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101

A typology of the theories of the roles

of governing boards
Humphry Hung

Introduction

he main focus of this paper is to analyze

the mainstream academic thoughts on
the roles of governing boards. Six major
roles are identified: linking, coordinating,
control, strategic, maintenance and support
roles. These roles are consistent with, and
at the same time reflecting one of the
main arguments of six different schools of
thoughts: resource dependency theory, stakeholder theory, agency theory, stewardship theory,
institutional theory and managerial hegemony.
A classification of the relationship between
these theories and the six identified roles is
made by using a typological approach. The
typological parameters used are extrinsic and
intrinsic influences, the impact of external
and internal environments, as well as functional and behavioural approaches. The
typology gives rise to the need of a new
theory on the roles and functions of governing boards.

Literature review
Although a considerable amount of efforts
have been spent on studying governing
boards, there is no single competent and
integrative theory or model to explain the
roles played by governing boards. From a
legal perspective, the American Law Institute
defines the functions of a governing board as
follows:
1. Select, regularly evaluate, fix the compensation of, and, where appropriate, replace
the principal senior executives.
2. Oversee the conduct of the corporation's
business to evaluate whether the business
is being properly managed.

3. Review and, where appropriate, approve

the corporation's financial objectives and
major corporate plans and actions.
4. Review and, where appropriate, approve
major changes in, and determinations of,
other major questions of choice in respect
of the appropriate auditing and accounting principles and practices to be used in
the preparation of the corporation's financial statements.
5. Perform such other functions as are prescribed by law, or assigned to the board by
the charter of the corporation.1
Scholars comment that statements such as
that of the American Law Institute, while
``better capturing reality than those in traditional language'', are nevertheless vague.2
They do not provide much guidance as to
what a governing board is actually supposed
to do.
The Australian Independent Working Party
into Corporate Governance recommends
that the board's key role is to ensure that
the corporate management is continuously
and effectively striving for above-average
performance, taking account of risk.3 This
is not to deny the board's additional role
with respect to shareholder protection. In
this connection, the Working Party proposes
that the functions of a governing board
should cover the following:
1. The appointment of the CEO (chief executive officer) and human resources issues.
2. Formulation of strategies and policies.
3. Budgeting and planning.
4. Reporting to shareholders on regulatory
compliance.
5. Ensuring the board's own effectiveness.4
This is somewhat different from that of
the American Law Institute's definition by

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the attempt of operationalizing the functions

into more observable action. In both cases,
governing boards are considered to have
the ultimate responsibility for corporate performance.
From an agency theory perspective, Fama
and Jensen (1983) propose that the role of
the governing boards is to act as a ratifier of
the decision to be implemented and a
controller in monitoring the implementation
and performance of the decisions.5 According to Aram and Cowen (1986), the primary
role of a corporate board of directors is to
be the supporter of management in increasing
the economic value of the firm.6 Mills (1981)
argues convincingly that the outcomes of
corporate performance responsibility should
include the corporation's impact on the
society at large: the customers, the shareholders, and the creditors and lenders.7 While
the targets of corporate performance seem
slightly clearer than before, management
scholars have not yet reached a general conclusion on the real roles and functions of a
governing board. Mintzberg (1983) attempts
to fill the gap by providing a comprehensive
overview on the issue and thus identifying
7 roles of a governing board:8
Role 1: Selecting the chief executive officer
Role 2: Exercising direct control during
periods of crisis
Role 3: Reviewing managerial decisions
and performance
Role 4: Co-opting external influences
Role 5: Establishing contacts (and raising
funds) for the organization
Role 6: Enhancing the organization's reputation
Role 7: Giving advice to the organization
These roles, according to Mintzberg, will
depend on the situations and environments
the boards are facing. He argues that boards
are places where ``internal and external
coalitions'' meet face to face. A board's
structure and functions are determined by
power politics in the form of a complex
network of power relations.9 This is consistent
with his view on emergent and realized
strategies. Zahra and Pearce (1989), having
reviewed the relevant published research of
the past 25 years, identify three sets of
interrelated roles played by governing
boards: strategy, control and service. The first
role is to formulate and disseminate corporate
goals and policies as well as the allocation of
the resources necessary to implement the
board's strategies. The second role is corporate control which includes monitoring
and rewarding executive action and performance. The last but not the least role is related

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to its institutional function which includes

representing the organization's interest in
the society, linking the firm with its external environment, and securing critical
resources.10 While acknowledging the multifunctional aspects of governing boards,
scholars have yet to identify the inter-relationship among the diversity of these functions.
An attempt is made in this paper to synthesize the various theories to explain the
roles of governing boards.

