Corporate Governance : Developing a Positive Work Environment

November 27, 2017
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Question: Relationship Management

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Relationship Management

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Positive Interactions between CEO and Board Members for Better Corporate Performance

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Introduction

Developing a positive work environment and working relationship between the board and leadership team comprises of company’s top executives, managing directors and senior managers is a considered as a great achievement for corporate organisations. The relationship between CEO and Board requires a high degree of trust, strong sense of balance and clear and meaningful communication which leads to develop a healthy work culture from top to bottom level of management (An & Zhang, 2013). Consistent interactions and productive meetings are helpful in developing the good relationship between CEO and Board members of corporate organisations as it results in aligning appropriate strategies and policies for attaining organisational goals and objectives efficiently.  

A strong partnership and positive interaction between CEO and Board members is crucial for the growth and development of the corporate organisations as their interactions and combined working fosters and enhances a mission driven working environment throughout the organisation by inspiring and motivating the employees and organisation staff to deliver high quality work in order to attain set organisational goals and objectives (Rao & Tilt, 2016). Through effective communications in the form of meetings and conferences, both CEO and board can take courageous decisions in the best interest of the organisation and can frame effective policies, rules, regulations and innovative strategies for enhancing the productivity and sustaining long term success and growth of employees and corporate organisations (Chen, 2014). In addition to this, clear communication and interaction between Board and CEO results in developing and establishing defined roles and responsibilities on the part of board members and CEO and thus develops a favourable and profitable relationship. Such relationships help an organisation to successfully resolve multiple issues and execute the strategies effectively to attain common organisational purposes.

The following discussion is presented in the form of literature review as literature review helps in preparing and establishing a theoretical framework for a particular topic and summarises the present knowledge by assessing the strengths and weaknesses of the secondary information collected for a particular topic previously.  In concurrence to the topic of the essay, the literature review would include the purpose and type of interactions between CEO and board members and the significance of such interactions between CEO and board members for better corporate performance. Further, different studies conducted on this research topic included in this essay in order to increase the relevance of the topic.

Literature Review

In the views of Garg, (2014), in an effective corporate organisation structure, the CEO proactively works so as to effectively communicate and to develop better relationships with the members of the board like directors, chairman through regular meetings and informal interactions apart from formal board meetings. Today, in the era of transparency and due to the emergence of new federal laws responsible for active board involvement, the positive communication and interaction between CEO and board is not considered as the soft function but it is treated as the major driver for the successful performance of corporate organisations (Cooper, et al., 2014). The type of interactions and communication that happen between CEO and board members are transparent, meaningful, precise, intellectual and trustworthy which in turn results in improving cohesiveness, coordination and cooperation between CEO and Board thereby raises the overall effectiveness of the organisation.

According to Isidro andSobral, (2015), as the growth and development of any corporate organisation is the combined responsibility of the CEO and the members of the board, therefore it is necessary for board and CEO to communicate, interact and discuss the key issues and problems, develop and recommend business plans, implementall approved plans and innovative strategies, oversee the financial management, oversee administration and operations, discuss about the performance and growth of employees and interact about legal compliance and the goodwill of the organisation in the market. These all responsibilities of CEO/Board could be handled efficiently through constructive feedbacks and positive interactions and communications among them either in a formal or informal manner.

Positive Interaction between CEO and Board Members

Through this literature review, two different studies related to positive interaction between CEO and Board Members are discussed which reflects that how positive interaction and good relationships between CEO and board members impacts the strategic decision making and the other managerial tasks in an optimistic manner.

It was identified by Garg andEisenhardt, (2017), in their article tilted as “Unpacking the CEO – Board Relationships: How Strategy Making Happens in Entrepreneurial Firms” that continuous interaction and effective communication between the CEO and members of the boards are helpful for making innovative strategies and policies for the entrepreneurial firms. Through this article, the author has highlighted the importance of positive and clear communication between the CEO and Board members. The article further states that both CEO and members of the Board are entirely dependent on each other for the purpose of implementing the strategies, policies and procedures for the entrepreneurial firm therefore positive and meaningful interactions are the basic need for framing different entrepreneurial strategies.Through this article, it has been examined the way CEO’s of the entrepreneurial firm or corporate organisations engage, involve and communicate with members of the board for taking strategic decision and to carry out the whole strategy making process efficiently. The use of inductive multiple case study approach is being presented in this article for the purpose of tracking the frequency of inside and outside boardroom interactions and communication happen between Board members and CEO over a particular period of time. Additionally, the level of interaction and the observations made based on such important interactions are analysed and how far such interactions are fruitful for the strategy implementation and for the better performance of the firm.

The author through this article stated that if the number of frequency of formal meetings, informal interactions and conferences between Board members and CEO is more, then it reflects an open minded, free and positive interaction while on the other hand, if the frequency of such meetings less, the it reflects rigid, less communicative and less interactive work culture detrimental for the growth and productivity of the firms. The more positive and quality interaction between CEO and Board results in bringing harmony and flexibility at different level of organisational structure namely top level management, middle level management and lower level management. But at the same time, the article is lacking the fact that it is not the frequency of the meeting and interactions responsible for the good Board-CEO relationship, but how such interactions are carried out that is important. In other words, such interactions should be precise, meaningful, clear and transparent without leaving any ambiguity in defining the roles and responsibilities on their respective parts, otherwise number of frequent meetings are irrelevant and immaterial.

The primary theoretical contributions are made from resource dependence perspective in this article which further highlighted that resource versus power trade-offs acts as an essential tension in Board - CEO interactions and relationships. In addition to this, other key corporate governance perspectives are also considered for assessing Board-CEO interactions. In all, the article concluded that effective strategies are the outcomes of positive relationships and consistent interaction between CEO and Board Members.

