The top team: examining board composition and firm performance

Abstract

PurposeThis paper seeks to argue that boards can be playing a more proactive role in contributing to organizational effectiveness and that their composition requires greater research attention. By integrating the organizational behaviour literature on teams with the governance literature, the paper empirically examines the relationship between key board composition variables and firm performance.Design/methodology/approachAt this stage in the development of the approach, the focus is on a sub‐set of the elements proposed in the group dynamics literature. The population for this study comprises all companies included in the Canadian TSE 300 Composite Index (renamed the S&P/TSX Composite Index). This study uses cross‐sectional regression analyses to examine the nature of the relationships between board composition and firm performance.FindingsThe data analyses revealed that high levels of experience, appropriate team size, moderate levels of variation in age and team tenure were correlated with firm performance.Research limitations/implicationsBoards of directors (BOD) are teams whose effectiveness can be assessed through group dynamic constructs in the organizational behaviour literature. Further research is needed to examine the intricate dynamics that might moderate or mediate the relationship between board characteristics and firm performance.Practical implicationsThe findings provide a much‐needed benchmark to consider whether the composition of boards is optimal, given the functions and mandate. In addition, the study highlights the opportunity costs of boards, restricting their roles to agency issues.Originality/valueThis interdisciplinary paper tests some of the many variables that can be extrapolated from the group dynamics research. The paper calls on boards to examine what BOD functionality really entails, and argues for more proactive behaviours aimed at strategic firm issues.

Company financial performance: Does board size matter? Case of the EUROSTOXX50 index

“…There are studies in samples of Eurozone countries that have found a positive relationship between size and profitability: Alves and Mendes (2004) in Portugal; Barroso et al (2009Barroso et al ( , 2010Fernández et al (1998);and Rodríguez Fernández et al (2013) in Spain. This has also been the case in international samples, or from countries outside Europe: Dalton et al (1999) and Larmou and Vafeas (2010) in international companies; Jackling and Johl (2009) and Raja and Kumar (2008) in India; Kiel and Nicholson (2003) in Australia; McIntyre et al (2007) in Canada; Reddy et al (2010) in New Zealand, and finally, Uadiale (2010) in Nigeria.…”

Board Team Leadership Revisited: A Conceptual Model of Shared Leadership in the Boardroom

“…interdisciplinary teams) and that factors that lead to high performance in such teams also contribute to board effectiveness (e.g. McIntyre et al 2007;Payne et al 2009). …”

It is useful to consider the interlocks according to the type of board member (executive or non-executive) who posseses them? Their effect on firm performance

“…Board tenure is calculated as the average number of years that board members have served on a particular board (Golden & Zajac, 2001;Johnson, Hoskisson, & Hitt, 1993;Kaymak & Bektas, 2008;Kor & Sundaramurthy, 2009;McIntyre, Murphy, & Mitchell, 2007).…”