Board Advisory Tasks: The Importance to Differentiate between Functional and Firm‐Specific Advice

Published date01 December 2018
DOIhttp://doi.org/10.1111/emre.12139
Date01 December 2018
Board Advisory Tasks: The Importance to
Differentiate between Functional and Firm-
Specific Advice
MAX BANKEWITZ
Witten/Herdecke Uni versity
In small and medium-sized organizations,boards of directorsoften spend most of their time providing adviceto the
management. As the content of advice provided has seldom been the focus of previous studies, we differentiate
between functional and firm-specific advisory tasks. We examine antecedents of the two types to explain why this
differentiation is important. Applying group effectiveness arguments, we study the effects board membersdifferent
knowledge bases anddiversity have on the two advisory tasks,considering the mediating effects ofboard processes.
Our results suggest that it is important to distinguish between different types of board membersknowledge and
different board advisory tasks. Our findings havedirect implications for research and practice. First, there is a need
to go beyond the surfacelevel understanding of what boardsare doing. Second,our results emphasize the importance
of organizational knowledge, and hence question the call for independent board members for advice provision.
Keywords: board advisory tasks; board composition; board processes; group effectiveness theory
Introduction
During the last three decades, research on boards of
directors has made a great leap forward, contributing to
our knowledge on how boards can create value for
organizations by performing several tasks (Zahra and
Pearce, 1989; Johnson et al., 1996; Forbes and Milliken,
1999; Daily et al., 2003; Huse et al., 2011). Still,
researchersas wells as practitioners such as policymakers
have kept much attention on one set of board tasks only,
namely controlling managementon behalf of shareholders
(Boivie et al., 2016), and most research is conductedwith
a focus on large corporations having a diverse ownership
structure in an Anglo-American context (Huse, 2007).
However, most companies are small and medium-sized
enterprises(SMEs), and the economic welfare of societies
often depends largely on these companies (e.g., Lubatkin
et al., 2006). Especially for SMEs, boards might be a
valuable resource determining the companiessuccess or
failure by providing advice to the top management team
(TMT) (Minichilli and Hansen, 2007). In this regard,
boards are often referred to as important meansto achieve
value creation in these organizations. Nevertheless,
despite its value creating potential, the knowledge about
how boards provide advice in SMEs is still superficial.
The practitioner oriented research following Mace
(1971) such as Lorsch and MacIver (1989) has shown the
relevance of board advisory tasks, noting that board
members spend a considerable amount of their time on
these tasks. More recent contributions highlight the
importanceof board advisory tasks by showingthe impact
of these tasks on firm performance (Lohe and Calabrò,
2017; Zattoni et al., 2015). Boardsinvolvement in
advisory tasks might be especially important in SMEs as
TMTs in these organizations often lack knowledge, skills,
and experience (Castaldi and Wortman, 1984; Minichilli
and Hansen, 2007). However, research on advisory tasks
remains understudied (Knockaert et al., 2015), and our
knowledgeabout boards in SMEs is still limited(Fiegener,
2005). A particular gap in current research converges
around the content of advice. In this regard, Huse et al.
(2009) pointout the need for more fine-graineddefinitions
of boardtasks. In addition, there are furthercalls for a better
understanding of the content, antecedents, and
consequences of such sets of tasks (Huse et al., 2011). In
order to do so, an approach looking into actual board
behavior is suggested by several scholars (Daily et al.,
2003; Gabrielsson and Huse, 2004; van Ees et al., 2009).
Correspondence: Max Bankewitz, Witten/Herdecke University, Alfred-
Herrhausen-Strasse 50, 58455 Witten, Germany. E-mail: max.
bankewitz@uni-wh.de
European Management Review, Vol. 15, 521539, (2018)
DOI: 10.1111/emre.12139
©2017 European Academy of Management
We need to understand what actually happens inside and
outside the boardroom (Finkelsteinand Mooney, 2003) to
study advisory tasks in SMEs. We follow arguments by
Pettigrew (1992), and apply an approach combining a
contextual andprocess analysis of boards.
The purpose of this paper is to show the importance of
differentiating sets of board tasks and providing more
fine-grained definitions. We distinguish between two
different types of advisory tasks based on the content of
advice provided (Bankewitz, 2016). Whereas functional
advice refers to boardsinvolvement in advice on general
management, legal, and financial issues, firm-specific
advice covers boardsinvolvement in advice on
production and information-systems as well as marketing
topics. We chose todifferentiate between the two typesof
advisory tasks based on the main dimensions boards
should have knowledge in (Forbes and Milliken, 1999).
