The firm's strategic dynamics and corporate governance life‐cycle

Abstract

PurposeThe paper seeks to present a novel conceptual framework that integrates the strategic dynamics of the firm with changes in its governance systems.Design/methodology/approachThe agency research agenda is extended to include other corporate governance roles, such as resource and strategy functions, alongside monitoring and control functions. Theoretical arguments are supported by empirical data related to the founder‐manager/IPO, IPO/maturity, maturity/decline and reinvention thresholds.FindingsThe paper shows that corporate governance parameters may be linked to strategic thresholds in the firm's life‐cycle. Successful transition over a threshold is accompanied by a rebalancing in the structure and roles of corporate governance compared with each previous stage in the cycle.Research limitations/implicationsIn the absence of longitudinal data relating to firms as they pass through all life‐cycle stages the study has been restricted to reporting illustrative data from different studies regarding each strategic threshold. Further research might usefully undertake detailed long‐term case studies using a combination of archival and interview data to trace the evolution of firms across the four thresholds.Originality/valueThis paper develops a novel conceptual framework that integrates the strategic dynamics of the firm with changes in its governance systems. It rejects the notion of a universal governance template and argues that corporate governance parameters may be linked to transitions from one stage to another in the firm's life‐cycle. Accordingly, it argues that changes in a firm's strategic positioning may be associated with rebalancing between the wealth‐protection and wealth‐creation functions of governance.

Corporate governance and national institutions: A review and emerging research agenda

“…The strategic salience of resources differs across organizations and creates different demands on governance. For example, corporate governance performs very different functions across the life cycle of an organization and helps to explain the different salience of certain practices between different types of firms (Filatotchev, Toms & Wright, 2006). The alternative 'open-system' approach suggests that corporate governance practices are interdependent with the diversity, fluctuations, and uncertainties of their environment, and rejects universalistic 'context-free'…”

The Moderating Role of Corporate Governance on the Relationship between a Firm’s Product Lifecycle and Risk-Taking

“…Less attention has been given to the effect of corporate governance and its relation to each elements of the product lifecycle (Filatotchev et al 2006;O'Connor & Byrne 2015). The corporate governance literature in the domain of governance to value has demonstrated a causal relation between corporate governance and the firm's value and risk.…”

“…Although corporate governance is about ensuring accountability of the management to minimize downside shareholder risk, it is also concerned with enabling managerial entrepreneurship so that the shareholders benefit from the upside potential of the firms (Keasey & Wright 1993;and Filatotchev et al 2006). Eling & Marek (2014) presented an empirical evidence on the link between corporate governance and risk-taking, considering insurers from two large European insurance markets (UK and Germany).…”

“…In particular, as the level of managerial ownership increases, the level of risk also increases; thus, it supports a wealth transfer hypothesis over a risk-aversion hypothesis. Filatotchev et al (2006) contend that the corporate governance issues go beyond economic and financial perspectives; It encompasses strategy and knowledge dimensions as well as the contextual issues (Filatotchev et al 2006: 257). They reveal that the corporate governance parameters are linked to the strategic thresholds in the firm's life-cycle and a successful transition over a threshold is accompanied by the study of the corporate governance structure at each stage of the product lifecycle.…”

“…Since important decisions related to the products, have to made by the firm, including-whether to maintain existing products or abandon some current products and introduce new ones-a strong corporate governance can significantly affect the relation between the product life-cycling process of the firm and its risks. Filatotchev, Toms and Wright (2006) suggest that governance issues should go beyond economic and financial perspectives to embrace product strategy and knowledge dimensions as well as contexture issues (Filatotchev et al 2006: 257). They reveal that the corporate governance parameters might be linked to the strategic thresholds in the firm's product lifecycle and that successful transition over a threshold is accompanied by rebalancing the structure and roles of corporate governance at each stage of the lifecycle.…”