Towards a better understanding of corporate governance

Research is a funny thing. On one hand, experience can be greatly helpful: knowing what one is looking for or expecting to see is a boon. On the other, experience can be a hinderance: knowledge often resulting in bias and  preconception, and the very real possibility of missing vital clues. This is one of the great dilemmas for board and governance research.

Some forty years have now passed since researchers started investigating boards in earnest. That an answer to the question of the role of the board and how they influence firm performance (i.e., what corporate governance is and how it is practiced) remains elusive is an indictment on the research community. Directors and boards need clear and well-founded guidance so they can become effective in role.

Medical research is conducted by medics; cultural research is conducted by anthropologists; and, engineering research is conducted by engineers, so why is board research typically conducted by academics with little if any business experience? How might a researcher who has never been inside a boardroom hope to recognise the normative practices of board meetings? Or that a subtle interaction between two directors might actually be material to a pending decision?

​That most board and governance researchers have never been in a boardroom or served as a director is alarming. Yes, gaining access to observe boards directly is difficult to achieve. But to restrict board and governance research to counting isolated attributes of boards from outside the boardroom is folly. To be useful, recommendations need to account for the socially-dynamic nature of boards and the behaviours of directors (both of which can only be reliably discerned through direct observation).

If the question of explaining how boards influence firm performance is to be answered, three things are needed: 

• Researchers need to get inside boardrooms, to observe boards in action. (What directors actually do can be quite different from what they say they do when interviewed.)
• Research needs to be conducted through the lens of experience.
• Recommendations need to be holistic, accounting for both the activities of boards (what they do) and behaviours of directors (individually and collectively). That the structure and composition of boards is, relatively speaking, far less important.