Many corporate boards adopt a one-size-fits-all approach to governance. Instead, they should consider that their primary role must shift depending on various conditions, both internal and external. Boards have four main functions — auditing, supervising, coaching and steering — each with a different perspective and behavior. The roles reflect two main differences in board culture. The first type of board concerns itself mainly with shareholder interests or shareholder plus other stakeholder interests. The focus is on externalities. The second type of board either monitors executives’ activities or gets actively involved in the conduct of the organization. Here the focus is on handling ineffective management. The basic role types are not mutually exclusive; instead they reflect different board cultures that result from different emphases on decision making and resource allocation. During any time period, a board must determine what its dominant role should be, given the current conditions.
1. M. Jensen, “Value Maximization, Stakeholder Theory and the Corporate Objective Function,” in M. Beer and N. Nohria, eds., “Breaking the Code of Change” (Boston: Harvard Business School Press, 2000).
2. For an integrated perspective that puts social responsibility in the foreground, see R. Monks and N. Minow, “Corporate Governance,” 2nd edition (Malden, Massachusetts: Blackwell Publishing, 1995).
3. A key article is that by M. Jensen and W. Meckling, “Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure,” Journal of Financial Economics 3 (October 1976): 305–360.
4. U. Steger, N. Kong, A. Ionescu-Somers and O. Salzmann, “Moving Business/Industry Towards Sustainable Consumption: The Role of NGOs,” European Management Journal 20 (April 2002): 109–127.
5. A. Lank and F.-F. Neubauer, “The Power Balance Between Board and Management in the Family Business: Its Governance for Sustainability,” chap. 3 (Hampshire, U.K.: McMillan Press, 1998).
6. A. Taylor, “What’s Ahead for GM’s New Team,” Fortune, Nov. 30, 1992, p. 59.
7. F. Elloumi and J.-P. Gueyie, “CEO Compensation, IOS and the Role of Corporate Governance,” Corporate Governance 1, no. 2 (2001): 23–33.
8.“Who Lost Swissair?” Institutional Investor 36, no. 2 (2002): 42–50.
9. H. Krapf and U. Steger, “The Grounding: Did Corporate Governance Fail at Swissair?” IMD case no. IMD-3-1057 (Lausanne, Switzerland: IMD, 2002).
10. C. Barton, L. Bradshaw, R. Brunschwiler and T. Bull-Larsen, “Industry Focus: Is There a Future for Europe’s Airlines?” McKinsey Quarterly, no. 4 (1994): 29.
11. S. Hamilton and I. Francis, “The Collapse of Swissair,” IMD case no. IMD-1-0198 (Lausanne, Switzerland: IMD, 2003).