The best board? The one that wants to work
Nine members, including two external members, in office for an average of five years each, with at least one female member and no relevant ownership interests. This could be the type of outcome expected up until a few years ago, when researching the optimal structure of boards of directors. The analysis of the relationship between board demographics and company financial performance did not produce definitive results, however. Instead, the ideas that behavioral and procedural variables are more significant than demographic variables in evaluating boards' effectiveness and that financial performance is not the most significant measurement are gaining strength among management scholars.
The answers to a questionnaire given to the managing directors of 300 of the top-grossing 2,000 Italian companies demonstrate that the most important characteristic for a well-functioning board is the degree of profuse member commitment. Boards that stress broad debate amongst members are more effective in advising management and networking outside the company, while too much variety in board members' professional backgrounds penalized many aspects of its functioning.
Alessandro Minichilli, Alessandro Zattoni and Fabio Zona, three scholars at the Università Bocconi Department of Management, published Making Boards Effective: An Empirical Examination of Board Task Performance, in the latest issue of the British Journal of Management.
In the paper, the authors chose to measure the effectiveness of boards of directors, considering the development of those tasks deemed characteristic of the organism: advising managers, networking and lobbying, participating in strategic decision processes (commonly called board service activities), controlling manager behavior, controlling results, controlling strategic decisions (commonly called control activities).
The model built and tested by the three authors uses the following as independent variables: profuse member commitment (in terms of time dedicated to preparing meetings and actively participating in them), the variety of professional backgrounds in members and the degree of critical debate during meetings.
Member commitment was the only variable that showed a positive impact on all tasks that are characteristic of boards and should therefore be considered more closely when trying to create decisional culture oriented towards process inside the board – an aspect influenced particularly by the board president.
The paper results show how complex the reality is. The variables chosen by the three Bocconi scholars turn out to be more significant than traditional demographic variables, but each of them has a specific influence on each board task and rigorous controls placed by the authors stress the importance of the company setting and sector.