Improve Board Effectiveness: the Need for Incentives
| Author | Wei Shen |
| Date | 01 March 2005 |
| DOI | http://doi.org/10.1111/j.1467-8551.2005.00449.x |
| Published date | 01 March 2005 |
Improve Board Effectiveness: the Need for
Incentives
Wei Shen
Warrington College of Business Administration, Department of Management, University of Florida,
Gainesville, FL 32611-7165, USA
Email: wei.shen@cba.ufl.edu
Roberts, McNulty and Stiles (2005) focus on the attitudes and behaviours of non-
executive directors in their recommendations for improving board effectiveness. This
paper addresses the importance of providing incentives for non-executives in order to
improve board effectiveness. It first points out that the current norms and practices in
corporate governance suggest that, without strong incentives, non-executive directors
are unlikely to become engaged in corporate governance, to challenge executive
decision, and to remain independent of executive influences. It then proposes that, for
non-executive directors to develop the attitudes and behaviors recommended by
Roberts, McNulty and Stiles, it is important to require them own a significant amount
of company stocks over a long period of time. It also addresses some concerns regarding
the use of stock ownership to improve the effectiveness of non-executive directors in
corporate governance.
As a result of the recent corporate frauds, the
question of how to improve the effectiveness of
corporate governance, especially the effectiveness
of the boards of directors, has drawn a lot of
attention. In their article on creating account-
ability in the boardroom, Roberts, McNulty and
Stiles (2005) provide an excellent review and
critique of the current literature on corporate
governance. More importantly, they develop
excellent recommendations about how to im-
prove the effectiveness of the boards of directors
on the basis of their qualitative research on the
work of non-executive directors and their rela-
tionships with executives. Specifically, they pro-
pose that actual board effectiveness depends on
the behavioural dynamics of the board, rather
than on the structure or the composition of the
board that has been emphasized in most of the
discussions of board effectiveness. According to
these authors, an effective board requires non-
executive directors to ‘both support executives in
their leadership of the business and to monitor
and control their conduct’ (S6). Apparently, this
is not an easy task for non-executive directors. To
perform this task successfully, the authors
recommend that the attitudes and behaviours of
non-executive directors should be characterized
as ‘engaged but non-executive’, ‘challenging but
supportive’ and ‘independent but involved’.
It is refreshing to see an article that focuses on
how to improve the actual effectiveness of boards
rather than prescriptions that only influence
distant perceptions of board effectiveness. I am
especially impressed and intrigued by two pro-
voking points made by Roberts, McNulty and
Stiles in their article. First, overemphasizing the
monitoring and control role of the board from an
agency perspective may actually have a negative
impact on the functions of the board because it
creates a gap and distrust between the executives
and the non-executive directors. I cannot agree
more with the authors on this issue. After all, the
primary responsibility of the board is to promote
the success of the company, which requires non-
executive directors to support and collaborate
with executives, unless they have serious concerns
about the capability of the executives. The
control role is only one of the board’s functions,
British Journal of Management, Vol. 16, S81–S89 (2005)
DOI: 10.1111/j.1467-8551.2005.00449.x
r2005 British Academy of Management
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