Boardroom decision-making : determinants of effectiveness

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Massey University
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Corporate boards in New Zealand like their international counterparts, continue to fail even though a plethora of legislation and best practice have been put in place in an attempt to halt ineffective forms of governance. To consider regulation and legislation as the ultimate cure negates the ability of a board to effectively make decisions. By identifying characteristics of boardroom decision-making as being either independent process or behaviour variables this thesis provides fresh insight into what determines effective governance. Two alternative governance models emerge from this study. The intrinsically-focused model which encapsulates behaviour and process associated with control and accountability and turns attention to the adoption of corporate best practice. On the other hand, a board that takes a more extrinsically-focused view of its board role not only monitors management behaviour but also sets the entity's strategic direction. Although these models support the notion that responsibility of corporate rectitude rests with the board each embraces differing decision-making behaviour and process. By not addressing strategic issues an intrinsically-focused board debates less rigorously and intensively with intellective responses bringing either agreement without debate or conflict. Conversely boards that embrace the extrinsically-focussed model demonstrate more rigorous and intensive debate on a wider spectum of issues to the greater benefit of shareholders. By showing that decision-making effectiveness at board level is embedded in the concept of unfettered decision-making, as opposed to control over management this thesis advocates that agency-based theories of governance align closely with ineffective or dysfunctional decision-making. In postulating that conduct associated with effective decision-making reflects the role a board decides to play, this thesis advocates knowledge maximization, as opposed to profit maximization, lies at the heart of a successful corporate governance function. As information symmetry has the ability to transcend opportunism, conflict and agreement it is therefore viewed as the most likely theoretical premise on which an all-encompassing theory of corporate governance should be advanced.
Corporate governance