Inside the “black box”: the performance of boards of directors of unlisted companies

Abstract

Purpose -The purpose of this paper is to explore two under-developed areas of board research: the corporate governance of unlisted companies; and board behaviour, focusing on process factors that contribute to a board performing effectively.Design/methodology/approach -The Board Effectiveness Questionnaire was completed by 67 directors, to gather views on how their board currently operates and how they think it should operate, across various behavioural areas relating to the relationships, decision making, the working climate and predispositions. Analysis of ''process losses'', the pattern of sub-optimal board behaviour, allowed the testing of four hypotheses concerning board effectiveness.Findings -The 18 most important and five least important behaviours were identified, plus 12 showing the greatest ''process loss''. Quality of team ''relationships'' is the main cause of loss whereas evidence for the impact of leadership style is mixed. Size of the board is related to overall performance of the board but number and proportion of non-executive directors are not.Research limitations/implications -This is a ''purposive, judgmental'' sample of all unlisted companies, derived from those who were willing and able to respond. Only one director's view of each board was sought. Practical implications -The picture of the ''ideal'' board provides a checklist for a company wishing to assess its board's performance as a working group, highlighting key characteristics that should be reflected on when discussing director/ board performance. The gaps in board behaviour identified could help other boards assess their own performance and researchers to focus on these areas.Originality/value -The paper explores two under-researched areas.

SME top management team and non‐executive director cohesion

“…However, the Board did not match the Neill and Dulewicz (2010) "ideal" in this context. The shareholders were dealing with the transition by keeping "secrets" (Rappert, 2010) to maintain their power and resulting in precarious equilibrium.…”

“…He called for more research to investigate "the impact of NEDs on the direction and performance" of SMEs (Gabrielsson, 2007, p. 529). Neill and Dulewicz (2010) also noted a lack of research into the governance and board dynamics of unlisted companies. Within the small business and corporate governance literature there are a limited number of research studies that have focussed solely on the role of NEDs in unlistedthat is, privately-owned -SMEs.…”

“…Neill and Dulewicz (2010) note a lack of research into what they term the "black box" of small firm board dynamics and performance. Similar comments have been made vis-à -vis PLC research, for example, that the "dynamic" of different directors working together "is still largely under-researched" (Pye and Pettigrew, 2005, p.…”

Conflict in the boardroom: a participant observation study of supervisory board dynamics

“…In the literature, the importance of social cohesion is often overstated. Neill and Dulewicz (2010), for example, maintain that harmonious personal relationships between board members are a crucial, yet often neglected, driver of board task performance. And Forbes and Milliken (1999) reason that board task performance is improved when members are naturally drawn to each other and want to stay on the board.…”

Improving corporate performance by enhancing team dynamics at the board level

“…Of the hundreds of articles written about board governance since 1990, only 8 per cent address director performance from a behavioral perspective (Huse et al, 2011), and of these only a few have produced original survey data for their quantitative analyses (Minichilli et al, 2012). For all these reasonsthe preponderance of theoretical frameworks, difficulty in accessing primary data and defining the most appropriate unit of analysis -scholars refer to the board as a 'black box' (Pettigrew and McNulty, 1995;Leblanc and Schwartz, 2007;Neill and Dulewicz, 2010) and scholarly works have not yet succeeded in lifting the shroud of boardroom mystery.…”