Too Unsafe to Monitor? How Board–CEO Cognitive Conflict and Chair Leadership Shape Outside Director Monitoring

Abstract

Research into boards of directors has provided mixed support for the view that outside directors' independence or leadership by an independent chair improves monitoring. In this study, we use a micro-level approach to provide a better understanding of why outside directors have difficulty in monitoring the CEO. We highlight that an important reason for this lies in the boardroom dynamics associated with (a) outside directors' cognitive conflict with the CEO and (b) the chair's leadership of the board. Our inductive analyses of video observations of board meetings in five Australian corporations revealed the importance of chair participative leadership during disagreement episodes in the boardroom. Follow-up in-depth interviews of board meeting participants highlighted the importance of psychological safety as a key mechanism explaining why participative board chairs appear so effective in dealing with board-CEO cognitive conflict. We corroborate these results with a second, large-scale survey study involving data on 310 outside directors from 64 Dutch boards. Whereas prior work has mostly focused on the chair's relationship with the CEO, we instead highlight the importance of the chair's role as the leader of the board and identify board psychological safety as an important element shaping director monitoring within the confines of the boardroom.We sincerely thank the editor, Brian Connelly, and three anonymous reviewers whose supportive and insightful suggestions helped us to develop our work. We also thank Michael Withers, Christine Shropshire, Craig Crossland, Steven Boivie, Sten Langmann, Gerben van der Vegt, and Floor Rink for their advice on earlier drafts of this article, and Larry Williams and Bob Vandenberg for their advice on our analyses. We thank audiences at

The role of the board chair—A literature review and suggestions for future research

“…Using the same keywords and following the same inclusion–exclusion logic, we ran a second search in June 2020 to track missing references and added 14 additional articles to our review database. In the second stage, we conducted three additional searches: the first one used two keywords, “Chair Leadership” and “Chairperson Leadership,” respectively, then used the keywords “Board Leadership” OR “Board Leader.” Among these new keywords, the first one is inspired by the recent article of Veltrop et al (2020), the second is informed by Machold, Huse, Minichilli, and Nordqvist (2011) and Kanadlı, Torchia, and Gabaldon (2018), and the rest is suggested by an independent anonymous reviewer of the journal. To maintain thorough consistency, we used the same exclusion criteria and found 39 articles.…”

“…However, this argument is contested in recent studies, in which scholars suggested that a separate board chair can facilitate greater collaboration with the CEO and other board members, resulting in a better firm performance (Bezemer et al, 2018; Krause, 2017; Morais, Kakabadse, & Kakabadse, 2020). In fact, the authors found that effective board chairs help alleviate board–CEO conflicts, orient board members to more strongly emphasize shareholders' interests, and engage in productive discussions by facilitating a participatory environment (Bezemer et al, 2018; Guerrero, Lapalme, & Séguin, 2015; Shekshnia, 2018; Veltrop et al, 2020). They influence an organization's capacity to achieve goals and build high morale among employees as a result of their organizational awareness (Bailey & Peck, 2013; Y. D. Harrison & Murray, 2012).…”

“…Greater pressure on the board chair also comes from intensified competition in many markets and sectors, challenges related to digitalization, and increased demands to pay attention to diversity and sustainability issues (Meineke, Hellerstedt, & Nordqvist, 2019). As a result, today's board chair is increasingly expected to both guarantee general compliance with the corporate governance system and lead effective communication with the CEO and top management to secure a competitive strategic agenda for the company that addresses the concerns of shareholders and a broader set of stakeholders (e.g., Veltrop, Bezemer, Nicholson, & Pugliese, 2020; Withers & Fitza, 2017). This shift in expectations and accountability of board chairs sparks new research interests that motivate an effort to appreciate and assess the dominant perspectives, topics, and theories in extant studies on the role and position of board chairs.…”

Who pays the penalty? Implications of gender pay disparities within top management teams for firm performance

“…First and most importantly, our empirical analysis does not demonstrate the behavioral mechanisms by which a gender pay disparity influences the TMT's functioning (i.e., male members and female members reduce collaboration; female members withhold their opinions; male members do not take female members' contributions seriously). Information about the TMTs' interpersonal dynamics such as the degree of interaction and collaboration was not available; only a handful of empirical studies have measured TMT‐level phenomena (e.g., McDonald & Westphal, 2003; Veltrop, Bezemer, & Nicholson,, & Pugliese, 2021), and they use cross‐sectional surveys conducted in a limited number of firms 7 . It is very difficult (perhaps even impossible) to measure these mediating mechanisms in combination with longitudinal archival data like ours.…”

Introduction to Special Issue on Innovations in Research Methods in Accounting and Governance

“…Bezemer et al (2014) videotape six board meetings and use the data collected to analyse various aspects of board processes, including patterns of director interactions (Pugliese et al, 2015), habitual accountability routines (Nicholson et al, 2017), the influence of board chairs (Bezemer et al, 2018). Veltrop et al (2021) videotape seven board meetings of five Australian companies to analyse CEOboard cognitive conflict and chair leadership. Adopting a similar method, Pernelet & Brennan (2021a, 2021b video-Introduction to Special Issue on Innovations in Research Methods in Accounting and Governance tape nine board meetings to study non-executive directors' and managers' question-and-answer interactions.…”