SME growth trajectories, transitions and board role portfolios: A critical review and integrative model

Abstract

This article presents a novel framework integrating a dynamic states approach to firm growth and a portfolio perspective of board roles. In our framework we highlight four typical firm growth states aligned with primary board roles to guide firms effectively through the transitions associated with each state to reach a new equilibrium. The particular contribution of our framework is that it takes SME heterogeneity into account, while capturing the dynamic nature of these states which are reached along non-linear, non-sequential and non-deterministic transitional pathways, as well as incorporating reverse and counterintuitive trajectories between states. KeywordsTransitions, SMEs, board role portfolio, dynamic states 2 IntroductionA large and growing literature relates to the governance of small and medium firms (SMEs), with extensive debate over the value and contribution of boards of directors and their roles in this context (Boxer et al., 2016;Gnan et al., 2015; Wilson et al., 2014). Much of this debate considers board value from a static perspective. However, the question of board value and contribution is more complex when considered in circumstances of dynamic change. Recent studies have attempted to address this question by researching board roles in conjunction with small firm growth paths and the changes experienced over the course of their existence (Bonn and Pettigrew, 2009;Filatotchev et al., 2006;Perrault and McHugh, 2015).Two key issues arise from this debate. The first issue relates to an almost exclusive use of life cycle models to match board roles with SME growth patterns (Bonn and Pettigrew, 2009;Lynall et al., 2003) and transitions accompanying growth (Filatotchev et al., 2006;Perrault and McHugh, 2015). The focus on growth and life cycles implies unidirectional, deterministic patterns of development and ignores the complex realities that most firms encounter, such as erratic growth, turnaround situations and reversals due to decline or other negative impacts (Perrault and McHugh, 2015). The second issue concerns the highly heterogeneous and dynamic nature of SMEs (Delmar et al., 2003;Empson, 2010;Phelps et al., 2007), making it difficult to encapsulate theoretically their governance needs in a comprehensive model. 3These issues indicate the need for a broader conceptualisation that reflects more adequately the complexities associated with small firm heterogeneity and dynamics, in addressing the question of how SME boards can add strategic value. The novel framework we develop in this paper provides a more complete specification of both board and firm characteristics associated with transitional dynamics through growth and transformation.While recognizing the overlap of board roles, as well as the need for boards to perform more than a single role, our model highlights the most valuable board role for each transition we depict. To ground our framework, we review and build on two streams of literature relating to board roles in smaller firms, and SME growth and development models.Nume...

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