The top team: examining board composition and firm performance

Purpose – This paper seeks to argue that boards can be playing a more proactive role in contributing to organizational effectiveness and that their composition requires greater research attention. By integrating the organizational behaviour literature on teams with the governance literature, the paper empirically examines the relationship between key board composition variables and firm performance. Design/methodology/approach – At this stage in the development of the approach, the focus is on a sub‐set of the elements proposed in the group dynamics literature. The population for this study comprises all companies included in the Canadian TSE 300 Composite Index (renamed the S&P/TSX Composite Index). This study uses cross‐sectional regression analyses to examine the nature of the relationships between board composition and firm performance. Findings – The data analyses revealed that high levels of experience, appropriate team size, moderate levels of variation in age and team tenure were correlated with firm performance. Research limitations/implications – Boards of directors (BOD) are teams whose effectiveness can be assessed through group dynamic constructs in the organizational behaviour literature. Further research is needed to examine the intricate dynamics that might moderate or mediate the relationship between board characteristics and firm performance. Practical implications – The findings provide a much‐needed benchmark to consider whether the composition of boards is optimal, given the functions and mandate. In addition, the study highlights the opportunity costs of boards, restricting their roles to agency issues. Originality/value – This interdisciplinary paper tests some of the many variables that can be extrapolated from the group dynamics research. The paper calls on boards to examine what BOD functionality really entails, and argues for more proactive behaviours aimed at strategic firm issues.