The emperor's new clothes: A model of the decision-making context in the boardroom

Governance theory predicts that board composition, board size, diversity, and CEO duality will have a direct effect on organizational effectiveness. Nevertheless, previous empirical research has found equivocal results when testing these relationships. In addition, governance theorists have suggested that board process is an important determinant of organizational effectiveness, but rarely have process data been examined in the empirical research on boards of directors. Board decision making process has not been developed adequately nor tested, so that little is known about the specific dimensions of board decision making process and its affect on performance. This study develops a model of board influence on organizational effectiveness which details two types of intervening variables: activity and the exchange context. The primary activity of the board is strategic decision making and evaluation. The exchange context is developed by integrating a review of the decision making and groups literatures. The exchange context is comprised of interaction, information sharing, discussion style, and participation. A test of the model demonstrated direct positive relationships between the exchange context and organizational effectiveness. In addition, some tests demonstrated that the exchange context moderated the relationship between board input variables and organizational effectiveness. Thus, in addition to developing dimensions of board decision making process, the empirical results in this project provide some explanation for previous equivocal results in testing the relationships between board input variables and organizational effectiveness.