It was researched by Duru, (2016), in his article titled as “The dynamic relationship between CEO Duality and firm performance: The moderating role of board independence” that in most of the U.S. firms a generalised methods of moments (GMM) system is implemented for estimating the energetic model of relationship between CEO and Board members impacting the performance of the firm. It has been identified through this article that if the relationship and the interaction level of the CEO and Board are ineffective then it adversely impacts the firm performance. The author through this article states that the results derived through GMM system clearly indicates that the CEO duality or an instance of opposition or contrast between two concepts in context to organisational decisions negatively impacts the performance of firm. However, such negative impact is positively moderated by including the views of board members as a level of consensus in ideas and strategy formulation is being developing which is helpful for firm’s productivity. Apart from this, a number of tests conducted in this article have similar findings that CEO duality reduces the firm’s performance but the same can be enhanced through the involvement, engagement and positive interactions between the members of board and CEO.

The article also examines the relationships and nature of interactions between the members of board and CEO with the help of two metathemes namely, task oriented focus or relationship oriented focus.  Task oriented focus reflects how the positive interactions, communications, mutual understanding and commitments results in bringing the members of the board and CEO closed to each other thereby different tasks like approved strategies, recommended plans, important organisational decisions, administrative and operational work are carried out in an efficient manner. This is due to similar approach, similar perspectives and attitudes of board members and CEO. Relationship oriented focus reflects how the initial professional relationships gets converted into extended professional relationships through optimistic attitude, similar views and positive interactions (Joseph, 2014). In all, the article concluded that CEO duality results in declining the performance of firm but such performance can be enhanced through mutual decisions, involvement and interactions of board members with CEO.

According to Nyatichi (2016), positive interaction between the CEO and the board members of the company is very necessary as it facilitates the decision-making process. In addition to this, an effective and cordial relationship between CEO and the board of directors signifies that the executive and the leadership section of the company is working hand in hand and there is no conflict between the two that further positively affects the corporate culture (Nyataichi, 2016). The article examines the impact of board diversity on the financial performance of the business. In this article, the author concluded that when there is a positive relationship between the business leaders and executives, the productivity of the firm improves, employee satisfaction increases and hence the overall performance of the organisation also improves. Along with Nyatichi (2016), it has also been stated by Shivadasani & Yermack (1999) that when the CEO of the business has a role to play in the selection committee of the board members, the performance of the company improves as there is a plosive relationship between the CEO and the board of directors from the beginning which not only fastens the decision-making process but it also affects overall performance of the business (Shivadasani & Yermack., 1999).

In the paper published by Shivadasani & Yermack (1999), they found that when there exists a cordial relationship between the CEO and the board members, it has several benefits which include effective decision-making process, positive development of the corporate culture of the business, revision, and improvement of existing strategies that were either outdated or ineffective and better financial performance of the business. Comparing the views of Nyatichi (2016) and Shivadasani & Yermack (1999), it can be interpreted that effective communication between the members of the board and the CEO is one of the most crucial factors for the progress of any business organisation because it has a direct relationship with the corporate performance of the company.

According to the study of Zhang (2013), there is a significant impact power and trust relationship between the CEO and the board members of a business organisation. In this study, Zhang developed two theoretical models that were in accordance with two different hypothesis. One hypothesis was impact on the business performance when the board was over the CEO and another hypothesis was impact on the business when the board had trust in the CEO (Zhang, 2011). Zhang (2013) concluded that when the board puts trust in the CEO, the performance of the business organisation improved significantly. On the other hand, when the board was over the CEO, the performance of the business organisation would decline (Zhang, 2013). Power is a relative concept that affects the authority of individuals. In the scenario, where the board is over the CEO, the power lies in the hand of the board which affects the decision-making process of the business and day to day operations of the business that are managed by the CEO adversely. On the other hand, when the trust is put in the CEO by the board members, the decision-making process becomes smooth as the CEO is now able to work independently as per the long-term interest of the company. In this scenario, the CEO acts as a bridge between the interest of the company/investors and the business operations, this has a positive impact on the overall financial performance of the business.

In the views of Zhang (2013), a task of examining risks which prevail in the process of board formation and control is needed to be thoroughly perceived for the purpose of reducing the chances of conflict which are shaped due to such risks in an organisation. In opposition to the opinion of Westphal (2002), the literature of Zhang (2013) has stated that it is impossible to undergo the functioning of strategic decision making without ensuring a healthy interaction with the people holding managerial positions in the organisation. However, in context of stakeholder interests, views of Zhang (2013) and Westphal (2003) seem to be alike as the literature of Zhang (2013) has reiterated the concern of stakeholders for being independent and relational to the managers of the company for achieving targets and this concern is presented before the directors of the company with reference to the board members. The literature has also investigated that very often circumstantial role in underestimated which results in the flawed decision-making process affecting the organisational performance in long-term (Zhang, 2013). The study is centred on assessment of the role of relational risk being demonstrated as the “probability and consequences characterised by an unsatisfactory level of coordination between CEO and board members’’ (Zhang, 2013).

According to Zhang (2013), predictability is one of the major constructs which shapes the idea behind handing over greater power to board members over the CEO following which, a convenient level of management of service tasks as well as board control is ensured. In this context, the author has explained the construct of board control which implies a substantial level of experience, talent and expertise to not only escalate the performance level but also facilitate building a cordial work bond between the CEO and board members (Zhang, 2013). However, the study has pointed towards the insufficiency of the term “board capital” to address the main concerns of the relationship of board members with the management team and board independence. In support of the concept of board capital, Hillman and Dalziel (2003), have stated that provision of resource which is another major responsibility to be undertaken by board members is functionalised by board capital. On the other hand, the monitoring operation is driven by board incentives whereby, they are professing the role of assessment on the behalf of the company stakeholders to check if the work is being performed with efficiency (Hillman and Dalziel, 2003).  