Applying a cognitive perspective and considering the
board as a decision-making group (Forbes and Milliken,
1999; Rindova, 1999), we use group effectiveness theory
arguments (see e.g., Cohen and Bailey, 1997; Kozlowski
and Ilgen, 2006; Mathieu et al., 2008) to explain how
board membersgeneral business knowledge (GBK),
organizational knowledge (OK), and diversity impacts
involvement in the two advisory tasks. This follows
previous knowledge characterizations based on the
breadth (i.e., GBK)and the depth (i.e., OK) of knowledge
(Judge et al., 2015). Diversity is connected to these
concepts as it refers to the distribution of knowledge and
skills on the board level (Minichilli and Hansen, 2007).
However, taking only compositional variables into
account does not capture the underlying dynamics of the
board working as a decision-making group (Forbes and
Milliken, 1999; Roberts et al., 2005). Based on the
framework byHuse (2005), we argue that board processes
mediate this relationship. Recognizing the role of board
processes as important factors impacting board (advisory)
tasks (Pugliese et al., 2015), we follow Forbes and
Milliken (1999) and examine board membersuse of
knowledge and skills. With such an approach, we
integrate static and dynamic dimensions of how board
membersknowledge and skills can be valuable assets
(Zhang, 2010).
By answering the question whether it is important to
differentiate between the different board advisory tasks
based on the content of advice provided, we contribute
to the literature on boards in SMEs. By applying a group
effectiveness framework, we add to the understanding of
how different types of knowledge are applied towards
advisory tasksand further open up the blackbox of board
behavior(Daily et al., 2003; Gabrielsson and Huse,
2004). In addition, we empirically test our hypotheseson
a sample of Norwegian SMEs, considering process-
oriented surveydata rather than archivaldata (Gabrielsson
and Winlund, 2000).
The paper is structured as follows: We begin with an
overview of the underlying literature on board tasks and
concepts used in our study, and introduce group
effectiveness theory as our theoretical framework. After
formulating the hypotheses, we present the data and
methods used, linking the theoretical framework to the
empirical setting. We then test ourhypotheses and present
a discussionof the results before we close the paperwith a
conclusion of the major findings as well as implications
for future research and practitioners.
Board tasks: Background and hypotheses
Many attempts havebeen made to identify and categorize
sets of board tasks according to a variety of theories
(Zahra and Pearce, 1989; Johnson et al., 1996; Hung,
1998). Among those are agency theory (Jensen and
Meckling, 1976; Fama and Jensen, 1983), resource-
dependency theory (Pfeffer, 1972; Pfeffer and Salancik,
1978), and the resource-based view of the firm (Barney,
1991; Wernerfelt, 1984). However, the number of tasks
often varies and theories are used interchangeably
(Machold and Farquhar, 2013).
Whereas there is a rather strong research stream on
boardscontrol tasks based on agency arguments (Daily
et al., 2003), research on service-related sets of board
tasks applies a more pluralistic theoretical lens and is
rather fragmented(Machold and Farquhar, 2013). Among
the tasks that are commonly considered within the set of
service tasks are networking, strategizing, and advice
(Johnson et al., 1996; Huse, 2007). These tasks are often
interrelated, not homogenous, and their relative
distribution is subject to a series of contingency factors
(see e.g., Hillman and Dalziel, 2003; Lynall et al., 2003;
Huse and Zattoni, 2008; Bonn and Pettigrew, 2009).
Boards may be involved in various tasks simultaneously
by meeting differentneeds the organization has according
to the pressure and threats it faces (Zahra and Pearce,
1989). More research applying contingency approaches
is needed to contribute to our understanding of boards
performing different service tasks in SMEs.
Substantialknowledge has been gatheredduring the last
decades, and board tasks have been explored in various
previous studies. Even though the number of studies
conducted in a SME context is increasing, our
understanding of boards in these organizations is still
limited (Huse, 2000; Fiegener, 2005). Findings from
research on boards in large corporations might not be per
se transferable. The way firms are governed as well as
organizational threats and opportunities in SMEs might
be substantially different (Uhlaner, Wright, and Huse,
2007bb). SMEs often lack internal structures, processes,
and strong managerial competencies (Castaldi and
Wortman, 1984). Ownership structure is characterized by
522 M. Bankewitz
©2017 European Academy of Management

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT