British Journal of Management, Vol. 24, 85–101 (2013) DOI: 10.1111/j.1467-8551.2011.00789.x
What Makes Better Boards? A Closer Look at Diversity and Ownership Walid Ben-Amar, Claude Francoeur,1 Taïeb Hafsi1 and Réal Labelle1 Telfer School of Management, University of Ottawa, 55 Laurier East, Ottawa, Ontario K1N 6N5, and 1 HEC Montreal, 3000 Côte-Sainte-Catherine Road, Montreal, Quebec H3T 2A7, Canada Email: email@example.com, firstname.lastname@example.org, email@example.com, firstname.lastname@example.org This study investigates the joint effect of corporate ownership and board of directors’ diversity conﬁgurations on the success of strategic merger and acquisition (M&A) decisions. Board diversity is deﬁned as the extent to which its demographic diversity as measured by the culture, nationality, gender and experience of its directors complements its statutory diversity. A theoretical framework linking ownership, board diversity and M&A strategic decision making is proposed and tested. Based on a sample of 289 M&A decisions undertaken by Canadian ﬁrms over the period 2000–2007, demographic diversity is found to have a clear and non-linear effect on M&A performance while statutory diversity is of limited inﬂuence. Ownership is found to inﬂuence the effect of diversity, making the relation ﬁner and more precise. This has practical implications. First, statutory diversity is not sufﬁcient for well-performing boards. Also, ownership is an important factor. The most advocated board diversity aimed at insuring the board’s independence is not valid across all ownership conﬁgurations. From a public policy perspective, results provide support for the principles-based approach in governance. Governance regimes should encourage the search for a balance between board diversity and the need for cohesion that best serves the ﬁrm’s purpose and obligations.
Board’s diversity and its effect on ﬁrm performance have been extensively studied and yet it seems that we know little about the issue. Conﬂicting ﬁndings, unclear or unclean methodologies, leave scholars and managers in a quandary. The ﬁrst important reason for such a situation is the dominant use of agency theory premises that statutory diversity (SD) is all that counts to control management and provide it with incentives to protect shareholder value (Fama and Claude Francoeur and Réal Labelle gratefully acknowledge ﬁnancial support from the Social Sciences and Humanities Research Council of Canada (Grant 4102011-2639), the Stephen A. Jarislowsky Chair in governance and the CGA Professorship in Strategic Financial Information. Taïeb Hafsi acknowledges support from the Montreal Interuniversity Institute of Governance (IGOPP), from the Rebrab, and from the Somers families.
Jensen, 1983). SD is mandated by law or best practices and is often reduced to board members’ independence from management. The second important issue is the belief that there is a linear relationship between diversity and performance. This is questioned by both logic and extant research (Manzoni, Strebel and Barsoux, 2010; Milliken and Martins, 1996). The third important issue is ownership. It is increasingly believed that different owners pursue different goals, even when they share the same kinds of assets. This may have signiﬁcant effects on ﬁrm governance and ultimately performance (Sur, 2009). In this study, we propose what we believe is a more convincing theory and ﬁner empirical ﬁndings by considering these issues. To do so, we recognize that SD has an effect, but we consider such effect to be contingent on individual characteristics of actual board members, or demographic diversity (DD), and on the nature of owners. SD, and in particular DD, are measures
© 2011 The Author(s) British Journal of Management © 2011 British Academy of Management. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
Please join StudyMode to read the full document