The effect of board capital and CEO power on strategic change

Abstract

We develop the construct of board capital, composed of the breadth and depth of directors' human and social capital, and explore how board capital affects strategic change. Building upon resource dependence theory, we submit that board capital breadth leads to more strategic change, while board capital depth leads to less. We also recognize CEO power as a moderator of these relationships. Our hypotheses are tested using a random sample of firms on the S&P 500. We find support for the effect of board capital on strategic change, and partial support for the moderating effect of CEO power. Copyright © 2010 John Wiley & Sons, Ltd.

Does Board Experience Matter? Evidence from Foreign Direct Investment

“…The resource dependence theory has received increasing academic attention in recent years [5][6][7]. Highlighting a board's counsel function, resource dependency theory contends that the level of directors' experience and expertise plays the most critical role in determining how effective a board can be.…”

Improving corporate performance by enhancing team dynamics at the board level

“…Scholars have employed agency theory (Eisenhardt, 1989;Boyd, 1990;Donaldson and Davis, 1991;Bathala and Rao, 1995), stewardship theory Davis, 1991, Muth andDonaldson, 1998) and resource dependence theory (Casciaro and Piskorski, 2005;Haynes and Hillman, 2010) as the lens through which to observe, interpret and predict director behaviors, in their activities to optimize the financial return to shareholders. Despite these theories having been criticized as too narrow when considered as a sole theoretical framework (Eisenhardt, 1989), there is value in understanding that directors do provide important monitoring functions in an attempt to resolve, or at least mitigate, agency conflicts between agents and principals (Bathala and Rao, 1995).…”

“…In our model, we update these constructs to represent the vital input from directors using professional capital (PC) and social capital (SC), or what is referred to combined as 'board capital' (Hillman and , 2003). PC and SC, in their 'resource provision function' (Haynes and Hillman, 2010), represent the human and SC of the board and serve as a proxy for the director's ability to provide resources to the board (Hillman and Dalziel, 2003). PC is a measure of the knowledge, depth of expertise and degree of experience in management and on boards that the directors bring with them to their service role on the board (Haynes and Hillman, 2010).…”

“…PC and SC, in their 'resource provision function' (Haynes and Hillman, 2010), represent the human and SC of the board and serve as a proxy for the director's ability to provide resources to the board (Hillman and Dalziel, 2003). PC is a measure of the knowledge, depth of expertise and degree of experience in management and on boards that the directors bring with them to their service role on the board (Haynes and Hillman, 2010). SC is a measure of the breadth of the network of connections the director has among other board directors of both public and private organizations (Haynes and Hillman, 2010).…”

“…PC is a measure of the knowledge, depth of expertise and degree of experience in management and on boards that the directors bring with them to their service role on the board (Haynes and Hillman, 2010). SC is a measure of the breadth of the network of connections the director has among other board directors of both public and private organizations (Haynes and Hillman, 2010). On the basis of resource dependence theory, depth of board capital will have an impact on firm-level outcomes, or, in our study, profitability, because of the perceived value and resources the director brings to the board.…”