A typology in terms of contingency

and institutional perspectives
Since board involvement is such a complex
phenomenon, it is commonly suspected that
no single theoretical perspective could adequately capture the entire process. This paper
will attempt to provide a typology to classify
six major theories on the roles of governing
boards. A typological approach is adopted for
the reason of its flexibility in allowing the
movement beyond traditional linear or interaction theories. Doty and Glick (1994) point
out that traditional theories are limited
because they specify a consistent relationship
between independent and dependent variables.11 In contrast, a typological approach to
theories explicitly define multiple patterns of
the first-order constructs that determine the
dependent variables so that they provide a
mechanism for incorporating the holistic
principle of inquiry into organizational research. For this reason, the typological approach is chosen as a methodology to discuss
the current theories on roles of governing
boards.

The basic parameter: institutional

and strategic choice perspectives
The basic parameter of the typology to be
used in this paper originates from Judge and
Zeithaml (1992) who use two prominent
theoretical perspectives in studying board
functions: the institutional and strategic choice
perspectives.12 The institutional perspective
addresses the issue of how and why organizational structures and processes have been
evolved as a result of socialization and institutionalization. The strategic choice perspective focuses on the actions organizational
members take to adapt to the environment
as an explanation for organizational outcomes.13 The institutional perspective, also
known as intrinsic influence perspective, is a
relatively deterministic theoretical framework
that places great emphasis on environmental

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SCHOLARLY RESEARCH AND THEORY PAPERS

norms and the social influence beyond the

control of the organization as explanations of
its action and outcomes. On the contrary, the
strategic choice perspective, or extrinsic influence perspective, emphasizes nondeterministic
explanations of organizational processes and
outcomes. The extrinsic or intrinsic influence
perspectives will be the primary parameter in
grouping the various theories of roles of
governing bodies.
This way of classification is confirmed by
Gupta, Dirsmith and Fogarty (1994) who
point out that two of the most prominent
theories, contingency theory and institutional
theory, take almost opposite approaches to
understanding the factors that lead to the
development of different formal structures.14
According to contingency theory, the work of
a governing board is shaped by the task
environment and the technical nature of the
work they perform, while institutional theory
proposes that an organization's need to
conform to institutionalized expectation of
traditional practices and customs also influences its choice of control and coordination
mechanism.

Contingency perspective (extrinsic

influence)
The proponents of extrinsic influence perspective suggest that organizations have
abound purposeful actions and the members
of these organizations have much discretion
in working in their own way. Contingency
theory plays an important role in this
approach to the understanding of the works
of a governing board. It suggests that there
are two sets of factors that are of significance:
internal and external environments, which
will assist in classifying the theories grouped
under contingency perspective. Scott (1992)
refers internal environment to the nature of
the tasks in terms of task variability, task
difficulty and task interdependency, as well
as organizational structure in terms of its
complexity, degree of centralization and
communication network.15 External environment is described by Altman, Valenzi and
Hodgetts (1985) to include effects of the
degree of uncertainty, complexity and societal
pressure.16 According to Zald (1969), the roles
and functions of governing boards are dependent upon the impact of external groups
and internal structure of the organization.17
He gives some examples. In a public company, the governing board may be used as a
tool to control its external environment and in
a private company, the board needs to closely
monitor the operation of the company.18

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103

External environment from

a contingency perspective:
interlocking directorates
and stakeholders
External environment is the basic element
that determines the roles and functions of a
governing board. Mintzberg (1983) considers that the ``real problem is the need for
external control of the organization, control
independent of the management. It is not
control by the board per se that matters, but
control by the external coalition, the board
being the merely the formal manifestation of
it''.19 The impact of external environment
on the functions of a governing board is
described by scholars in two main aspects.
First, there is the phenomenon of networking
or interlocking directorates, which posits that
directors serving on the governing boards
of two or more corporations may act as the
link between these organizations. Second, the
rise of the ideology of pluralism has stimulated the need of an organization to consider
reconsider the relationship with its stakeholders. Two roles are thus identified: a
linking role as prescribed by the former and
a coordinating role for the latter.