The literature of Zhang (2013) has examined several benefits which are resulted from the application of relational risks concept beyond explaining the bond that exists between board members and the CEO, among which board’s expansion of capacity to undertake multi-tasking is proximal. It also facilitates the working relationship between the CEO and board members by allowing for an awareness of primary responsibilities of the board members which is advisory and not focused on control tasks (Zhang, 2013). The controlling function of board members is typically guided by their skills to enable reaching a trade-off with the concerns specified by the CEO of the organisation. In this regard, it can be analysed that CEO interaction with board members is necessary for better organisational performance.

Corporate Performance and Interactions between CEO and Board Members

In the perspective ofJenter and Kanaan, (2015), corporate performance management is the subset of business intelligence or business analytics helpful in managing and monitoring the performance of the organisation on the basis of different key performance indicators (KPI) such as operational costs, overhead, return on investment and revenue. Good corporate performance requires effective communication and understanding between board of directors and CEO of the organisation. Such effective communication and positive interactions acts as a constructive mechanism for enhancing strengths and identifying weaknesses, improving CEO – Board effectiveness and thus leads to overall improvement in the work processes and performance of the corporate organisations (Hou, et al., 2017).

Luckerath, (2013), stated that according to Good Management theory of corporate performance, different stakeholders like creditors, investors, communities, shareholders, government and employees perceives a good reputation about the company or corporate organisations and thus wants to become a part of it due to its clearly defined strategies, policies and systematic organisational structure and working. The theory further states that the goodwill, appropriate strategies and proper functioning of the company is entirely dependent on the effective communication and positive interactions happening among the internal management of the company inclusive of CEO, different board members, senior managers, employees and subordinates helpful for meeting organisational objectives and set targets leading to firm’s superior financial performance. Such positive interactions and good relationships is initiated from top level management like Board – CEO interactions, Board – CEO relationships and meetings and thereafter followed by the lower levels of management.

Hartnell, (2016), stated in his article titled as “Similarities or differences between CEO – Board leadership and organisational culture having more positive effect on firm performance” that the type of relationship and interaction level between the members of the board and CEO have a direct effect on the performance and productivity of the firm which either impacts the health of the organisation positively or negatively.  The author through this article explained that the relationship between the CEO and the Board Members is considered as the most crucial relationship and the state of this relationship has the greatest impact and influence on the success and growth of the organisation as they act as a base and foundational drivers for firm’s productivity. Two perspectives namely similarity and dissimilarity are included in this article for the purpose of highlighting the consequences of good or bad relationships or interactions between CEO and board members affecting the organisational working culture.  

In this article, the predictions for the similarity perspective have been drawn upon social identity theory of leadership and attribution theory through which it has been analysed that similarity and resemblance in the views, attitude and approaches of board members and CEO is the outcome of positive and continuous interactions that positively impacted the shareholder value and organisational culture. While on the other hand, predictions for the dissimilarity have been developed on the basis of the insights taken from contingency theories and the notion of substitutability through which it has been assessed that disagreement, disputes, egoistic interactions, contingent and changing behaviours and rigid relationships between Board members and CEO affecting the shareholder value and performance of firm negatively. However, the article is lacking the factors responsible for having similarity or dissimilarity in the approaches and perceptions of CEO and board members. In all, the article summarises that the level of relationships, level of interactions and level of mutual understanding between board members and CEO is imperative for superior firm performance.

It was researched by Chen, (2014), in his article tilted as “Board capital, CEO power and R&D investments in electronics firms” that the board capital, board – CEO relationships and interactions and moderating effect of CEO power acts as a combined force for successful R&D investments in electronics firms. The author with the help of this article, conducted a research study on a group of electronic firms located in Taiwan and analysed that the power and authorities of CEO and board capital comprises of directors having industry specific experience, director’s educational level and interlocking tie ups of directors has a positive impact on the R&D investments of electronic firms of Taiwan. The empirical evidences revealed based on the study conducted that with consistent valuable and meaningful interactions between CEO and board members and combined effect of CEO power and board of directors with economic and human capital resulted in bringing appropriate strategic advices and valuable resources helpful for doing R&D investments for increasing the innovative capabilities of electronic firms.

The article also highlighted the importance of CEO – Board relations and CEO – Board interactions in addition to the deep understanding about the board capital, CEO power and R&D investments as appropriate management of board capital for R&D investments is possible only through the strategic decisions and important plans implemented by the continuous interactions and good relationships between CEO and board members.

Interaction between CEO and Board members and higher stock prices

In the opinion of Lilienfeld and Ruenzi, (2014), the relationship and interaction of CEO and Board members are based on consideration, negotiation and a deeper understanding about the roles, perspectives and responsibilities on the part of both. It is very important to recognise that both members of the board and CEO have distinguishable and separable roles, but their working and interactions are for common objective i.e. to achieve organisational goals and improve firm’s productivity by taking strategic decisions helpful for raising the goodwill and stock price of the company to a significant extent.  A number of factors which would results in higher stock prices of the firm’s products and services through positive interactions between Board members and CEO are joint decision making, anticipated merger or takeover, dividend announcement, securing a new large contract and reduction in debt ratio of the company (Rao & Tilt, 2016).

As identified by An and Zhang, (2013), Collective decision making and positive interaction of board members and CEO in relation to the strategy formulation, policies and procedures results in best performance of the company within its specific industry and thus results in higher stock prices of its products in market. Additionally, such open interactions, constructive feedbacks, flexible communications among board members, CEO and employees of the company results in profit generation and rise in price of stocks which gives opportunity to the company to declare dividends on their stocks (Van, et al., 2015). Effective interaction, positive communication, consistent and similar approach of board members and CEO results in debt restructuring thereby reduces debt ratio of the company and thus results in the increasing the price and performance of its stocks in the market.

According to Judge andTalaulicar, (2017), Merger and acquisition requires a sense of understanding and consensus in the views and opinions of the members of top level management like chairman, board of directors, CEO and CFO which is possible only through important interactions and extended communications. Such optimistic interactions are beneficial for favourable merger and acquisitions and thus results in increment in the stock prices of company’s shares. Securing a new large contract is not a small task which could be executed by the CEO alone, but it requires an involvement of top executives, collective information and opinions of board members and employees. A new large contract is an achievement on the part of company which would raise the reputation of company in the market and would raise the stock prices of the company to a significant extent. In this way, positive interaction and productive communication is important as it lead to better performance of firms and consequently results in higher stock prices (Pan, et al., 2015).

The article written by Ruenzi and Lilienfeld, (2014),titled as “CEO Board Ownership, Stock market Performance and Managerial Discretion” emphasized on a fact that the relationship of CEO and Board and managerial discretions directly impacts the performance of the different stocks of a particular company. The author with the help of this article, conducted a survey in the form of questionnaire by taking 10 companies, out of which 5 are those having low stock performance and stock prices and the remaining 5 are those having higher stocks prices and best company performance. A set of 15 questions were included in the survey based on CEO board relationships, interactions, mutual understanding and collective managerial discretions impacting the performance of firm and prices of stocks hold by those firms. After the completion of survey, the findings and interpretations made based on the information received from 10 companies, it has been assessed that the reason behind the ultimate performance and higher prices of the different sticks of selected 5 firms was the collective decision makings, concrete discussions on innovative strategies and positive and regular interactions between CEO and Board resulted in contributing the growth and development of corporate firms. The reason behind the underperformance and low value and performance of the stocks was disagreements, different opinions, weak organisational structure, unhealthy competition, dissimilar approach and lack of interactions between board members and CEO that resulted in poor strategic decisions and poor managerial discretions.

Furthermore, the article also highlighted the other consequences of CEO/ Board relationships apart from increase/ decrease in the performance of stocks. Extended relationships and productive interactions between CEO and Board members provides strong external governance, large managerial discretion and strong product market competition thereby enhances the firm and its stock performance and vice versa. In all, article concluded that the performance of the stocks of the company is directly related to the combined performance and relationships of board members and CEO.

It was researched by Wang andWiesbach, (2015), in their article subjected as “Learning about CEO Board Members Ability and Stock Return Volatility” that the volatility and performance of the stocks of the company is directly related to the ability of board members and CEO as their joint performance helps in value creation of the firm by raising firm’s performance, profits, goodwill and revenues in the market.  Through this article, the author stated that it is important to have interaction, discussion and communication between board members and CEO but such interactions should be meaningful, transparent and precise helpful for increasing the productivity and worth of the firm.In this article, with the help of stylized Bayesian learning model, it has been identified that the volatility of the stock performance and returns gets increased or decreased on the basis of company’s performance and the ability of CEO and board members to collectively find solution of company’s issues. Existence of good relationship between CEO and board members enhances the goodwill and performance of the company as profit after tax (PAT), profit earnings ratio (P/E Ratio) and earnings per share (EPS) of the company gets increased which in turns leads to higher price of stocks. While on the other hand, worst relationships and poor interactions results in lower price of the stocks or crash of stocks in the market. In all, the article summarised that the stability or decline in the volatility of the stock return is dependent on the relationships, interactions and ability of board members and CEO.

Along with this, it has also been explained by Nyatichi (2016) that when there is an effective relationship between the board members the financial performance of the business improves. The study conducted by Nyatichi (2016) focused on understanding the influence of board members on the financial performance of the business organisations listed in the Nairobi Stock Exchange, in the findings Nyatichi (2016) interpreted that a positive relationship between the board members leads to effective and quick decision-making process that ultimately affects the overall performance and operations of the business which further leads to the improvement in the financial performance of the company (Nyatichi, 2016). In addition to this, it has also been explained by Nyatichi (2016) that separation of roles of the board members will prove to be a good decision to enhance the business performance, however, later, Nyatichi (2016) concluded that separation of roles should be there but mutual acceptance is required for long-term strategic decisions which will affect the overall business performance. In this regard, it can be analysed here that Nyatichi (2016) suggests that there should be a positive relationship between CEO, CFO, Chairman and other board members in order to improve the corporate performance of the company.

In the views of Shivdasani & Yermack (1999), CEO's involvement is necessary during the selection process of new board members. They suggested that when a new board member is selected, it means that he or she will have a say in the decision-making process of the company. In addition to this, the new board member will also have an effective role in the development of corporate governance strategies that would affect the overall performance of the business as the corporate culture will get affected. In this regard, Shivadasani & Yermack (1999) in their study concluded that when the CEO is involved in the selecting committee of board members, the stock prices increases and hence the financial performance of the firm improves. On the other hand, Shivadasani & Yermack (1999) also concluded that when the CEO of the company is excluded from the selection committee of the board members, the financial performance of the company declines as the stock prices get adversely affected (Shivadasani & Yermack, 1999). It can be analysed from these findings that when the CEO is involved in the selection process of board members, he or she has developed a positive relationship with each other that affects the overall performance including the financial performance of the company On the contrary, when the CEO is excluded or does not has an effective relationship with the board members, the financial performance declines.

