Steven Toms

The firm's strategic dynamics and corporate governance life‐cycle

Purpose – The paper seeks to present a novel conceptual framework that integrates the strategic dynamics of the firm with changes in its governance systems. Design/methodology/approach – The agency research agenda is extended to include other corporate governance roles, such as resource and strategy functions, alongside monitoring and control functions. Theoretical arguments are supported by empirical data related to the founder-manager/IPO, IPO/maturity, maturity/decline and reinvention thresholds. Findings – The paper shows that corporate governance parameters may be linked to strategic thresholds in the firms life-cycle. Successful transition over a threshold is accompanied by a rebalancing in the structure and roles of corporate governance compared with each previous stage in the cycle. Research limitations/implications – In the absence of longitudinal data relating to firms as they pass through all life-cycle stages the study has been restricted to reporting illustrative data from different studies regarding each strategic threshold. Further research might usefully undertake detailed long-term case studies using a combination of archival and interview data to trace the evolution of firms across the four thresholds. Originality/value – This paper develops a novel conceptual framework that integrates the strategic dynamics of the firm with changes in its governance systems. It rejects the notion of a universal governance template and argues that corporate governance parameters may be linked to transitions from one stage to another in the firms life-cycle. Accordingly, it argues that changes in a firms strategic positioning may be associated with rebalancing between the wealth-protection and wealth-creation functions of governance.

Corporate Governance, Strategy and Survival in a Declining Industry: A Study of UK Cotton Textile Companies

Building on the strategic flexibility perspective, this paper examines the influences of organizational diversity, ownership structure and board characteristics on strategic responses to industrial decline in firms from the UK textile industry. Using samples of exiting and surviving companies it shows that, in line with the predictions of the strategic flexibility framework, the surviving companies tended to have a higher level of organizational diversity. They also tended to have larger institutional ownership and more diverse boards. These factors are associated with higher investment, financial performance, and growth. The results are consistent with the resource and service roles of the corporate governance factors. Copyright Blackwell Publishing Ltd 2003.

Divergence and Convergence within Anglo-American Corporate Governance Systems: Evidence From the US and UK, 1950-2000

The objective of this article is to compare the United States and British systems of business organisation and corporate governance during the last 50 years. Of particular interest is the contrasting relationship between governance systems and the pursuit of diversification and refocusing strategies. In order to explain these relationships, a theoretical model integrating the firm’s resource base with the main aspects of corporate governance to explain strategy, structure and managerial behaviour is developed. It is then applied to examine changes in the United States and British corporate economies in the period 1950–2000.

Corporate governance and financial constraints on strategic turnarounds

The paper extends the Robbins and Pearce (1992) two-stage turnaround response model to include governance factors. In addition to retrenchment and recovery, the paper proposes the addition of a realignment stage, referring specifically to the realignment of expectations of principal and agent groups. The realignment stage imposes a threshold that must be crossed before the retrenchment and hence recovery stage can be entered. Crossing this threshold is problematic to the extent that the interests of governance-stakeholder groups diverge in a crisis situation. The severity of the crisis impacts on the bases of strategy contingent asset valuation leading to the fragmentation of stakeholder interests. In some cases the consequence may be that management are prevented from carrying out turnarounds by governance constraints. The paper uses a case study to illustrate these dynamics, and like the Robbins and Pearce study, it focuses on the textile industry. A longitudinal approach is used to show the impact of the removal of governance constraints. The empirical evidence suggests that such financial constraints become less serious to the extent that there is a functioning market for corporate control. Building on governance research and turnaround literature, the paper also outlines the general case necessary and sufficient conditions for successful turnarounds.

Corporate Governance, Strategy and Structure in British Business History, 1950-2000

This article examines why British firms adopted diversification strategies and multi-divisional structures in the middle of the twentieth century and why this strategy and structure was reversed towards the end. Corporate governance mechanisms and the impact on information costs of such monitoring arrangements are considered in conjunction with strategy and structure to explain these changes. Diversification and multi-divisional adoption were associated with ineffective governance, poor monitoring and poor performance, whilst refocusing and divestment after 1980 were associated with more effective monitoring and improved performance. The evidence suggests important relationships between governance, strategy and business performance that help explain the development of British business institutions in the second half of the twentieth century.

