Ra. Johnson et al., BOARD OF DIRECTOR INVOLVEMENT IN RESTRUCTURING - THE EFFECTS OF BOARDVERSUS MANAGERIAL CONTROLS AND CHARACTERISTICS, Strategic management journal, 14, 1993, pp. 33-50
Board of director involvement in restructuring reveals whether restruc
turing is brought on as an action by the board in its central oversigh
t role or whether managers are purusing positive strategic action or c
orrection. Therefore, based on an integration of organization economic
s (agency theory and market for corporate control) and strategic manag
ement theory (internal control and strategic leadership contingencies)
, this research examines board involvement in restructuring. Board inv
olvement is hypothesized to be contingent on the governance mechanisms
used by the board to monitor top management, control emphasis used by
managers to process strategic information and board and managerial ch
aracteristics. The basic premise of the paper is that, due to their ov
ersight role, board members (especially outside directors) become invo
lved in restructuring only when managerial strategy implementation app
ears to be deficient. Top management team equity stakes are found to b
e negatively related to board involvement in restructuring, while outs
ide director ownership is found to be positively related. Emphasis on
strategic controls by managers was found to be negatively related to b
oard involvement in restructuring. Top management team tenure and top
management organizational tenure are negatively related to board invol
vement. Outsider representation on the board is positively related to
board involvement in restructuring, while board tenure was found to be
unrelated. Results imply that incentives to monitor (ownership) and e
mphasis on strategic controls reinforced by higher top mangement team
tenure result in less board involvement in restructuring. However, res
tructuring may be initiated by outsiders on the board when other gover
nance and control mechanisms fail. This implies a substitution process
between governance tactics (ownership vs. board monitoring) and inter
nal controls (managerial vigilance).