Premium
Attributes and Structure of an Effective Board of Directors: A Theoretical Investigation
Author(s) -
Masli Adi,
Sherwood Matthew G.,
Srivastava Rajendra P.
Publication year - 2018
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/abac.12132
Subject(s) - accounting , on board , independence (probability theory) , commission , diligence , business , econometrics , computer science , psychology , economics , statistics , mathematics , engineering , finance , social psychology , aerospace engineering
Despite the board of directors’ importance, there is a lack of well‐developed theory regarding the interrelationship of the attributes of an effective board. Based on prior board literature, we develop and analyze, via Bayesian logic, a theoretical framework of key board attributes (Independence, Competency, Diligence, and Behavioural Attitudes), plus general board safeguards. We base our framework on the non‐linear ‘and’ relationship, among board attributes, instead of the linear ‘or’ relationship, as currently considered in academic research and assumed by board independence standard setters like the Securities Exchange Commission. Using inferential statistics we demonstrate that a board requires the presence of each attribute, plus safeguards to be effective, and no level of one attribute can substitute for the non‐existence of another.