Scale, scope and accountability: towards a new paradigm of British business history

This article extends Chandlers scale and scope perspective using a synthesis with accountability and governance perspectives. The article also explains how various paradigms of political economy might be accommodated within the proposed business history synthesis. Accordingly, the intended outcome is a model that can explain why diverse organisational forms emerge, alongside the business strategies that accompany these changes during historical transitions. Using British business history as an example, empirical vignettes based on important transition points in support of the main propositions are also offered. This allows conclusions to be drawn on the joint impact of scale and scope economies with systems of corporate governance, the development of ‘efficient’ capital markets and the impact of globalisation on multinationals and business networks.

Value, profit and risk: accounting and the resource‐based view of the firm

Purpose - This paper aims to argue that the principal components of the Resource-Based View (RBV) as a theory of sustained competitive advantage are not a sufficient basis for a complete and consistent theory of firm behaviour. Two missing elements are value theory and accountability mechanisms. Design/methodology/approach - The paper proposes a link between value theory and accountability using a Resource Value-Resource Risk perspective as an alternative to the Capital Asset Pricing Model. The link operates first from the labour process, where value is created but is imperfectly observable by intra-firm mechanisms of organizational control and outside governance arrangements without incurring monitoring costs. Second, it operates through contractual arrangements which impose fixed cost structures on activities with variable revenues. Findings - The paper thereby explains how value originates in risky and difficult to monitor productive processes and is transmitted as rents to organizational and capital market constituents. It then reviews recent contributions to the RBV, arguing that the proposed new approach overcomes gaps inherent in the alternatives, and thus offers a more complete and integrated view of firm behaviour. Originality/value - The RBV can become a coherent theory of firm behaviour, if it adopts and can integrate the labour theory of value, associated measures of risk arising from the labour process and mechanisms of accountability.

Explaining corporate success: The structure and performance of British firms, 1950-84

Predictions from dominant strands of the management strategy and business history literature suggest that the adoption of the multi-divisional form is associated with corporate success. There is theoretical support for this contention and, in certain non-British contexts and historical periods, also some confirmatory evidence. To examine the relationship in the British case, this article examines the strategy and structure characteristics of successful firms between 1950 and 1984. To do so it utilises an extensive accounting database to compute the return on capital employed for all quoted companies in the period. Using this measure, and applying it to a sub-sample of long-run surviving companies, it produces a ranking of firms according to profitability. A sample of best performing firms is matched to a paired sample of firms selected from the bottom of the financial performance ranking, and their organisation structures are contrasted. Examples are used to illustrate cases where strategies have been well supported by the structures adopted and have successful financial performance outcomes. A tendency for firms to adopt holding company structures in preference to the multi-divisional form is identified, particularly before 1970. Transitions from the functional to the holding company form tend to be successful in general and appear more successful than transitions to the multi-divisional form, again in the earlier decades in particular. These findings cast doubt on the universal applicability of the Chandler–Williamson model of the large, professionally managed, multi-divisional enterprise.

Windows of Opportunity in the Textile Industry: The Business Strategies of Lancashire Entrepreneurs, 1880-1914

Using accounting records and financial data for a sample of cotton companies, their individual and collective business histories between 1870 and 1914 are presented. The process of capital accumulation is advanced as a crucial ingredient of the history of Lancashire textiles. A rising class of promotional capitalists and individualistic entrepreneurs is identified. Their reluctance to establish professional management hierarchies depended on preferences for individual, instead of corporate, accumulation. Instead of investing in formal monitoring systems, they preferred instead to rely on loose federal structures and informal contacts with intermediaries in other markets. Investment strategies and profitability were determined by these relationships, together with the impact of the trade cycle, but above all were influenced by the character of capital ownership and accumulation.

Public Subsidy and Private Divestment: The Lancashire Cotton Textile Industry, c.1950–c.1965

The investment and divestment policies of Lancashire cotton companies are examined by reference to historical financial and other archival data. Capital/product market and political/institutional constraints on entrepreneurial behaviour are evaluated. Lancashire entrepreneurs were faced with a legacy of over-capacity and a market situation that individual decisions could do little to later. Political constraints, especially in the form of taxation and regulation of overseas trade, had important influences on investment behaviour. Divisions within the Lancashire lobby weakened its political influence prior to 1959. Dividend policy and the constraint on corporate cash flow imposed by the capital markets also helped to limit the effectiveness of restructuring investments. Partial solutions from the British government could not prevent the total demise of what remained of an important regional industry.