Does the Team Leverage the Board’s Decisions?

Abstract

Research Question/Issue:This study analyses the form of the board-TMT interaction and the firm’s level of strategicchange. Relatedly, we explore the premise that there needs to be a good fit between the board of directors and the topmanagement team to effectively bring about strategic change.Research Findings/Insights:Using archival data from a sample of 119 firms in the period 1993–2000, we found that whena synergy exists between the board and the TMT, there will be a greater inclination for strategic change. The results indicatethat a board’s inclination to contribute to strategic change increases as the board size increases. Equally, it is possible toaccept that the relationship between board tenure and their inclination towards strategic change is not linear. Finally, thesimultaneous analysis of board composition and the ratio of directors on the TMT, demonstrates that the interaction of bothvariables has effects on the firm’s strategic change.Theoretical/Academic Implications:This study provides empirical support in favor of an active role of the board shapingthe firm’s strategic decisions. We have developed and tested a set of arguments regarding with the role of the board on thefirm’s change in strategy. We have investigated as well, the leveraging effect of one of the variables that define thecomposition of the management team on the relationship board-change in strategy.Practitioner/Policy Implications:In order to create an effective board, a broader governance structure must be examinedwith a detailed study of aspects of the composition of the board and the TMT (previous research has only consideredcharacteristics linked to the CEO). The dynamics of the relationships between both governance mechanisms are essentialand leverage the board capability.