Contingency and
organisation
theories take
opposite approaches

The rise of
ideological
pluralism

Internal environment from

a contingency perspective:
conformance role and
performance role
According to Tricker (1994), a scholar who
contends that the internal environment of
governing boards should be the main focus of
corporate governance, there are two major
roles of governing boards: conformance role
and performance role.20 The former is past
and present orientated while the latter role is
future orientated. He says:
Classical corporate governance, derived
from the mid-nineteenth concept of the
corporation is rooted in the philosophy
that men can be trusted; that directors can
be relied on to act in the best interests of
the company. . . . Agency theory, on the
other hand takes a less optimistic view of
man, arguing essentially that man is selfinterested rather than altruistic. . . .21
The dilemma exists between the two roles
of the governing boards, conformance role
and performance role, is sometimes described
as the Cadbury/Hilmer debate. In the well
known report of the Committee on the
Financial Aspects of Corporate Governance
(The Cadbury Report), in which Cadbury was

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CORPORATE GOVERNANCE

the chairman, it brings out the ways companies are supposed to be governed and on the
importance of strong, independent non-executive participation at board level. These
focuses are in line with agency theory that
close monitoring is needed by a governing
board to ensure that the management is
conforming to the interest of the company.
A governing board should therefore play a
control role. Hilmer takes a completely different perspective. Using stewardship theory as
the basis of argument, he proposes that the
key role of a governing board is to ensure that
corporate management is continuously and
effectively striving for good and effective
performance.22 Based on this strategic role of
governing board, the need for close monitoring of the management therefore does not
exist.

Institutional perspective (intrinsic

influence)

Top management
designs the
governance
structure

The essence of an institutional perspective

resides on the premises of focusing on the
cognitive and normative frameworks that
provide meaning and stability to social
organizations.23 Tolbert and Zucker (1983)
emphasize that the frameworks external to
organizations provide models of organizational arrangement to which organizational
participants are subjected. A governing board
can only act to maintain the relationship
between the organization and the environment. This maintenance role of governance is
evolved in the light of the ``powerful forces
emerged'' which are in line with the ``nature
of social order''.24
The new institutional economists such as
Williamson (1975) view top and senior managers as designers of the governance structure
with the ultimate aim to reduce transaction
costs.25 The governing boards themselves
simply act as supporting or legitimating
bodies in respect of the decisions of the
management. Their ceremonial function,
which serves to preserve the institutionalized
managerial hegemony, can be labelled as a
support role.

A typology of the roles of governing

boards
With the veils of the six roles of governing
boards having been lifted, they can now be
classified accordingly. The first parameter
used is the distinction between extrinsic
influence and intrinsic influence perspectives.
Under the category of extrinsic influence

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perspective, there is the question of the

contingency factor in terms of whether it is
originated from external environment (interlocking directorates or pluralistic organizations)
or internal environment (conformance function
or performance function). For the intrinsic
influence, the institutionalization may be
from external pressure (Institutional theory)
or internal pressure (managerialism or managerial hegemony). Figure 1 shows a typology
of the theories relating to the roles of
governing boards. Each theory will also be
discussed briefly.

