Szymon Kaczmarek

Board Task‐Related Faultlines and Firm Performance: A Decade of Evidence

Manuscript Type: Empirical Research Question/Issue: To what extent can group faultlines and their potential value-destroying effects be detected on corporate boards? Task-related attributes of the type of directorship, education, board tenure, and financial background of board members are considered as directors’ characteristics that give rise to the faultline phenomenon. The impact of task-related faultlines on firm performance as well as the moderating effects of busy boards, Chief Executive Officer (CEO)tenure, executive directors’ (EDs) compensation structure, and the average non-executive directors’ (NEDs) involvement in board committees are examined. Research Findings/Insights: Using a panel of FTSE 350 companies from 1999 to 2008, we find a strong negative effect of task-related faultlines on firm performance. Further exploration of the moderating effects demonstrates that the condition of a busy board and CEO tenure exacerbate the negative effects of faultlines. At the same time, the executive pay contingency is found to have a remedying effect on boardroom cohesiveness, whereas the involvement of NEDs in board committee work is not likely to make the adverse effects of board faultlines less pronounced. Theoretical/Academic Implications: Based on the arguments of social identity theory, this study shows that task-related faultlines on corporate boards have strong negative value-creating implications. The positive moderating impact of the executive compensation structure renders support to agency theory predictions about executive incentive alignment. This work also underlines the usefulness of the concept of faultlines in the corporate governance literature, because unitary boards, where NEDs and EDs share board responsibility, exhibit pre-existing factions, similar to top management teams of family-controlled firms and teams managing international joint-ventures. Practitioner/Policy Implications: This research points to the importance of a careful selection process of directors by nomination committees. It also underlines the role for active leadership on boards, who should be aware of available strategies to ameliorate the negative consequences of board schisms, such as accentuating superordinate board identity and/or informal meetings

Antecedents of Board Composition: The Role of Nomination Committees

Manuscript Type: Empirical Research Question/Issue: The global financial crisis in 2008 has generated increasing recognition of the importance of board diversity reflected amidst the capabilities and skills of directors on a board. As the primary institutional mechanism designed to strengthen the director selection process, nomination committees (NCs) occupy centre stage of this discussion. However, there is a dearth of studies which focus either specifically on NCs or on diversity as a board composition outcome. In this study, we examine the research question of the likely antecedents in terms of NC characteristics of two board composition outcomes, i.e., diversity as variety in terms of gender and nationality, and diversity as separation in terms of a board demographic faultline. Research Findings/Insights: For a panel of FTSE350 companies from 1999 to 2008, we find that the increasing presence on the NC of females or non-British nationals is likely to have a positive impact on the level of board gender and nationality diversity, respectively. In addition, we report that the presence of the chief executive officer (CEO) on the NC is found to interact with the NC independence, as a result of which a board demographic faultline is likely to emerge. Theoretical/Academic Implications: We bring together three concepts from social psychology research to create the theoretical basis for our study of the influence of NCs on board diversity: these are similarity-attraction, homosocial reproduction, and social identity. The strong empirical findings suggest that these socio-psychological dimensions are applicable to the operations of NCs, which has implications for the outcomes of the director nomination and selection process, and consequently also for board composition. Practitioner/Policy Implications: Our research indicates that NC characteristics are significant antecedents of board diversity, hence composition of the NC is an important step and pre-requisite for assembling a diverse board. For example, appointing females and/or non-nationals to the NC increases the likelihood of greater representation of females and/or non-nationals on the entire board. At the same time, our evidence suggests that the presence of the CEO amidst the majority of non-executive directors (NEDs) on the NC is detrimental for board cohesiveness.