Zhang (2013) stated that board uses its power to control the CEO of a business organisation. The opportunistic behaviour of the board is controlled by the board members that sometimes results in the loss of first mover advantage. In this regard, Zhang (2013) suggests that powerful bond between the board members and the CEO of the business directly affects the corporate performance and hence, the financial performance of the business. Zhang (2013) also talks in favour of controlling the CEO and not letting him or her work independently. However, Zhang (2013) states that this depends on the level of expertise possessed by the board. When the members of the board have excellent capabilities of managing firm's operations, the board members should limit the CEO's decision making power and make a strategic decision. It should be noted here that in this scenario, the performance of the business might get adversely affected because of poor bonding or relation between the CEO and the board members. Zhang (2013), on the other hand concluded that expertise in the board is necessary and the CEO and board should strive for developing a powerful and cordial bond in order to manage the operations of the business in the best possible way that can affect the corporate performance in a positive way and hence the overall financial performance of the business will also improve.

In the views of Desender (2009), there is a crucial role that is to be played by the board members and the CEO on the financial performance of the business. Board size and expertise on the board are the two main factors that affect the impact of the board on the business performance. A large board with highly experienced board members will have a positive impact on the business performance; while on the other hand, a small board with inexperienced board members will result in the poor financial performance of the business (Desender, 2009). It has also been explained by him that board members set the priorities of the business organisation and the leadership that is CEO, CFO etc have to work according to those set priorities. In this regard, it can be analysed here that board acts as a controlling mechanism for the leadership. As discussed by Zhang (2013), when the board members put trust in the CEO and power relation is cordially maintained, the performance of the firm improves. In this regard, Desender (2009) concludes that it is necessary that an effective ownership structure is formed by the business organisation so that the overall performance of the company is improved. If there exists a conflict with the ownership, executives or leadership, the business will not be able to function smoothly and hence the overall financial performance of the firm declines (Desender, 2009).                       

It has been explained by Adams, Hermalin & Weisbach (2010) that board play vital role in setting objectives for the business. In the paper published by Adams, Hermalin & Weisbach (2010), they emphasised on finding the role of the corporate governance structure of a business organisation on the financial performance of the business. The findings of the paper revealed that an effective corporate governance structure affects the overall corporate performance of the business. It should be noted here that the term “effective” here refers to such corporate governance structures that facilitate communication between the board, the CEO and the CFO of the business. In addition to this, Adams, Hermalin & Weisbach (2010) also concluded that transparency between the CEO and the board members it very important because in order for the firm to perform better in financial terms (Adams, Hermalin & Weisbach, 2010). It can be analysed here that financial performance and operational performance of a business organisation heavily relies on the effectiveness of corporate governance structure of a business.  They also emphasised that at the time of any urgency or market problem, the corporate governance; board members play a vital role in decision making and poor communication between the board and the CEO or between the board and the CFO might adversely affect the corporate and hence financial performance of the business organisation.

   According to Adams, Almeida & Ferreira (2005), there is an everlasting influence laid by seniors holding an executive position in the organisation who not only undertake a  better approach towards achievement of organisational goals but also exemplify a great deal of potential for their fellow employees. In order to prove this proposition, the study has tested the hypothesis for enhancement of organisational performance whereby the greater extent of decision making power is concentrated in the hands of people professing the role of executives. The authors have discussed the evident consequence resulting from this action is of storing major power with the CEO without taking a note on consideration involving other qualified and talented employees into the decision making process. The study has also highlighted that managerial decisions are not of as vital importance as those involving intervention from top executives of the organisation (Adams, Almeida  & Ferreira, 2005). The study of Adams, Almeida & Ferreira (2005), is centred around exploring the variability which results from the influential capacity of CEOs in an organisation through the means of their decision making power. In this regard, the hypothesis in the study is so developed to test that there are higher chances of variability in a firm’s metrics of performance with an increase in the power of CEO for taking all the major decisions in respect with the organisational outcomes (Adams, Almeida & Ferreira, 2005).

The authors have concluded a high extent of positive correlation between centralisation of decision making power with the CEO instead of distributing it among several top executives heading the different departments of their expertise in the organisation. Therefore, the formal position of the CEO is righteously justified for taking major decisions over other executives in the firm. However, the study has also found that CEO’s participation in the selection of employees for executive roles is not responsible for leading to any variability in the overall firm performance (Adams, Almeida & Ferreira, 2005).

In relation to defining the role played by an interactive communication level between board members and the chief executive officer in the organisation for enhancing firm performance, Desender (2009), has illustrated the concept of ownership structure which works in collaboration with the board of directors to collectively impact the organisational performance. In this relation, corporate governance and how it related specifically in context with varying organisational environments is stressed upon. The study has specified monitoring of appropriate deliverables and resource adequacy as the major functions ensured by the board of directors. The role played by the board of director at an internal organisational level is greatly shaped by management discretion as well (Desender, 2009). The literature of Desender (2009) has given examples of the majority of firms in the UK and the US which follow the shareholder structure for ownership which is dispersed while European firms have a rather rigid ownership structure which is less regulated and controlled. In cordiality with corporate governance, the literature has focused on the essential need for aligning governance mechanism of the board of directors with the managers and the shareholders (Desender, 2009).

The literature comprises of a thorough discussion regarding the composition of the organisational board of directors since, any indiscrepancy in inclusion of employees unfit for undertaking the executive role can raise question on not only CEO’s accountability for allowing any inappropriate decision making but also prove costly in terms of firm’s performance and profitability (Desender, 2009). The literature of Desender (2009) has comprehensively explained the significance and reason being maintaining the level of power to the board of directors and seeking assistance from those at the executive bench rather than holding executives of the organisation completely accountable for taking decision making roles in the organisational interest (Desender, 2009).