Linking role and resource

dependency theory
Under the influence of the external businessbased contingent factor, the linking role of
a governing board is most convincingly
explained by resource dependency theory which
assumes that corporations depend upon one
another for access to valuable resources and
therefore seek to establish links in an attempt
to regulate their interdependence. An interlocking directorship is one form of links in
that complex chain of connections among
organizations. An interlock is the social
relation that is created between two corporations when one person is a member of the
governing boards of both organizations.26
Sitting on the boards of companies provides
access to the details of their finance and
operations, as well as specific corporate
information and this may ensure that the
required resources will be allocated in favour
of the interlocking corporations. Since governing boards help the organization deal with
its environment, enhance its legitimacy and
assist in achieving its goals of efficiency and
performance, they are seen as a critical link,
or an important linking instrument of the
organization, to the external environment.27
According to Ornstein (1984), governing
boards are viewed as vehicles that corporations use to control other organizations; to
co-opt threats in their environment from
competitors, suppliers, customers, and regulatory agencies; and generally, to co-ordinate
their business activities with other corporations.28 Interlocking directorates are thus
seen as media or channels for transmitting
and communicating general information
about the industrial sectors in which they
are operating.29 Interlock ties may also allow
the organizations to influence the board-level
policies of each other, providing the basis for
interorganizational coordination.
Pfeffer and Salancik (1978) argue that interlocking directorates facilitate corporations to

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105

Figure 1. A typology of the theories relating to roles of governing boards

cope with the need for obtaining valuable
resources and at the same time control other
organizations through manipulation of the
available resources.30 This is why resource
dependency theory is used to explain interlocking directorates. Useem (1978) observes
that through offering directorship to other
organizations which may cause threats or
uncertainties, corporations are able to ``coopt'' these threats and uncertainties to their
advantages.31
Besides the perspective of inter-organizational resource dependency, interlocking
directorates may sometimes be studied from
another perspective: the intraclass or class
solidarity approach. According to this approach, individuals within the capitalist class
have a unified interest. In pursuit of their

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interests, capitalists build up relationships

with each other and interlocking directorates
are among the major means.32 By so doing,
the capitalist class forms a powerful pressure
through the interlocking and according to
Mizruchi (1983), they may influence the state
policies in their favour.33 The coalition
through interlocking directorship is therefore
one of the major means to preserve class
interest. This is confirmed by Mace (1971)
who observes that there is some form of
``Roundtable'' being set up by a group of top
executives and directors from the largest
American corporations. The primary role of
the group is to discuss and propose suggestions to facilitate the ``effective and efficient
operations for corporations''.34 Interlocking
directorates therefore provide opportunities

Directors show
class solidarity

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CORPORATE GOVERNANCE

for the capitalist class to effectively liaise and

coordinate their influence with an aim to
preserving class interest.

Coordinating role and stakeholder

theory

Agency theory
describes directors'
self-interest

Stakeholder theory
can help explain
how boards think

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Stakeholder theory of governing boards adopts

a pluralistic approach to organizations.
According to Freeman (1984), a stakeholder
is ``any group or individual who can affect, or
is affected by, the achievement of a corporation's purpose''.35 Stakeholders include employees, customers, suppliers, stockholders,
banks, environmentalists, government and
other groups who can help or hurt the
corporation. The stakeholder theory of
governing boards is based on the notion that
there are many groups in society besides
owners and employees to whom the corporation is responsible. The objectives of a
corporation should only be achieved by
balancing the often conflicting interests of
these different groups. By incorporating the
participation of stakeholders in the governing boards, corporations are likely to respond
to the interests of society as a whole. The
stakeholder approach to the role of the
governing board expects the board to negotiate and compromise with stakeholders in the
interest of the corporation. It recognizes that
this involves setting overall direction and it
supports a coordinating role of the governing
board.
Wang and Dewhirst (1992) consider that
stakeholder theory can best explain how
members of governing boards think about
the interests of corporate constituencies and
thus how organizations are actually managed.36 The view is shared by Brenner and
Cochran (1991) who consider that the theory
can offer explanation to describe how organizations operate and to help predict organizational behaviour.37 By such a way the theory
is used to account for the functions of the
corporation by identifying moral and philosophical guidelines for the management of
corporations.
As a descriptive theory, stakeholder theory
has been used to describe the nature of the
firm (Brenner and Cochran, 1991),38 the way
managers think about managing (Brenner and
Molander, 1977),39 how board members think
about the interests of corporate constituencies
(Wang and Dewhirst, 1992) 40 and how corporations are actually managed (Halal,
1990).41 From an instrumental perspective,
Kotter and Heskett (1992) observe that the
theory is used to identify the connection
between stakeholder management and the

