Toward a Behavioral Theory of Boards and Corporate Governance

• Author: Morten Huse,Hans Van Ees,Jonas Gabrielsson
• DOI: http://doi.org/10.1111/j.1467-8683.2009.00741.x
• Date: 01 May 2009
• Published date: 01 May 2009

Toward a Behavioral Theory of Boards and

Corporate Governance

Hans van Ees*, Jonas Gabrielsson and Morten Huse

ABSTRACT

Manuscript Type: Review

Research Question/Issue: A coherent alternativeto an economic approach of corporate governance is missing. In this paper

we take steps towards developing a behavioral theory of boards and corporate governance.

Research Findings/Results: Building upon concepts such as political bargaining, routinization of decision making, satis-

f‌icing, and problemistic search, a behavioral theory of boards and corporate governance will focus more on (1) interactions

and processes inside and outside the boardroom; (2) the fact that decision making is made by coalitions of actors and

objectives are results of political bargaining; and (3) the notion that not only conf‌licting, but also cooperating, interests are

parts of the boards’ decision making and control over f‌irm resources.

Theoretical Implications: The consequences are a new research agenda for boards and corporate governance. The agenda

will focus on actual instead of stylized descriptions of board behavior. In a behavioralperspective the emphasis on problems

of coordination, exploration, and knowledge creation may dominate over problems of conf‌lict of interest, exploitation, and

the distribution of value. A future research agenda based on a behavioral framework calls for novel and adventurous

research designs.

Practical Implications: A behavioral theory of boards and corporate governance will be closer to actual board behaviorthan

the traditional economic approach and research about boards and corporate governance may thus become more actionable

for practitioners.

Keywords: Corporate Governance, Board Processes, Board Composition, Board Leadership, Board of Director Issues

INTRODUCTION

Corporate governance research addresses the nature of

interactions and relationships between the f‌irm and its

stakeholders in the process of decision making and control

over f‌irm resources. In the corporate governance literature

there has been a considerable interest in boards of directors.

The majority of board research has been dominated by the

well-known agency theory perspective (Jensen and Meck-

ling, 1976; Fama and Jensen, 1983). Researchin this tradition

typically emphasizes formal incentives and control mecha-

nisms, with a focus on how boards of directors may protect

shareholder interests from opportunistic and self-serving

managers through bonding or monitoring activities, particu-

larly in situations where contracts are incomplete. However,

despite its popularity in the f‌ield of corporate governance,

the extensive body of related empirical research has so far

yielded conf‌licting and ambiguous results.

The general unease about the conf‌licting and ambiguous

results has led to calls for new directions and alternative

theorizing in research on boards and corporate governance

(Daily, Dalton and Cannella, 2003; Gabrielsson and Huse,

2004; Davis, 2005; Hambrick, Werder and Zajac,2008). In line

with these calls, a growing number of studies have empha-

sized the need to more closelystudy behavioral processes and

dynamics in and around the boardroom to better understand

conditions for effective corporate governance (e.g., Huse,

1998; Zajac and Westphal, 1998; Forbes and Milliken, 1999;

McNulty and Pettigrew, 1999; Westphal 1999; Westphal,

Seidel and Stewart, 2001; Huse, 2005; Leblanc and Schwartz,

2007). However, “behavioral” studies of boards and corpo-

rate governanceare scattered across disciplines and research

traditions, and they apply different methodologies and

assumptions (Huse, 2005). As such, understanding boards

and corporate governance in a behavioral framework does

not yet provide a coherent alternative to the agency theory

perspective in corporate governance.Therefore, the objective

of this paper is to takesome steps toward the development of

a behavioral theory of boards and corporate governance.

*Address for correspondence: Faculty of Economics and Business, University of

Groningen, 9747 AE Groningen, TheNetherlands. E-mail: H.van.Ees@rug.nl

307

Corporate Governance: An International Review, 2009, 17(3): 307–319

© 2009 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2009.00741.x