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Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited
Article Type: Editorial From: Corporate Governance, Volume 12, Issue 3
What value do the boards offer for the business?
This one question has bedevilled boards across the world. The continuing economic stagnation and the inability of western economies to create a climate of innovation and investment has forced boards to rethink just what contribution they make to the organisation. The twin requirements of mentoring and monitoring raise the concern of mentoring and mentoring for what? Conversation with board directors and senior managers suggests that this question is hardly raised let alone debated.
In response this issue explores how boards can better position themselves to address the value question and in that ensure for good governance to become part of the life blood of the organisation.
Sherly Elizabeth Abraham starts the debate on how information technology can spawn effective decision making processes and have this act as the platform for good governance. Her study highlights that information technology is an enabler to promoting a stakeholder value perspective within the organisation. Although her study examines the practice of governance from the IT perspective, her conclusion is that we have little alternative other than to take full note of the values and believes of the corporate executives in the design of the organisation.
Elinda Esa and Nazli Anum Mohd Ghazali continue the debate but more from the perspective of corporate social responsibility disclosure and the aspects of corporate governance that promote greater transparency with special reference to Malaysian government linked companies (GLCs). The findings that emerge is that larger board size enables CSR disclosure due to the broader exchange of ideas and experience available on the board.
Alan L. Jones and Clive H. Thompson, “The sustainability of corporate governance – considerations for a model”, challenges the perspective provided by Elinda Esa and Nazli Anum Mohd Ghazali. Taking a broader view through recognising the mistrust in free markets, new developments with energy sources and the regulatory and commercial response to changes in the financial and social world, the two authors identify 12 elements, i.e. key principles for sustainable governance. Alan Jones and Clive Thompson’s comments that some of these elements may be elementary underplay the fact that they portray a whole picture view assuring communities of the nature of sustainable governance.
Michele Simoni and Rosa Caiazza examine another fact of governance, namely the contentious topic of interlocking directorates. Taking a strategic view of stakeholder relations, they show how interlocking stakeholder dynamics promote strong information channels which drive particular forms of cooperation between firms which in turn shape strategic thinking in each enterprise. This paper highlights a major question and that is what is the true value and purpose of independence in a growing stakeholder world.
The independence/transparency themes are taken one step further by Hany Kamel and Said Elbanna in their study of the earnings of Egyptian IPO managers. Their results suggest that Egyptian IPO managers are not incentivised to impact the offering due to the fact that the equity retained by the issuers and the size of the IPO’s have a significant effect on the offer price in the Egyptian stock market. According to this study exercising leadership discretion does not seem to be a relevant factor. The questions raised over earnings management practises within the Egyptian context will hopefully spawn similar studies in other governance regimes.
The theme of this issue, the value contribution of the board, is further explored within the Hong Kong context Tin-yan Lam and Shu-kam Lee in their study of the relationship between board committees, firm performance and the influence of family ownership structures of public companies in Hong Kong conclude that family ownership has an adverse effect on the relationship with board committees (specifically the remuneration committee) and firm performance of Hong King public companies. Further the remuneration/nominations committee is identified as having a direct relationship on firm performance (positive or negative) and that is particularly dependent on the independent composition of the board.
Leaving aside the board and attending to one of the key areas of board responsibility, CEO succession, Xin Liang, Yanxin Liu, Sibin Wu and Shujuan Zhang, explore the value of interim CEO succession placement. Although a theoretical treatise the authors provide deep insights as to the nature of interim CEO succession. Their urge is to encourage field study in order to provide answers to the propositions highlighted in their paper.
This issue concludes with the interesting questions raised by James Tompkins and Robert Hendershott concerning outside director agency conflicts. Do external directors personal incentives lead to board entrenchment and the adaption of an inward looking perspective? The two authors conclude that board incentives matter and may have a negative effect on governance and board contribution in that director’s incentives display an unwelcome parallel to managerial incentives. A further conclusion to emerge from the study is that director age may be an influential demographic impacting director and board performance. The suggestion is that the older director may be more likely to stand back and take a broader view over what is best for the board and the business, rather than what may financially incentivise the individual.
This interesting collection of papers provides insight into the question of what real value do boards provide?
As editors we encourage further contribution to this one critical theme.
Andrew Kakabadse, Nada Kakabadse