April 1998

achievement of corporate social responsibility.42 Normative concerns are raised by

Marcus (1993) who identifies moral or philosophical guidelines for the operations and
management of corporations.43 Sternberg
(1997) however comments that the theory is
``fundamentally misguided, incapable of providing better corporate governance, business
performance or business conduct'' although
she admits that it may be valuable as a
``convenient reminder'' and the key to ``social
responsibility''.44

Control role and agency theory

The conformance function, or the control role
of a governing board resides its rationale on
agency theory. Eisenhardt (1989) describes the
domain of agency theory as the relationship
that mirrors the basic agency structure of two
major parties, a principal and an agent, who
are engaged in cooperative behaviour, but
have divergent interests and attitude toward
risk.45 Accordingly, she considers that agency
theory is concerned with resolving problems
in the contract governing the relationship
between the principal and the agent. Jensen
(1983) proposes that agency theory is about
identifying and describing the governance
mechanism that limits the agent's self-interest
behaviour in situations which the principal
and agent have conflict goals. In other words,
it attempts to reduce agent opportunism.46
These mechanisms may be ownership structure (Jensen and Meckling, 1976),47 efficient
capital and labour markets (Fama, 1980),48
and the board of directors (Fama and Jensen,
1983)49 as an information system to control the
agent's behaviour.
The focus on the diversity of interest
between owners and management may however lead to the over-emphasis of the control
role of governing boards. According to Tricker (1994), agency theory, by assuming that
governance can be captured as a principal
and agent relationship, ignores group interactions, corporate and ethnic cultures and the
entire ``panoply of inter-personal relationships and power''.50 There are indeed other
important functions which should be attended on.

Strategic role and stewardship

theory
The stewardship theory, which emphasizes the
performance function or the strategic role of a
governing board, may trace its origin to the
human relations school of management the-

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SCHOLARLY RESEARCH AND THEORY PAPERS

ories. According to Donaldson (1990), unlike

agency theory which takes managers as
opportunistic shirkers, stewardship theory
assumes that they essentially want to do a
good job.51 It follows that there is no motivation problem or non-alignment of interest
between management and ownership and the
governing board will then be mainly responsible for the setting of strategies. Andrews
(1981) proposes that boards' involvement
should be restricted to reviewing strategies
that have been formulated by management.52
In fact, as Henke (1986) points out, in many
cases, governing boards may influence numerous strategy-related decisions, very often
without realizing their involvement.53 The
role of the governing board in this theory will
be involved in the dominant coalition in
guiding the management to achieve corporate
mission and objectives. Lynch (1979) suggests
that it is important and beneficial to have an
active and participative board. The existence
of this relation will make the management
analyze and articulate their plans, proposals
and suggestions in greater depth because of
the high quality of discussion generated by
the active and participative governing boards
on any submission for decisions.54
Stewardship theory has received some criticism. According to Tricker (1994), stewardship theory, by assuming rational and legal
behaviours, ``ignores the dynamics of boards,
inter-personal perceptions of roles and the
effect of board leadership''.55 It fails to
provide a casual explanation or to add much
to our knowledge of organizational life. it
does not reflect the interplay of power,
conflict and ideology.

Maintenance role and institutional

theory
The impact of institutionalization from
pressure outside a governing board is best
explained by institutional theory. Such
pressure restricts and limits the action of
the governing board to do things other than
maintaining the status quo of the organization. The key argument of institutional
theory, according to Ingram and Simons
(1995), is that organizations are constrained
by social rules and follow taken-for-granted
conventions that shape their form and practice.56 The maintenance role of a governing
board in response to institutional pressure
focuses on indoctrinating the organization by
understanding and analyzing the external
environment. Meyer and Rowan (1977)
observe that organizations use relatively
formalized control practices for symbolic

