An Examination of Board Director’s Roles and the Impact of the External Environment and Board Characteristics. A thesis submitted for the degree of Doctor of Philosophy by Ioannis P. Gkliatis Brunel Business School Brunel University Supervised by: Dimitrios N. Koufopoulos September 2014 Abstract Purpose: The thesis aims to explore the roles that board directors undertake and understand whether there is an impact of the external organisational environment as well as several board characteristics on these roles. Design/ Methodology Approach: Building on existing literature a model is developed to test hypothesized relationships—i.e. directors’ roles with external environment and board characteristics. Measurements are designed—withdrawing them from the literature—to collect quantitative data from directors of UK organisations. The responses were collected from 115 directors working in UK organisations. Principal component analysis is conducted to reduce the data and propose a set of directors’ roles and correlation as well as regression analyses are utilised in order to test the hypothesised relationships. Findings: The results of the principal component analysis propose a set of six distinct roles for board directors, providing a new framework for future researchers. In addition, it is found that both the external environment and the board characteristics have some impact on what directors do, extending the limited empirical evidence found in the literature. However, the theoretical framework needs further examination and research. Limitations/ Future Recommendations: The current thesis is evidenced by various limitations. Firstly, additional constructs can be added as determinants of the directors’ roles. Secondly, the response rate in the survey is low, which is regarded as a limitation, although there are limited studies offering quantitative results from board members. i Table of Contents Acknowledgements ...................................................................................................................... 1 Chapter 1: Introduction ............................................................................................................ 2 1.1 Introduction ........................................................................................................................... 3 1.2 Motivation of the Study and Literature Gaps ............................................................. 4 1.3 Theoretical Framework and Research Aim and Objectives.................................. 5 1.4 Methodology Used in the Thesis ..................................................................................... 6 1.5 Significance of the Study .................................................................................................... 6 1.6 Structure of the Thesis ....................................................................................................... 7 1.7 Summary ................................................................................................................................. 8 Chapter 2: Literature Review .................................................................................................. 9 2.1 Introduction ........................................................................................................................ 10 2.2 What is Corporate Governance? .................................................................................. 11 2.3 The Importance of Boards in Corporate Governance .......................................... 12 2.4 Theoretical Perspectives ................................................................................................ 13 2.4.1 Agency Theory .......................................................................................................................... 13 2.4.2 Resource Dependence Theory ............................................................................................ 15 2.4.3 Upper Echelons Theory ......................................................................................................... 17 2.4.4 Stewardship Theory ............................................................................................................... 19 2.4.5 Institutional Theory ............................................................................................................... 20 2.4.6 Social Network Theory .......................................................................................................... 21 2.4.7 Summary ..................................................................................................................................... 22 2.5 Board Functions/Roles ................................................................................................... 22 2.5.1 Monitoring/ Control Function of Boards ........................................................................ 23 2.5.2 Provision of Resources/ Service Function of Boards ................................................. 25 2.5.3 Directors’ Responsibility to Strategic Direction: A Separate Role? ....................... 27 2.6 Board Characteristics ...................................................................................................... 28 2.6.1 Board Size ................................................................................................................................... 29 2.6.2 Board Leadership Structure ................................................................................................ 29 2.6.3 Board Capital ............................................................................................................................. 30 2.6.4 Board Independence .............................................................................................................. 32 2.7 External Environment ..................................................................................................... 34 2.7.1 Organisation as a System, and its Environment ........................................................... 34 2.7.2 Components and Levels of the Environment ................................................................. 35 2.7.3 Objective versus Perceived Environment and its Dimensions ............................... 38 2.7.4 Dimensions of the External Environment ...................................................................... 39 2.7.4.1 Environmental Dynamism........................................................................................................... 39 2.7.4.2 Environmental Complexity ......................................................................................................... 40 2.7.4.3 Environmental Munificence ........................................................................................................ 41 2.7.4.4 Environmental Uncertainty ........................................................................................................ 42 2.8 Summary .............................................................................................................................. 45 Chapter 3: Measurements and Hypotheses .................................................................... 46 3.1 Introduction ........................................................................................................................ 47 3.2 Measurements of the Study ........................................................................................... 47 3.2.1 Measurements of the Board Roles ..................................................................................... 47 3.2.1.1 Measurement of the Monitoring Role ..................................................................................... 47 3.2.1.2 Measurement of the Provision of Resources/ Service Role........................................... 50 3.2.1.3 Measurement of the Strategy Role ........................................................................................... 52 3.2.1.4 Summary on Board Role Measurements ............................................................................... 53 3.2.2 Measurements of the External Environment ................................................................. 53 3.2.2.1 Measurement of Environmental Dynamism ........................................................................ 53 3.2.2.2 Measurement of Environmental Complexity ....................................................................... 56 3.2.2.3 Measurement of Environmental Munificence ..................................................................... 58 3.3 Propositions and Hypotheses ....................................................................................... 59 3.3.1 Propositions and Hypotheses on Control Role ............................................................. 60 3.3.2 Propositions and Hypotheses on Resource Provision Role ..................................... 63 3.3.3 Propositions and Hypotheses on Strategy Role ............................................................ 67 Chapter 4: Research Design and Methodology .............................................................. 72 4.1 Introduction ........................................................................................................................ 73 4.2 Philosophical Underpinnings to Business Research ............................................ 73 4.2.1 Issues on Philosophical Approaches ................................................................................ 74 4.2.2 Theory and Theory Development .....................................................................................