

Ozdemir, 2014). Additionally, the director can be adept at the tasks

associated with monitoring—for example, interpreting and evaluating

the information received from management (Graffin & Ward, 2010;

Kor & Sundaramurthy, 2008) and understanding the right evaluative

metrics (Kiel & Nicholson, 2005). However, monitoring depends on

individual directors actively participating and speaking up in board

meetings on issues related to the CEO and the direction of the

company—and this comes with a social risk, particularly if a director

perceives their concerns may not be shared by others (Boivie

et al., 2016). Board seats are sources of prestige and social standing

for their holders and convey membership in a corporate elite

(Useem, 1984). Nearly 70% of directors today sit on only one or two

boards (Spencer Stuart, 2019); therefore, keeping a board seat is valu-

able to the director. Accordingly, maintaining a good relationship with

the CEO and other directors is important to the director, who likely

does not want to be seen as contrarian to the general views of the

board, which might put at risk their board seat. Indeed, scholars have

explained that directors who push for greater monitoring and board

480 MOONEY ET AL.