According to Ammari et al. (2016), there is a significant effect of the board structure and corporate performance. Ammari et al. (2016) stated that board members are the backbone of any firm and it is necessary that they maintain effective communication with the leadership; CEO, CFO etc. in order to make sure the mission and vision of the business organisation is achieved and hence the overall financial objectives of the business are also achieved (Ammari et al., 2016). A large board size has a direct relationship with the performance of the business organisation, this is also stated by Ammari et al. (2016). In addition to this, their findings also revealed that big corporate houses need more board members in order to improve and enhance the decision-making process of the company and the operational process of the business as well. In this regard, it should be noted here that interaction among the board members and between the CEO and the board members will only positively affect the decision-making process, it will also provide the business with first mover advantage and hence the corporate performance an financial performance of the business improves.

It has been stated by Combs et al. (2007) that the board members should allow the CEO of a business organisation to work independently while maintaining a regular check on the CEO (Combs et al., 2007). In this regard, it can be analysed here that there should be a positive relationship between the CEO and the board members so that effective decision-making process can be maintained and the overall operational and the financial performance of the business improves. Combs et al. (2007) also argued that transparency is required between the board and the CEO so that individual objectives of the business can be set and aligned with the organisational objectives and hence the stock price or the financial performance improves of the business organisation.

Gabrielson & Huse (2007) explains that board members play a vital role in increasing the productivity of the employees. Gabrielson & Huse (2007) argued that over the period of time, the ability of the board to work as a team has been neglected that has negatively affected the corporate performance of the business organisation. In this regard, Gabrielson & Huse (2007) suggested that it is very necessary that board members including the chairman and the CEO should work as a team so that performance of the business organisation improves. CEO is accountable to the board and the board members are accountable to the shareholders. Board members usually exercise power over the CEO which some restricts him or her which ultimately affects the performance of the business. In this regard, Gabrielson & Huse (2007) concluded that board members and the CEO should not strive to work as a separate entity or independently, instead they should adopt a teamwork approach so that CEO remain protected from unnecessary constraints (Gabrielson & Huse, 2007).  It can be analysed here that the views of Zhang (2013) and the views of Gabrielson & Huse are similar on this point that board members should put their trust in the CEO in order to maintain quick decision-making process and to facilitate overall development of the business organisation.

In the views of ElSayed (2007), CEO and board members should work hand in hand in order to ensure the long-term sustainability of a business organisation. Elsayed (2007) conducted a study analysing the impact of CEO duality on the performance of the firm. CEO duality here refers to the scenario when the CEO acts a chairman of the board and fulfils his or her duties as the CEO of the firm too. Elsayed found out that this does not has any effect on the performance of the firm and one of the main reason behind this result was found to be the lack of expertise because only one person is managing both roles (Elsayed, 2007). In this regard, it can be analysed here that it is necessary that CEO and chairmanship role of the board remain separated and the corporate governance policies should be designed in such a way that the idea of CEO duality can be avoided.  Contrary to this idea, Elsayed (2007) supports the idea where the Chairman of the board and other members of the board work together with the CEO as it will have a positive impact of the performance of the business organisation. This is because the expertise of more than one person will be combined to achieve the organisational objectives. Here, it can also be analysed that interaction and transparency between the CEO and the board are necessary for improving the productivity of operations and for enhancing the decision-making process of the business.

According to Boyd, Haynes & Zona (2011), CEO and board effective relationship is necessary for the smooth functioning of a business organisation because it facilitates transparency and hence objectives of the board who represent the interest of the shareholders are aligned with the objectives of the business organisation and the CEO and other leadership members work accordingly. Boyd, Haynes & Zona (2011) conducted a research study on the topic dimensions of CEO-board relations where they strived to understand the complexities of corporate governance structures and also aimed at understanding the impact of different corporate governance on the performance of the firm.  In this regard, Boyd, Haynes & Zona (2011) evaluated that when the corporate governance structure is such where all the power lies in the hand of the board and they act as an obstacle instead of a facilitator for the CEO, this will have a negative or no effect on the performance of the organisation. On the other hand, when the board put trusts instead of obstacles in the way of the CEO of a firm, then the decision making process is enhances, sustainability of the business improves, operational process of the business quickens and hence long-term objectives of the business are achieved and at the same time, the idea of shareholders wealth maximisation is also aligned by the CEO in his or her decisions which makes the board satisfied. Here, it can be analysed that mutual understanding which is a by-product of frequent interaction, is necessary for the better performance of a business organisation (Boyd, Haynes & Zona, 2011).     

Zhu & Chen (2015) in their paper that focused on CEO narcissism and the impact of prior board experience on corporate strategy. presented a slightly different argument. In their article, Zhu & Chen (2015) suggested that it is not necessary it is always the board members who unnecessarily restrict the CEO from obtaining first mover advantage and hence improving the performance. Zhu & Chen (2015) stated that it is highly likely that CEO develops narcissist characteristics that may adversely affect the business organisation in the short and the long run as well. In these cases, chairman and other board members act as a controlling mechanism for the CEO and through their expertise they make sure that the CEO work according to the directives of the board and maintain long-term sustainability of the business (Zhu & Chen, 2015). It can be analysed here that in order to keep the CEO in check and to make sure that the business does not lose any competitive advantage due to the slow decision-making process, a frequent interaction of the board with the CEO is required. This will have a direct effect on the corporate performance of the business and ultimately the financial performance of the business will improve.