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107

purposes while actually exercising control

over their members by more social and
idiosyncratic measures. 57 Selznick (1957)
argues that by instilling value, institutionalization promotes organizational stability and
persistence of the organizational structure
over time.58 According to his analysis, the
``natural history'' of the evolution of organizations is important in the value-instilling
process. Applying to the context of corporate
governance, governing boards are partly
technical instruments, designed as means to
definite goals and partly adaptive vehicles
shaped in reaction to the influences and
constraints from the external environment.
The main influence however is quite abstract
and cannot be measured effectively. Berger
and Luckmann (1967) propose that society is
a human product and is an objective reality
through the processes of externalization,
objectivation and internalization.59 Corporate
governance is an act performed by a governing board as ``highly objectified and exterior''
process in conformity with the norms which
are rooted in the socialization of members of
the board. 60 Regarding the institutional
impact on governing boards, Scott and Meyer
(1983) consider that it includes all social rules
and requirements to which individual organizations must conform if they are to receive
support and legitimacy.61
Some scholars criticize institutional theory
for the lack of explicit attention to strategic
behaviour that organizations employ in direct
response to the institutional processes that
affect them.62 They argue that the theory
provides an ``over-socialized'' view of explanation of organization behaviour. In this
connection Drazin and Van de Ven (1985)
recognize that many internal coordination
and control practices may become institutionalized over time and may not be responsive
to the nature of organizational tasks and
technology.63

Support role and managerial

hegemony
Institutional force exerted on a governing
board from within the organization can be
explained in terms of managerial hegemony.
Modern organizations are now run by a
class of professional managers. Managerial
hegemony refers to the situation when the
governing board of an organization serves
simply as a ``rubber stamp'' and all its
strategic decisions are dominated and preempted by the professional managers. Proponents of managerial hegemony argue that
organizations will inevitably resist increased

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Boards used to
support decisions of
the management

board involvement in strategic decisions.

Whisler (1984) reports that one of the universal ``rules of the game'' is that boards do
not get too involved in setting strategies.64
Lorsch (1989) observes that although directors
want to get more involved but are constrained
from doing so.65 Mace (1971) published a
study showing that boards never get involved
in strategic decisions unless faced with a
crisis.66 This is confirmed by Clendenin (1972)
who observes that most boards make effective
performance evaluation only during periods
of crisis and at all other times, the boards
make only superficial review. 67 Boulton
(1978) also reports that the role of governing
boards in company performance evaluation
can only barely meet the minimal legal
requirement.68 The minimal role of governing
boards is pointed out by Drucker (1974) who
considers that ``the board of directors is an
impotent ceremonial and legal fiction.69
According to Mace (1971), it is a common
practice that governing boards are being used
as a managerial tool to support the decisions
of professional managers.70 The support role
of governing boards is a result of both
objective and subjective factors. The subjective factors suggest that directors of governing boards decline to involve in making
decisions independent of management due
to three major reasons. First, most directors
are appointed by the management and thus
subject to managerial discretion if they want
continuation of their appointment. Second,
directors are coopted into the organization
and third, they have accrued benefits from
directorship which act as an incentive to their
compliance. As for objective factors which
leads to managerial hegemony, governing
boards are constrained from making independent decisions because they have to rely
on information supplied by the management
and in many cases, the directors have a
relative lack of required knowledge to make
effective decisions.

Conclusion and implications of the

typology
The discussion of the roles of governing
boards resembles the well known story of
the blind men and the elephant. Each theory
seems to focus on only one small part and no
one is able to perceive the whole picture of
corporate governance. Take the agency theory
as an illustration. While most management
researchers agree that the control role is
important for a board, there are other equally
if not more important roles and functions as
prescribed by other theories awaiting for the

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board's action. Furthermore, the six theories

