The cost of conformity to good governance: Board design and compensation

Abstract

Research question/issue Albeit the fact that the “one‐size‐fits‐all” corporate governance model has been mostly discarded, the debate on what constitutes a well‐governed firm has converged toward a set of practices that comprise what we refer to as the global good governance norm. Whereas extant research has focused mainly on the benefits of good governance, we build on neo‐institutional theory to explore how firm conformity or nonconformity to this global norm is associated with the cost of board governance, captured as board compensation. Research findings/insights Using a fuzzy set qualitative comparative analysis (fsQCA) of firms listed in the Stockholm Stock Exchange, we find that the configurations of board practices conforming to the global good governance norm are associated with higher board compensation than those that score low on conformity. Based on our findings, we deduce four archetypical board design strategies jointly shaped by two central forces: the pressure toward conformity to the good governance norm and the extent of governance discretion, denoting firm agentic behavior. Theoretical/academic implications First, our study highlights that conformity to the global good governance norm is accompanied with higher costs than nonconformity. Second, while most of the extant research discusses conformity and agentic behavior as two opposing forces, we uncover that they simultaneously co‐exist in board governance, stressing their interconnectedness. Practitioner/policy implications Conformity to the global good governance norm influences the strategic choices of board designs and the costs associated with such choices.

Women on boards and corporate environmental performance in Italian companies: The importance of nomination background

“…Thus, EU companies have taken bold actions with respect to improving especially their environmental ratings to meet the goals of the Green Deal. Moreover, firms in Europe and all over the world have restructured their boards to conform to a set of governance practices constituting globally accepted good governance (Ponomareva et al, 2022). Many countries, for example, comply with good corporate governance practice to increase the number of women directors, and some of them have implemented a gender quota law to push companies to reconfigure their boards (Hoobler et al, 2018; Seierstad et al, 2017; Terjesen & Sealy, 2016).…”

Toward a synthesis of the board‐strategy relationship: A literature review and future research agenda

“…Studies often rely on economic theories (34), use archival data (57), with a North American focus (28). In line with "global good governance norms"(Ponomareva et al, 2022), these studies suggest that boards can have a positive impact on firm-level outcomes when composed of independent, skilled, connected, motivated, and diverse directors. There are two caveats, though.…”

The case for robust academic research on corporate governance

“…Ponomareva et al's (2022) study was selected as the Editor's Pick in issue 4. This study looks at the cost of conformity to prevailing practices of good governance.…”

“…This study provides initial evidence for an ideological component in the composition of networks, whether intraorganizational or interorganizational. Ponomareva et al's (2022) study was selected as the Editor's Pick in issue 4. This study looks at the cost of conformity to prevailing practices of good governance.…”