It has been explained by Schmidt (2015) that the level of social and friendly ties between the CEO and the board members or the chairman is proportionate to firms performance. Schmidt (2015) in his study on the topic costs and benefits of friendly boards during mergers and acquisitions, concluded that when the CEO has a friendly relation with the board members or with the chairman of the board, the performance of the firm improves. On the other hand, when the board members act as a control mechanism and they do not have social interaction with the CEO, the firm performance remains constant and it may a negative impact (Schmidt, 2015).  In this study, Schmidt (2015) analysed this hypothesis by using two variables which were the relationship of the board with the CEO and financial returns of the business over a specific period of time. Schmidt (2015) concluded that social friendliness of the CEO and the board members is necessary and the frequent interaction is a by-product of such meetings that ultimately enhance the performance of the business in the short run and hence the long run as well.

Khanna, Kim & Lu (2015) focused on a completely different aspect of the corporate governance structure. On one hand, Khanna, Kim & Lu agree that when the CEO is a member of the selection committee of the board, the corporate performance of the business improves but on the other hand, they also argue that when the CEO is connected with the board and other leadership members too well, the probability of corporate fraud also increases (Khanna, Kim & Lu, 2015).  They suggest that when there is a high level of interconnectedness among the CEO, board members, and other leadership members, the likelihood of detection of fraud reduces that may affect the long-term performance of the business. In this, regard, Khanna, Kim and Lu (2015) suggest that those people should be selected as the board members and especially board chairman who share a common past (example: childhood friends, family members, working together where they were previously employed ) with the CEO as it may have a severe adverse effect on the corporate performance and hence the financial performance of the business organisation. These views of Khanna, Kim & Lu (2015) have been rejected by Zattoni, Gnan & Huse (2015) as they argue that family involvement in the business helps in enhancing the financial performance of the business (Zattoni, Gnan, Huse, 2015). In addition to this, they also stated that family involvement in the business reduces the probability of conflicts between the leadership members and increases the transparency and facilitates coordination that ultimately affects the financial performance of the business in the long run.       

It has been opined by Tang, Crossan & Rowe (2011) that CEO's have often gone to extreme levels to attain the objectives of the business and in such cases, the business either enjoys maximum profit or hefty losses. In this regard, CEO's are considered to be risk takers and they do not like to be overpowered by other members on the leadership and executive team of the company (Tang, Crossan & Rowe, 2011). Tang, Crossan & Rowe (2011) argued that board acts a speed breaker for a dominant CEO who would go to extreme level to attain  the objectives of the firm as the board is responsible and accountable for the shareholder's wealth and hence, the board cannot afford to let CEO bid as he or she wants, which could lead to poor performance of the company which would mean low returns for the business. In this context, Tang, Crossan & Rowe (2011) suggested that it is necessary that the board and the CEO reconcile with each other which is possible via frequent interaction with each other in order to ensure the safety of shareholders wealth and at the same time figuring out a midway for the CEO to take risk that is aligned with business objectives.

The literature of Erhardt, Werbel, & Shrader  (2003) has attracted the attention towards a pivotal point in regard of assessing the relationship between the CEO and other board members for better corporate performance and that is an inclusion of demographic diversity. The literature of Erhardt, Werbel and Shrader  (2003) is vocal about achieving the ultimate aim of enhancing the profitability of the organisation by focusing on building an effective board of members with varying cultural backgrounds. In this relation, even the position of CEO is considered for exploring the efficacy with which people from different cultural backgrounds are able to handle the responsibilities of the company’s topmost executive (Erhardt, Werbel and Shrader, 2003). With this thought, the authors have focused on examining any variation of relationship that prevails among gender-based or race-based criteria undertaken for composing the board of the organisation. Therefore, workforce diversity is extended to the top roles as well keeping the objective of aspiring for an effective group performance with diverse ideas and work mannerisms in an organisation (Erhardt, Werbel and Shrader, 2003).

According to Erhardt, Werbel, and Shrader  (2003), the scope for a positive association between the CEO and board members is further enriched by involving expansion of knowledge base and awareness for innovative ideas coming from people with different set of experiences and expertise. Although the study could not establish a substantial relationship between cultural heterogeneity of board members and group performance which has also served as a major study limitation since, group performance is directly associated with overall organisational growth yet, the authors have successfully inferred that enhance level of integrated communication measures might serve as the ideal tool to extend effectiveness in the diverse groups and at the same time enable the management to measure the group performance (Erhardt, Werbel and Shrader, 2003).

On the contrary, several researchers have criticised inculcation of diversity at such exclusive major roles being undertaken by the company seniors. Their validation for a homogenous composition of firm’s board members is inspired from the fact that heterogeneity of ideas often slows down the decision-making process and it also gives rise to chances of internal mismanagement and clash of ideologies as it becomes challenging to make everyone agree to a particular plan being invested into for the organisational interest (Erhardt, Werbel and Shrader, 2003). Additionally, the team performance is repeatedly checked following discourse of ideas and knowledge which is highly time-consuming and can even lead to one of the primary projects being slipped from the hands of executives. Another opposing point which has surfaced from the involvement of diversity in the top job roles of the firm is of increased cost which is required to be invested in terms of incentives and for creating a belief for undertaking a coordinated team effort which will prove advantageous to the firm (Erhardt, Werbel and Shrader, 2003). In the views of Erhardt, Werbel and Shrader, 2003, embedding the most critical characteristics namely, idiosyncratic and quality decision making and innovative processes are highly essential even at the executive level of an organisation because board functioning is a construct acting as a chief determinant of organisational profitability. The inherent feature of performing strategic decision making is not only structurally positioned with their job roles but also allow them to represent the organisational effectiveness to their shareholders and to the entire business world (Erhardt, Werbel and Shrader, 2003).

