Intellectual capital of a board of directors and its elements: introduction to the concepts
| Date | 10 October 2016 |
| Pages | 632-653 |
| DOI | https://doi.org/10.1108/JIC-01-2016-0003 |
| Published date | 10 October 2016 |
| Author | Irina Berezinets,Tatiana Garanina,Yulia Ilina |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Intellectual capital of a board
of directors and its elements:
introduction to the concepts
Irina Berezinets, Tatiana Garanina and Yulia Ilina
Graduate School of Management, St Petersburg University, St Petersburg, Russia
Abstract
Purpose –The purpose of this paper is to define the contribution of intellectual capital (IC) of the
board of directors (BDs) in generating IC of a company, to develop a definition of the IC of the BDs, as
well as two of its major elements: human capital (knowledge, skills, and experience of board members,
etc.), and social capital (relationships and networking opportunities of board members), and to clarify
the relationship between these elements and financial performance indicators of companies based on a
literature review on the topic.
Design/methodology/approach –A literature review and analysis was applied as this study’s
research design.
Findings –The authors suggestthat IC is generated not only by companystaff, but also by governing
bodies, particularly the BDs, whose members are not always under contract with the company in the
traditional sense.Members of the board use their knowledge, experience,and networking opportunities
to build IC for effectivemonitoring, advising, and providing thecompany with resources. In this sense,
the BDs servesas a source of IC for a company, beingthe main internal corporategovernance mechanism
that leads to value creationin a company, taking into consideration the interests ofall stakeholders.
Practical implications –The research indicates that the personal characteristics of board members
may influence the performance of a company. Therefore, companies should be recommended to
carefully select candidates for nomination to the board.
Originality/value –This study contributes to further development of the concept of IC of the BDs by
bringing together the theory in the field and the empirical results of studies on the various elements of
board capital in a company’s value creation.
Keywords Social capital, Intellectual capital, Human capital, Boards of directors,
Intellectual capital of board of directors
Paper type Literature review
1. Introduction
In the twenty-first century, knowledge-based resources have become an important
factor in the development and success of companies. The ability to manage intellectual
capital (IC) is one of the key competencies of companies in the knowledge economy.
Studies show that since the 2000s, only 6-30 percent of company value is related to
tangible assets; the remainder is generated by the company’s IC (Fuller, 2002). Effective
management of IC and its integration into company strategy maximizes performance
indicators and the value of the company as a whole (Nelson, 1991). Successful and
competitive companies continuously introduce innovations based on new technologies,
knowledge, organizational culture and structure, and the experience and skills of their
staff. Therefore, the authors conclude that the value of companies is increasingly
generated by their IC (Edvinsson and Malone, 1997; Furman et al., 2002; Gu thrie, 2001;
Lev and Feng, 2001; Powell and Snellman, 2004; Stewart, 1997; Sveiby, 1997). People –
their knowledge and expertise, innovative capacities, and stakeholder relations –and
Journal of Intellectual Capital
Vol. 17 No. 4, 2016
pp. 632-653
©Emerald Group Publishing Limited
1469-1930
DOI 10.1108/JIC-01-2016-0003
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
The authors acknowledge Saint-Petersburg State University for a research Grant No. 16.38.297.2014.
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JIC
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organizational culture have become the most significant resources for the develo pment
of modern companies.
This study explores various approaches to the IC definition. It adopts a dynamic
point of view to define this concept. The main research question of this study is:
RQ. Who generates IC in a company?
The traditional approach to this question is: IC is created and increased by the
company’s employees (Edvinsson and Malone, 1997). The authors, however, sugg est
taking a broader view, considering the company’s structural divisions and governing
bodies. Therefore, the authors assume that IC is generated not only by the company’s
staff, but also by other divisions, governing bodies, and stakeholders, who may not be
under contract to the company in the traditional sense, for example: advisory councils,
suppliers, volunteers, strategic allies, and partners. One of the most important bodies of
which members are not necessarily employed by the company is the board of directors
(BDs). However, members of the board may use their IC, i.e. knowledge and skills,
experience, and networking opportunities, to effectively monitor management and
provide the company with valuable resources, thus contributing to an increase in the
company’s value (Hillman, 2005).
One of the most importantfunctions of the BDs is developmentand implementation of
company strategy. The board’s roles connected with the firm’s strategy are defined as
follows: leadership and active involvement in setting company objectives and goals
(Ingley and VanderWalt, 2001), and participation in the strategic planning process
(Johnsonet al., 2007; Hendry and Kiel, 2004;Kemp, 2010). As noted by Rebeiz (2016, p. 3),
the boardroom shapes corporate leadership, and a well-designed BDs leads to a well-
performingteam, that in turn impacts corporateperformance. Since the board isthe main
governing body, it should be effective in order to provide direction for the firm through
its meetings, activities, and communications (Nkundabanyanga et al., 2013).
The system of corporate governance should be developed in a company in order for
there to be all the necessary conditions to create further value for the shareholders, but
at the same time taking into consideration the interests of all the other stakeholders, for
example, suppliers, volunteers, strategic allies, and partners. Of course, the IC of a
company can be generated by the above-mentioned stakeholders, who help the
company to achieve competitive advantages in the market. However, this paper
focusses on the BDs because it has the function of strategy development and
implementation that helps to generate long-term competitive advantages for a
company that can lead to further value creation. The BDs, as an internal corporate
governance mechanism, has the important function of providing a signal to external
investors concerning corporate governance quality and shareholders’rights protection
that impacts company value and investment attractiveness. This is why the authors
have chosen the BDs, as the object of this research, as it can be considered as the driver
of IC generation that leads to a more effective work environment and the employment
of other elements of IC in a company.
It should also be mentioned that the IC of the BDs plays a specifically important role
in multinational companies due to its strategic role. In such companies, members of the
BDs, due to their knowledge and experience, help to gain competitive advantages not
only in one country but also in several countries.
As has been said above, according to the authors’point of view the BDs is also the
driver that makes other elements of IC work more effectively. In this study, the authors
discuss and develop a definition of the IC of the BDs within the concept of dynamic
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IC of a BDs
and its
elements
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