Skip to main content

Research Repository

Advanced Search

Board task-related faultlines and firm performance: A decade of evidence

Kaczmarek, Szymon; Kimino, Satomi; Pye, Annie

Authors

Szymon Kaczmarek

Profile image of Satomi Kimino

Dr Satomi Kimino S.Kimino@hull.ac.uk
Senior Lecturer in International Business and UG Education Lead for Marketing, Management and Business Subject Group

Annie Pye



Contributors

Abstract

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.

Citation

Kaczmarek, S., Kimino, S., & Pye, A. (2012). Board task-related faultlines and firm performance: A decade of evidence. Corporate governance, 20(4), 337-351. https://doi.org/10.1111/j.1467-8683.2011.00895.x

Journal Article Type Article
Online Publication Date Nov 16, 2011
Publication Date 2012-07
Deposit Date Jun 20, 2019
Journal Corporate Governance: An International Review
Print ISSN 0964-8410
Electronic ISSN 1467-8683
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 20
Issue 4
Pages 337-351
DOI https://doi.org/10.1111/j.1467-8683.2011.00895.x
Keywords Management of Technology and Innovation; Strategy and Management; General Business, Management and Accounting
Public URL https://hull-repository.worktribe.com/output/1440322
Publisher URL https://onlinelibrary.wiley.com/doi/full/10.1111/j.1467-8683.2011.00895.x