are not primarily intended to explain the
issue of corporate governance. Resource
dependency theory is used to explain the
inter-relationship, in the form of resources
provision, among organizations and in some
cases individuals. Stakeholder theory and
institutional theory are sociological paradigms which are used essentially to describe
the interaction between organizations and
their environments. Agency theory is the
economists' effort to analyze the problem of
diversity of interests when there is a separation of ownership and management in an
organization. Managerial hegemony, like
agency theory, focuses on the modern trend
of the dominance of management-based
organizations. Stewardship theory is a metaphor of human relations school of organization studies, which portrays a harmonious
picture in respect of the management of
organizations. Corporate governance scholars
adopt as well as modify these theories to suit
their own purposes. In doing so, they are
likely to be forced into a situation when they
have to ignore some important roles of
governing boards which are not compatible
with the induction or deduction of any one
of the theories they have chosen as their
theoretical base.
The typology in this paper points out the
limitations of adopting a particular theory to
explain the functions of a governing board.
Acknowledging the fact that a board can have
multiple roles, the typology shows that each
theory can only explain the significance of a
particular role. For example, it is proposed
that if an organization has purposeful action
and its members have much discretion in
working in their own way (contingency
perspective) while at the same time its
internal environment requires strict conformance of its staff, the governing board
will likely be expected to play a control role
to ensure that the organization will achieve
its objectives. However, the board may have
other important functions, for instance, acting
as a link between the organization and
external resources providers, which cannot
be extensively explained by agency theory.
Given such a case and with the limitations
kept in mind, the agency theory can then be
meaningfully adopted to explain the principal
function of a governing board in terms of its
control role.
Regarding the application aspect, the typology provides some opportunities for the
improvement of existing approaches to researches in corporate governance. One of the
most significant research implication may be
the need to reconsider the measurement of

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board effectiveness. Mace's study (1971),

which is still heavily cited by scholars as
evidence of board ineffectiveness, argues
strongly that under normal circumstances,
boards merely serve as ceremonial rubberstamps. Only in crisis situations, governing
boards will become involved in the decisionmaking process within the organization.71
O'Neal and Thomas (1995) point out that it
is the lack of appropriate board structure and
process that contributes to the common
perception that boards are ineffective.72 It is
suspected that board effectiveness has been
assessed against some restrictive benchmarks which are confined to certain theories
or paradigms. Researchers use various indicators such as greenmail,73 golden parachutes,74 poison pills,75 or bankruptcy76 to
measure board effectiveness. Agency theory
is implicitly assumed to be valid in the assessment process of these studies. According to
the theory, the effectiveness of governing
boards is measured by the extent of control
they have on the management of their
organizations. The typology in this paper
proposes an alternative but complimentary
view that not every board can be expected to
play solely a control role at all times. For a
highly institutionalized and managementbased organization which requires its board
to play merely a support role, it may be
unrealistic to expect the board directors to
exert stringent control over the management.
The aforementioned researches on board
effectiveness will be more complete and
convincing if they had considered the expected roles of the boards they studied. The
typology therefore calls for the consideration
of expected roles of governing boards in
designing valid researches to assess board
effectiveness.
The theoretical implication of the typological approach in this paper is clear: The
study of corporate governance needs a coherent and consistent framework or theory
to path a way for its further development.
This paper attempts to provide a basic
structure in analyzing the parameters and
factors that give rise to the need of a
particular role, which exemplifies a certain
theory, of a governing board. At the same
time it may serve as a compass to guide the
direction for possible future theory development by identifying the relevant existing
theories that may serve to explain the functioning of governing boards. A valid new
theory must be able to integrate all the
functional aspects of the six theories classified
by the typology and provide valid explanations for the six major roles of governing
boards identified in this paper. In the absence

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109

of such an all-encompassing integrative

theory for the time being, future studies
may go along the direction as guided by the
typology in this paper. More in-depth studies
may be carried out to identify the significant
factors that affect the roles played by governing boards. These include various contingent
factors which give rise to the organizational
focus on internal or external environment as
well as institutional factors caused by internal
or external pressure. Other relevant topics
may include the inter-relationship among
the various expected roles to be played
by governing boards, causal relationship
between extrinsic and intrinsic factors and
the roles of governing boards, and last but
not the least, the need for the match of the
expected roles and real roles of governing
boards.

Notes and references

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study of corporate
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coherent theory

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Humphry Hung is a Ph.D. candidate in

strategic management at the City University of Hong Kong. His current research
interests include strategic planning and
corporate governance.

In the three years 18451847, at the height of the railway mania in the UK, 425 new
railway companies were incorporated in Britain, with a total proposed capital of over
213 million. This was equal to two thirds of all exports for 1846. The share capital of the
Bank of England at the time was 16.6 million.
Adrian Vaughan, Railwaymen, Politics and Money, Murray 1997

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April 1998

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