In regard of throwing light upon the consequences which can result from social level of interaction which exists between CEO and board members, Westphal (2002) has explored the assumption of maintaining an uncorrelated status between organisation’s management team and the executive board to avoid the chances of discord affecting the organisational growth. The author has progressed with this study by holding the idea of advancing the interaction level between company’s executives and outside directors (Westphal, 2002). In respect of increasing the pace of organisational effectiveness, dynamics of the relationship between company’s management role-players and executives is essential to be pondered over. Westphal (2000) has therefore, sought the attention of other researchers from the study filed towards providing the board members to take decisions independently without any interference from the people essaying the top managerial positions in the organisation. The literature has also illustrated the interest shown by stakeholders of the company in getting involved with the process of business running and decision making in the organisational interest and this interest of stakeholders is highly justified as well (Westphal, 2000).

The firm administration is collectively influenced by several factors amongst which social ties and bond between board members and CEO are also important. These factors give rise to attributes of trust and dependency which is channelled from social obligations which come across the major reason obstructing the decision making the power of board members as illustrated in the literature of Westphal (2002). The author has comprehensively explored the ways which contribute towards the encouragement of interaction between CEO and board members through the means of developing a theoretical framework. In this study, a significant finding states the crucial role of efficacious board members in the organisation to influence corporate strategic planning in the interest of company’s advantageous position and also perform the important function of monitoring the management essentials to communicate the same to company’s stakeholders (Westphal, 2002). These functions of board members also help the company achieve recognition in the eyes of stakeholders by letting them know that they have invested their money and faith at the right place. The study of Westphal (2002), has successfully reflected the importance of CEO-board interaction with the help of empirical support to define the need to introduce management incentives for driving the business and linking it to a corporate strategy which has been agreed to; by the CEO and the board members (Westphal, 2002). The main reason as inferred from the overall study to avoid the consequences resulting from behavioural ties and social interactions between company management and board members is to save and strengthen the collaboration between board and CEO for enhancing firm performance.

In the literature of Hillman and Dalziel (2003), views of agency theorists and dependence theorists have been argued upon whereby the latter is focused on resource allocation function while the former has given more importance to the function of monitoring being carried by the board members. The authors have attempted at amalgamating these two theories to make them functional in the contemporary business scenario conjoining he dual roles played by board members in an organisation (Hillman and Dalziel, 2003). There is no valid base to project one role over the other since, by monitoring the work status of employees, board members are acting as representatives of the company stakeholders who are here to ensure that they are assured good returns (Hillman and Dalziel, 2003). By doing so, the board members are also being aware of the knowledge regarding the proper use of company’s capital and investments.  The study has highlighted board incentives as the most necessary antecedent which fuels the monitoring function carried out by them while; equity compensation is at the second place. In respect of firm performance, it is the efficacy of the board members towards provisioning the resources helps the organisation from facing the situations of asking for capital from external sources and also ensures organisation’s sustenance in the long run (Hillman and Dalziel, 2003).

In regard of examining the ways in which board capital contributes to firm performance, Hillman and Dalziel (2003), an important point of keeping the board members informed of the requisites in terms of resources has been identified. This point also benefits the organisation in terms of lowering down the transaction costs and saving the organisation from the situations of unforeseen contingencies which have high-cost implications. The authors have also mentioned that dependence of board members on the CEO acts as a disincentive and are required to be independent of firm management (Hillman and Dalziel (2003).

Conclusion

It is concluded that from the above discussion that through continuous interactions and productive communications between CEO and board members, positive work environment develops in corporate organisation which is helpful for enhancing the goodwill and effectiveness of the firms and also favourable for the attainment of the goals and objectives of different corporate organisations. Furthermore, it is concluded that a high degree of trust, transparency and clarity s required for developing positive and effective interactions between CEO and board members so that appropriate strategies, policies and procedures are formulated essential for growth of corporate firms. Efficient and optimistic interaction through the way of conferences and meetings results in effective and strategic decisions helpful for carry out the different functions and tasks and also frames systematic organisational structures where the roles and responsibilities of each and every employee of the organisation are clearly defined and delegated. From the above discussion, it has been summarised that both CEO and board members are equally accountable for the success of corporate firms, therefore open interactions, flexible communications, similar attitudes, common perspectives and productive meetings are the basic need for board members and CEO in order to execute their responsibilities efficiently. Through the literature review section, six different case studies in relation to the research topic have been included and with the help of these different scenarios the significance and relevance of positive interactions and strong relationships between CEO and board members on firm’s performance and subsequently on the performance of the stocks has been assessed. Through first article, it has been summarised that it is necessary for board members and CEO of every organisation to arrange formal or informal meetings, to communicate and interact regularly and such interactions should be open minded and meaningful thereby results in efficient strategy formulation. Further second article summarised that the involvement, interactions and engagement of both CEO and board members is necessary as the absence of any one of them reduces the firm’s performance. Through third and fourth article, it has been summarised that the implementation strategic decisions and important plans impacting the performance of firm positively are possible through good relationships, similar attitudes and consistent interactions between CEO and board members.  Lastly, fifth and sixth article concluded that effective interactions between CEO and board members helps in framing strategic decision, dividend announcement, reduction in debt ratios thereby enhances firm’s performance and thus results in higher stock prices and vice versa. Although, a lot of information collected and included in this essay in relation to the research topic, but certain gaps being identified are that it would be better if other theories in addition to good management theory of corporate performance are included reflecting the importance of CEO –Board relationships and interactions. Additionally, factors helpful for encouraging and developing the positive relationships and interactions would have been included. In all, it has been concluded that positive interaction between CEO and board members develops positive work culture that results in better performance of firm and subsequent rise in the price of firm’s stocks.

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